How to Pay for Assisted Living
One of the biggest questions families of seniors often face is how to finance senior living. There’s no doubt about it, the cost of senior living can be substantial, so it’s important to proactively consider strategies to plan for and manage these costs.
Paying for senior living or specialized assisted living may take a combination of financial strategies, and some may require advanced planning.
How Much Does Assisted Living Cost?
This is the first logical question families ask when it comes to financing senior living. In truth, it’s difficult to come up with a specific cost of long-term senior care. There are a large number of variables, including geographic location, the specific type of care needed, as well as the quality of care and assisted living community.
But if you’re looking for a very general ballpark as a starting point, LongTermCare.gov provides national averages. But you should assume that rates will be greater in the higher cost coastal metropolitan areas, and higher still at residences that offer higher quality facilities and care.
Is Long-term Care Insurance Worth Having?
Long-term care insurance is a frequently discussed strategy for financing senior living. It’s better to have it if you can afford it, but it’s not a perfect solution. Here are some of the common parameters of long-term care insurance:
- Cost – this increases with age. For example, the same policy that has a premium of $2,000 per year at age 55 can double to $4,000 by 60. It will continue getting higher as you get older.
- Benefit amount – you can choose this based on how much you want to pay for the policy. For example, you can choose a daily benefit of $150, or $200. Naturally, the premium will be higher with a higher daily benefit.
- Benefit term – most policies will limit how long they will pay benefits. This will typically be three years to five years, and again, you’ll pay a higher premium for the longer term.
- Inflation protection – the policy benefits you take today will probably be insufficient in 15 years. You’ll have to have an inflation protection provision built into the policy.
Due to the cost, long-term care insurance makes the most sense for high-income individuals, who also have a high expectation of needing long-term care. But considering that both the benefit amount and term is limited, you’ll also need to have complementary strategies for financing senior living.
How Can Our Loved One’s Home be Used to Pay for Care?
The most common option is often to sell a senior’s current home as they transition to a senior living community. Using the proceeds of that home sale often makes a lot of sense to pay for long-term care.
However, there can be circumstances that make this more difficult. If a spouse or dependent will remain in the home, it might make more sense to consider refinancing to access the equity in the home.
There are two ways to do this. The first is to take out a new first mortgage taking out as much equity as possible or take either a second mortgage or a home equity line of credit (HELOC). Either financing option will require that there is sufficient income for the occupying spouse or dependent to make the monthly payment.
The other option is a reverse mortgage. This is a loan in which you receive funds from the loan, but are not required to make monthly payments. You must be at least 62 years old to qualify and have substantial equity in the home. However, there are no credit or income requirements. Equity can be taken out either in a lump sum, in monthly payments, or as a credit line you can access at any time.
The loan becomes due and payable when the owner either passes away, sells the property, or otherwise vacates it. There are upfront fees involved in this type of mortgage, just as there are with any type of mortgage. When the loan is finally repaid, the lender will receive both principal and accumulated interest from the proceeds of the sale.
Another very important provision is that you can’t take a reverse mortgage and move to either assisted living or a nursing home for at least one year. It’s the kind of strategy that will require a certain amount of advanced planning.
Does Medicare Pay for Assisted Living?
It’s commonly believed Medicare will cover the cost of long-term care, but that’s not actually true. Medicare will only cover costs related to rehabilitation. For example, they may cover a stay at a nursing care facility following a major surgery.
Even that has limitations. For example, they’ll only cover a stay of up to 100 days. After that, you’ll have to pay the entire cost and they don’t cover assisted living or nursing home arrangements. They cover only medical treatment, not what’s considered to be ongoing custodial care – assisted living.
Does Medicaid Pay for Assisted Living?
It can. You must have limited financial ability to qualify for Medicaid, including low income . Your assets are limited to the following:
- Personal belongings
- One vehicle
- Life insurance with a face value under $1,500
- Your home, provided that it’s occupied by your spouse or child, and has an equity value less than $500,000 (though Individual states can increase this to $750,000)
If you believe Medicaid may be required, you must consult an elder law attorney to make sure your loved one’s financial affairs are eligible. For example, there are strict limits on the transfer of assets from a senior to their beneficiaries. Also, while Medicaid is a federal program, it’s administered by each of the states. You’ll have to check with your state agency for specific rules.
If you qualify for Medicaid, the program will pay for long-term care either at home or in a senior care facility. That can include assisted living or a nursing home. In either case, you need to meet functional eligibility requirements, which generally means a nursing home level of care. The state will assess the need for help with activities of daily living, such as dressing, bathing, toileting, and the ability to take medications.
Medicaid also requires that you contribute whatever income you have, such as Social Security, toward the cost of long-term care. You’re allowed to keep a certain amount of income for personal needs, such as uncovered medical expenses, but the rest will go toward long-term care.
Be aware that not all care facilities accept Medicaid patients. But it is a potential funding source, and in fact is the largest single contributing source to long-term care.
Final Thoughts on Paying for Assisted Living
If you believe your loved one will need to transition to senior living, it’s always best to consult with an elder law attorney. The attorney will be able to inform you of the options that are available in your state, specifically related to any government programs, like Medicaid.
It’s never too early to take this step either. Preparing finances for a transition to long-term care can often take several years to accomplish. You may want to begin moving in that direction as quickly as possible to ensure the best outcome for your loved one.