By Brian Tribbitt, MBA
Unfortunately, many people reach a certain point in their lives when they can no longer take care of themselves. For those who have prepared for this stage of life, long-term care facilities are an attainable option. However, the accompanying expenses may seem daunting for those who have not considered this possibility. Luckily, a few different options worth checking out can help pay for long-term care.
The first option to consider when paying for long-term care is publicly funded government programs designed to assist with this specific need. The most popular implementation of this type of assistance is Medicaid.
An individual can apply for medical assistance through Medicaid and receive full or partial monetary aid. To receive this benefit, an individual must qualify for eligibility. Non-financial eligibility requires legitimate medical need, U.S. citizenship and a Social Security number. Financial eligibility is determined based on income and resources.
The Program of All-Inclusive Care for the Elderly (PACE) is a Medicaid program that assists in paying for long-term care. The long-term care portion of the PACE benefit extends both medical and nonmedical care services to people who can no longer live on their own.
These services can be rendered at home, in the community, in assisted living facilities or in nursing homes. For those currently enrolled in Medicaid, there is no additional premium to receive these benefits. Without Medicaid enrollment, the beneficiary can pay for PACE privately.
There are also a few assistance options for veterans through the U.S. Department of Veterans Affairs (VA), but you can only qualify if you’re enrolled in VA health care, have a specific need, and are in relative proximity of the proposed service.
Private Financing Options
The other option when paying for long-term care would be private financing. Those who do not qualify for the government-funded programs will likely utilize this alternative. Luckily, there are still a few options to choose from when privately financing long-term care.
The most straightforward way to pay for long-term care is to save early and fund it yourself. While this may not be a feasible option for everyone, by saving diligently while still in good health, you can prepare well for this possibility.
When self-funding, it might be worthwhile to consider entering a continuing care retirement community (CCRC). While a CCRC is not inherently a financing option, it may be a more affordable alternative for seniors who are still in good health but want to prepare for the worst. Unlike traditional assisted living facilities, CCRCs offer multiple levels of care based on the resident’s condition.
Healthy seniors who are still capable of living on their own can reside in the “independent living” sector of the community. These areas typically consist of apartments or townhomes that residents can occupy until they need further assistance.
Those still capable of living on their own but in need of assistance with basic activities such as bathing and getting dressed can reside in “assisted living” facilities. Here, they can maintain their independence while also receiving the care they need.
Finally, after seniors are unable to take care of themselves, they move to the “skilled nursing” section of the community, where they receive consistent care from trained professionals. As the resident’s condition changes, they can move from one tier to another, assuming there is availability.
The costs associated with CCRCs are twofold, beginning with an upfront fee and following with subsequent monthly fees. All costs vary from one community to the next, so for a better understanding of the specific expenses associated with CCRCs, you can do some research.
Various contracts range in price and coverage, and there may or may not be additional costs for medical services. Again, for a more comprehensive picture of cost, look at specific CCRCs in your area.
Long-Term Care Insurance
Another viable self-financing option would be purchasing long-term care (LTC) insurance. LTC insurance, unlike Medicaid, typically funds all or part of both assisted living facilities and at-home care. Rates for LTC insurance vary depending on age, health, gender, marital status and amount of coverage.
There are two different types of LTC insurance policies: traditional and hybrid. The traditional policies, also known as “stand-alone long-term care” policies, typically reimburse the actual cost of care up to the specific policy limits, with a few exceptions that would be outlined in each policy’s coverage. Every policy is different, so it’s important to know what you need and do the research to find policies that will meet those needs. Keep in mind that these policies are also subject to individual underwriting guidelines, so not everyone qualifies.
Traditional LTC insurance has some unique tax benefits worth mentioning. Policies labeled “tax-qualified” allow a policyholder to deduct their LTC premium if it exceeds 7.5% of their adjusted gross income, and the holder is itemizing their tax deductions. Deduction limits vary based on age (see chart).
The other LTC policy option, hybrid life insurance policies, combine LTC and life insurance to ensure the investment is not lost if the long-term care insurance is not utilized. You’ll receive long-term care coverage as specified in the policy, but if you end up not needing long-term care, your beneficiary will receive a death benefit, again depending on the policy. These policies hedge your investment while also providing a way to finance long-term care if needed.
These are only a few of many financing options available to individuals planning for long-term care. Before making any decisions, coordinate all efforts with your financial advisor, CPA and attorney to ensure you choose the options most appropriate for your individual circumstances. Get in touch with our wealth advisory group with any questions.
Brian Tribbitt is a Financial Advisor at Stonebridge Financial Group based out of the Lancaster, Pennsylvania office.