After the arduous decision-making process of picking out a long-term care option, next comes the question, “How will we pay for this?” Each care option has its own set of rules on what payments are accepted or not accepted, and it can be confusing navigating the options. We want to make the process easier for you and your loved one. We will discuss the various payment options that are accepted for elder care, and we will break it down for nursing homes, assisted living facilities, and in-home care. Here are some common forms of payments that are used to pay for long-term care:
- Reverse Mortgage
- Home Equity
- Long Term Care Insurance
How to Pay for Nursing Homes
Nursing home facilities give a high level of attention and supervision to its residents, even more so than any other long-term care facility including assisted living. Residents can receive personal care, supervision, prescription therapies, rehab, room and board, and skilled nursing care. Due to the high level of care offered, it is no surprise that this type of facility is the most expensive, sometimes costing hundreds of dollars a day.
These long-term care expenses can put a real strain on a family’s finances. About half of nursing home residents use cash, employer health plans, VA benefits, long-term care insurance, and pension to cover the costs. Alternatives include Medicare and Medicaid, government funding programs that have strict limitations on who can qualify, how long payments will continue, and which facilities are eligible for the program.
Also, the cost of care averages for nursing home care vary wildly from state to state. For example, in a private room in Alaska, the cost of nursing home care is $23,451 a month, while a similar facility in Louisiana costs $5,171. And keep in mind the average stay at this type of facility is about 835 days. Now that we have an idea of how much a nursing home might cost you, let’s explore some payment options.
Cash: A lot of people use private funds and cash out-of-pocket when they first move into a facility. This may be because Medicaid requires that you have used up all of your assets and personal funds before you can qualify for their federal payment program.
The more fortunate among us can opt to pay all from their funds. For such an expenditure, it is said that you would need at least a few hundred thousand dollars. This could come from pension plans, Social Security, or investments. One advantage of paying out-of-pocket is that you can negotiate a private pay rate. This is especially likely when a nursing home does not have a waiting list and they want to fill beds.
Reverse Mortgage: Another payment option is getting a reverse mortgage on your home. This would enable the homeowner to take from the equity accrued on the home while deferring the loan payments until the last homeowner has either moved out or dies. For this option to work, one spouse would have to continue to live in the home while the other is in nursing care. This option is a good way to leverage your home equity, but the amount of money you qualify for will depend on your age and the value of your home.
Home Equity: This type of loan can be used to borrow money against the value of the home as collateral. Usually, a home equity loan is used to pay for a major expense such as home repairs or medical bills, but can also be used for nursing home expenses. Unlike a reverse mortgage, the equity received is not completely free. The loan must be paid back, with interest.
Long-Term Care Insurance: Long-term care (LTC) insurance generally covers care not covered by health insurance. LTC will cover long-term services and support, including personal and custodial care. Having a long-term care insurance policy will give you some peace of mind. This type of policy will pay a specific amount for long-term care for a stated length of time. This allows you to keep your assets, and the specified expenses will be taken care of.
VA: Run by the Department of Veterans Affairs (VA), the U.S. veterans network has many benefits for those who’ve served their country. Like Social Security, veterans’ benefits are dependable and will be paid to you by the Department of Treasury. Some estimates for amounts a veteran may be paid can be up to $1,794 a month, $1,153 a month to the surviving spouse, or $2,127 a month for a couple. A new type of agreement for veterans has been created through the VA Mission Act of 2018, called Veterans Care Agreements. These are agreements in which the VA works together with community providers not in the community care network to provide care to Veterans. This ensures the veterans will get the care they need when the facility is not in the normal network.
Medicare: Medicare is a federal government program that pays for hospital care and medical insurance to people 65 and over. It can also include specific ill or disabled people. About 40% of Medicare and Medicaid subscribers seek out nursing homes. However, Medicare doesn’t cover the room and board in a nursing home if the stay is long-term. Typically Medicare assistance is utilized when the nursing home stay requires short-term rehab after an inpatient hospital visit. Medicare covers 100 days of care in a skilled nursing facility, if at least 3 days were spent in the hospital. However only during the first 20 days will they pay for 100% of the care. The remaining days will require a co-payment, which could be about $167.50 a day.
Medicare Part A is insurance for a hospital visit, while Medicare Part B is an optional supplementary medical insurance that costs a small monthly premium. There are also Medicare Part C Plans, known as Medicare Advantage Plans. These plans provide skilled nursing care coverage, though costs and benefits can vary. Additionally, there are Medicare supplement plans, called Medigap policies. They also help pay for skilled nursing care, but the care must be covered under the original Medicare plan.
Medicaid: Another federal government funding program is Medicaid, the most common way people pay for nursing home costs. This program helps pay for select health services as well as nursing home care for those with low income. Medicaid works with privately-owned nursing home care facilities and then helps eligible residents pay for the costs. The program can pay anywhere from 45 to 65% of nursing home costs. However, Medicaid has strict eligibility requirements that consider the age, place of residence, and marital status among other things. To be eligible, your assets and income will be assessed to see if you fall below the line. As a general rule, a person’s assets have to be nearly gone to qualify. Additionally, they cannot receive more than around $2,250 a month in income. The requirements are different in each state.
When you are first admitted to the nursing home, you may be required to pay out-of-pocket. Many people liquidate their assets before qualifying for the program. As Medicaid assesses your eligibility, they have complicated guidelines as to what qualifies as an asset. The person’s home is exempt from the assessment, as well as some marital assets. Here are a few things Medicaid will be reviewed to determine your financial eligibility:
- Social Security
- Investment dividends
- Savings interest
- Half of working spouse’s income
How to Pay for Assisted Living
An alternative to nursing home care is assisted living. An assisted living facility provides personal and medical assistance to residents, who can still maintain their independence. Personal care and skilled nursing services are available. Some care centers have a memory care facility for those with Alzheimer’s disease and other forms of dementia. Often this kind of facility provides a lower level of care than a nursing home. However, living in an assisted living home can still be pricey. The average annual cost is about $48,000. And in recent years, the cost of assisted living residency has increased up to $1,321 annually.
Cash: Most residents and their families pay for this type of facility out-of-pocket. They use retirement accounts, personal savings, pensions, annuities, veteran’s benefits, and Social Security payments. However, $4,000 a month may be a bit more than most people can afford.
Reverse Mortgage: A reverse mortgage may not be the best option for a person who is living in an assisted living facility. This is due to the fact if the owner lives out of the home for 12 months, the home may be sold. Of course, if a spouse is still living in the home, it is still a viable option. Otherwise, selling or renting the home would be better for an assisted living facility resident.
Home Equity: Getting a home equity line of credit (HELOC) to pay for care may not be a good option for single individuals and married couples that are in good health. However, those that have immediate care needs may want to get a HELOC since there is not a requirement that they remain in the home, as in a reverse mortgage. Having a HELOC allows some flexibility when there is a sudden increase in care expenses, as well as the flexibility to come back home if care needs allow. It is helpful to think about the level of care as well as the duration the care will be required.
Long-Term Care Insurance: LTC policies will pay for most assisted living facilities, as long as they are accredited. Your policy can pay for 100% of your costs, but this will be one of the more expensive insurance plans. A good rule of thumb for picking out a long term care policy is that your premium shouldn’t exceed 5% of your monthly income.
You can receive anywhere from $2,000 to $10,000 on average through your insurance program. You can easily compare this to the average assisted living expenses at $4,000 to see that this type of insurance can be quite helpful.
Though these facilities do accept these insurance payouts, sometimes the insurance company may not approve of the facility. Reasons the facility doesn’t meet the insurance company’s standards could be anything from small size to not having enough staffing. Therefore, it is wise to make sure your policy will be good for the care home you reside at.
VA: The VA does some assisted living costs for veterans and their spouses. This is through the Non-Service Connected Improved Pension Benefit with Aid and Attendance program. It is required that the veteran had served active duty for at least 90 days and at least one day in wartime.
Medicare: Though Medicare doesn’t pay for room and board at an assisted living facility, they may pay for medical expenses. This is also true for any medical services received in a hospital, doctor’s office, or home setting.
Medicaid: Coverage for Medicaid varies from state to state. For instance, some states will only pay for personal care, while on the other hand others will also pay for room and board. Some states do not assist, but here is a list of most of the expenses that usually can be covered by most states:
- Personal care services
- Housekeeping services
- Meal preparation
- Case management
- Personal emergency response systems
Even with Medicaid services, some assisted living residents still have trouble covering the remaining costs. Some states may help these residents by placing limits on the amount the facilities can charge. If the resident still has an issue paying, there are other non-Medicaid programs like Supplemental Security Income that can assist.
How to Pay for Home Care
Home care is becoming a more popular option as other long-term care choices rise in price. This option can be more affordable, plus you will have the ability to stay in the comfort of your own home. One disadvantage is that there are usually substantial out-of-pocket costs that may not be reimbursed.
Cash: Many home care clients pay by way of their assets, savings, or investments. Family members may also pitch in to cover costs. They may liquidate assets like vacation homes, boats, land, or vehicles. Unfortunately, most of us do not have this option.
Reverse Mortgage: A good option to pay for home care would be a reverse mortgage if the individual does not need immediate care. This will allow them to live independently in their home for years to come until their health needs to take a turn. The proceeds from the reverse mortgage can then be used for long-term care insurance.
Home Equity: Home equity loans are also an option you could use to pay for long-term care services. However, single individuals and married couples in good health might want to use it as a last option since their care needs are undetermined at that moment. Not knowing the extent of how much future medical care you will need leaves a big question mark for how much equity to take out. In which case, a reverse mortgage might be a better option for healthier elderly individuals receiving their care at home.
Long-Term Care Insurance: It is important to be aware that some LTC policies will not pay for in-home care. In this case, it might be a good idea to convert the life insurance policy to cash to help pay for care.
VA: It is possible for veterans and their surviving spouses who require personal care services may qualify for an Aid and Attendance (A&A) benefit, along with their monthly pension. This is available to those veterans who served at least 90 days of active duty or at least one day of active duty during wartime. It also includes those discharged from service under dishonorable conditions.
Medicare: Some services covered by Medicare for in-home care include intermittent skilled nursing care, therapy, and home health caregiver assistance. Home health care may be covered by Part A or Part B, depending on the circumstances. Here are some instances in which you would be covered:
- You are homebound
- You need skilled nursing services and/or skilled therapy care intermittently
- You have a doctor’s visit 90 days before you start a home health care
- You have a doctor’s vision 30 days after the first day you receive care
- Your doctor presents you with a home health certification stating that you are homebound
- You receive care from a Medicare-certified home health agency (HHA)
Medicaid: Medicaid and Medicare offer Programs of All-Inclusive Care for the Elderly (PACE) to seniors who need assistance through in-home care. PACE provides medical and social services to eligible individuals who wish to remain in the community rather than reside in a nursing home. Financing for the program is capped, allowing these providers to attend to what the individuals need, instead of limiting them to reimbursements through fee-for-service plans. PACE is offered through Medicare but is only available through Medicaid as a state-by-state option. This program is great for those with a limited income and few assets, and wish to stay at home.
Preparing for the Future
Your eyes may be crossing with the dizzying array of numbers and options we’ve thrown at you. As you can see, each type of facility has many payment options available to you. Whatever option you end up choosing, knowing ahead of time what your choices are will help you prepare for the future. Establishing a plan ahead of time will give you some peace of mind and could save you money in the long run. Out of all the pay and care options out there, we here at CareAsOne hope you find the one most financially sound for your own needs.