Long Term Care can be an expensive proposition that too few people are prepared for or understand.  Unfortunately most people don’t think about how they will pay for care until they are confronted by a serious health situation for themselves or a loved one.  The worst time to start planning for Long Term Care is in the midst of a crisis because the options to pay for care can be complicated and take some time to access.

Also, the costs of Long Term Care are expensive and rising every year.

• Full time Home Care can run $5,000-$10,000 every month.
• Residing in an Assisted Living community can cost $3,500-$5,000 every month.
• Nursing Home care costs around $7,000 every month.

The three primary ways to pay for care are with Medicare, Medicaid, or Private Pay through insurance, savings or assets.

1. Medicare is an “age based” program will cover the first 100 days of rehabilitation care in a licensed skilled nursing facility upon direct discharge from a hospital.
2. Medicaid is a “means based” program which means to qualify an applicant must meet both standards of medical necessity and be below set asset and income levels which in essence requires that the individual is below the poverty line.  Applying for Medicaid can be a challenging process that requires the applicant to submit detailed medical and financial records.  Medicaid will “look back” five years at financial records to make sure that assets have not been hidden or transferred to family members below their true market value.
3. Private Pay primarily comes from an individual and/or a family’s savings, assets, and income.  It can also come from insurance in the form of long term care insurance or the conversion of a life insurance policy into a Long Term Care Benefit Plan.  People that are private pay can choose any form and location of care that they want.

Independent and Assisted Living, as well as most forms of Home Care are private pay only.  Nursing homes are primarily covered by Medicaid for people who can qualify.  Skilled Rehabilitation and Hospice are primarily covered by Medicare.

It is becoming more competitive to get access to the best long term care providers as 10,000 Baby Boomers have started turning 65 every day.  Statistics show that 70% or more of people over the age of 65 will require long term care services.  Today there are 10,000,000 people receiving long term care in the United States.  People with the ability to afford private pay care are typically given preferential access to the best care providers and locations; while those on Medicare and Medicaid are given little choice as to where they can go and will share a room with another person.

Tremendous pressure is being placed on tax-payers to cover Medicare and Medicaid budgets because the demand for long term care services is growing rapidly at the same time costs are rising every year.  Courts and the government are doing more to push financial responsibility to cover their own care back on families.  For example, the requirements to qualify for Medicare and Medicaid funded long term care services continue to become more stringent; states have the right to pursue families in probate court to recover funds spent by Medicaid if they discover that assets were in fact available; and filial responsibility laws in the states will hold extended family members legally responsible to cover unpaid long term care bills.

Families need to do all they can today to prepare to fund long term care and protect themselves from both the financial costs and the possibilities of legal liabilities.  There are actions that people can start taking today to prepare themselves for future costs, and there are long term care funding tools that people can use to address immediate need for care as well.

What are some of today’s options for private pay funding of long term care?

Veteran’s Aide & Attendance Benefit—Veterans of active combat duty and/or their spouses are eligible to receive upwards of $2,000 per month paid directly towards qualifying long term care service.  Like Medicaid the applicant must meet both medical necessity and income/asset level requirements.

Reverse Mortgage—Homeowners with little to no remaining mortgage balance that are age 62 or older can qualify to take a HUD backed loan against the home.  To qualify the home must still be the primary residence and the loan must be paid back with interest and fees after the homeowner dies (typically through the sale of the property).

SPIA—Single premium immediate lifetime annuities will pay out an income benefit for life based on the amount of the one-time premium paid in to purchase the annuity contract from a life insurance company.  Certain annuities can be purchased that are considered “Medicaid Qualified” contracts.

Senior Living Loans—Loans that can be secured specifically to pay for long term care services.  These loans are unsecured by collateral and instead are guaranteed by family members (one or more).  Interest rates are similar to a credit card.  The loan makes payments directly to approved long term care service providers and are often used as a short term bridge while waiting for a home to sell or VA Benefit approval.

Long Term Care Insurance—Insurance policies that will provide a fixed monthly payment to cover approved forms of qualifying long term care.  Long Term Care insurance needs to be purchased while people are young and healthy to get affordable premium rates and/or to qualify.  Newer “hybrid” or “combination” policies have emerged in the market that combine life insurance and long term care benefits in the future.

Long Term Care Benefit Plan–A Long Term Care Benefit Plan is the conversion of an in-force life insurance policy into a pre-funded, irrevocable Benefit Account that is professionally administered with payments made monthly on behalf of the individual receiving care.  This option extends the time a person would remain private pay and delays their entry onto Medicaid.  It is a unique financial option for seniors because all health conditions are accepted, and there are no wait periods, no care limitations, no costs to apply, no requirement to be terminally ill, and there are no premium payments. Policy owners use their legal right to convert an in-force life insurance policy to enroll in the benefit plan, and are able to immediately direct tax-exempt payments to cover their senior housing and long term care costs.

The key to successfully navigating any long term care situation is to understand the financial options that are available to cover the best and most desired form of care.  You need to know the differences between what will be covered by Medicare, Medicaid or Private Pay.  You need to know how to qualify for Medicare and Medicaid coverage, and not make the mistake of assuming eligibility is automatic.  Private Pay will give you the ability to choose any form of care you want—but this means you have savings, assets, insurance and/or are a veteran.  Planning and informing yourself as far in advance as possible is best, but there are a number of funding options available (public and private) that can help people address a sudden and immediate need for care.