If you became disabled and needed long-term care, how would you pay for it?
This is not a trivial question. The U.S. Department of Health and Human Services estimates that about half of Americans turning 65 today will need some form of long-term care (LTC).1 Many people underestimate what it will cost and mistakenly believe that Medicare will cover it.
What is long-term care?
People need LTC when an illness or an accident limits their ability to carry out activities of daily living such as bathing, eating or dressing. The costs for these services can be hefty. According to the Genworth 2016 Cost of Care Study, the median annual cost of in-home care is $46,332, while the annual cost for a semi-private room in a nursing home is $82,125.2
If you or a family member come face-to-face with these costs, it’s critical to have a clear understanding of your coverage options and a solid plan in place.
Medicare and Medicaid: government healthcare programs.
Medicare and Medicaid are government-sponsored programs that help Americans over age 65 pay for healthcare costs. With similar-sounding names, it’s easy to get confused about coverage limitations and eligibility. This is particularly true when it comes to LTC benefits.
Medicare is a federal program available to everyone over age 65. It’s designed to help cover medical expenses but not LTC expenses. Medicare will cover up to 100 days of care in a skilled nursing facility after you’ve spent at least three days in a hospital. Those 100 days are considered “rehabilitative care,” though, not LTC.
Medicaid is a joint federal and state program. It helps people with low income and few assets pay for medical expenses and LTC costs. It’s considered a safety net for those who can’t pay for the services they need and who don’t have family caregivers to help. Eligibility and covered services are set by the federal government, but states’ rules play a big role, too. Because of this, Medicaid can get complicated.
Generally, to qualify for Medicaid, you must be age 65 or older and have a permanent disability (as defined by the Social Security Administration). The amount of assets you can have varies by state; in most states, a person must have less than $2,000 in “countable” assets. These countable assets include bank accounts, retirement accounts and investments, but not a primary residence, personal property or one motor vehicle.
Some states offer another eligibility track called “medically needy.” Say you have too many countable assets to meet the financial eligibility rules. You can still qualify for Medicaid if you spend down your assets on medical expenses, such as prescription drugs and doctor’s visits. If, after subtracting these costs, your remaining income is no longer over your state’s income limit, you qualify as medically needy.
Some people try to reach the income and countable assets limits by gifting their remaining money to others. But this is not always successful. Any money given away within five years of applying for Medicaid can delay your eligibility. Also, keep in mind that many disabilities last from a few months to a few years. You may give your money away to qualify for Medicaid and then recover. In that case, you may have to rely on others for future financial support.
Plan ahead to avoid surprises.
LTC situations can be physically, emotionally and financially stressful for everyone involved. While it may be uncomfortable to talk about LTC issues, having a plan in place can make it easier. Here are a few things to consider:
- Care options—Where and how would you want care provided? This can include in-home, assisted living or a skilled nursing facility.
- Costs—LTC costs vary quite a bit across the country. Be sure to understand what you can expect to pay in your area. And LTC costs can rise over time, so factor this into your calculations.
- Payment options—You could self-insure, buy long-term care insurance or explore other options.
- Family support—Set roles and responsibilities among family members. Make sure everyone is on board with your wishes.
- Write it down—Put your LTC plan in writing to help avoid misunderstandings.
LTC planning, like other types of financial and healthcare planning, can get complicated. Consult with knowledgeable professionals, including financial advisors and attorneys, for the latest information about options and laws in your state. Review your options and put a plan in place now. It can help prevent stress for yourself and your loved ones in the future.
1 (2016, February). Favreault, M., & Dey, J. Long-Term Services and Supports for Older Americans: Risks and Financing Research Brief. Department of Health and Human Services. Retrieved April 28, 2017, from https://aspe.hhs.gov/basic-report/long-term-services-and-supports-older-americans-risks-and-financing-research-brief
2 (2016, April). Genworth Cost of Care Survey. Genworth.com. Retrieved April 28, 2017, from https://www.genworth.com/about-us/industry-expertise/cost-of-care.html