How to pay for long-term care

A look at five options to pay for potential long-term care needs.

Elder care can be expensive. In the U.S. in 2010, the average cost for a private room in a nursing home was nearly $7,000 a month. For a one-bedroom unit at an assisted living facility, you would have paid over $3,000 a month. And a home health aide would’ve set you back $21 an hour.

Medicare and most private medical insurance plans only cover short-term, skilled and medically necessary care…if they cover costs at all. And while it’s estimated that only about 6 percent of retirees will incur more than $100,000 in elder care costs, it’s important to plan now, before you need the care.

Long-term care insurance

This is a policy you buy for the purpose of covering possible long-term care needs. Unlike Medicare or private medical insurance plans, long-term care policies help cover the costs of personal and custodial care at your home or other facility. The services and costs the policy covers will depend on the amount of coverage you purchase, which also affects your monthly premium, as will your age at the time of purchase. And you must go through medical underwriting to be approved for a policy, so it’s best to buy long-term care insurance when you’re in good health.

Life insurance

Some life insurance companies combine long-term care insurance with their life insurance policies—for those who don’t want to purchase (or, for health reasons, can’t purchase) a separate long-term care policy. These relatively new products provide long-term care coverage in a variety of ways, providing you with options on coverage and costs.

The upside of a combined life/long-term care insurance policy is that its benefits will always be paid—either at the time of death or the time of need for long-term care. The downside is that your long-term care needs may exceed the amount you receive from your policy.

Reverse mortgage

This option may make sense if you own your home outright, as you’ll first need to pay any debt associated with your home once you receive your reverse mortgage. You can qualify for this type of mortgage if you’re 62 or older and the home is your primary residence. Use the money however you wish; however, you must continue to pay property taxes and home insurance, and continue to maintain the property. This type of loan doesn’t require health screenings, so may be a good option for those already in poor health.

Annuities and self-insurance

More annuity products now include riders to help pay for long-term care services. You purchase an annuity, either in a lump sum or over a course of time, and then receive a specified number of regular payments. Typically, these types of annuities don’t require health screenings. Your payments will depend on your age, gender and the amount of your investment.

Another option is to self-insure by setting aside money in investments or savings to pay for any future long-term care needs. This option is only feasible if the amount you’re saving doesn’t cut into your current cost-of-living needs. And you’ll need to set aside a fair amount of money for health care purposes—some estimate $500,000—to potentially cover future costs.

Medicaid

Medicaid helps those with low assets and income pay for medical care, including long-term care services provided at home or in a Medicaid-approved nursing home. (It does not, however, pay for custodial care.) There are eligibility rules at the state and federal level to qualify for Medicaid and then more rules to qualify for long-term care services. Contact your State Medical Assistance Office to understand how eligibility works in your state.

Many of these options can have tax implications, so it’s important to talk with a tax advisor or elder financial advisor before deciding which option may be best for your future care needs.

This article contains general information. Individual financial situations are unique; please, consult your financial advisor or tax attorney before utilizing any of the information contained in this article.

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