Chapter 6

Paying for Your Loved One’s Care

Despite recognizing that you need help in providing care for a loved one and your good intentions in seeking that assistance, the costs for care can be a significant deterrent. One of the biggest challenges seniors and families face today when deciding on eldercare options is how to pay for it. Many mistakenly believe that Medicare or Medicaid will provide the funds for their long-term care should they ever need it. In fact, these two programs pay for rehabilitative or curative care, not custodial care.

Many of our seniors lived their lives believing that they would “self-insure” and save enough money to be able to handle any costs associated with their golden years. However, they may have significantly underestimated what their needs might be or how much they would cost. The recent recession caused a great upheaval for many families and individuals who may have felt they had enough savings or investments to cover any form of assistance required. Retirement accounts and investments were hit hard and now those accounts may be significantly smaller.

There are also those elders who have lived with the belief that if they ever needed significant care or had to leave their own home, they would move in with their children. The common scenario of the stay-at-home mom who tended to all family needs, such as taking care of the children or aging relatives, has now been replaced by two-income families struggling just to make ends meet or single parent households with no extra time or energy to devote to providing care for a declining loved one.

Determining how to pay for your senior’s care may cause a few grey hairs, but with a thorough understanding of eldercare options available, accurate pricing for those choices, knowledge of financial resources to help pay for care, and careful fiscal planning, even those with limited budgets can expect to be able to put some form of care in place.

Understanding Average Costs of Care

At some point in time, it’s likely that you will have to make decisions for your loved one, like when in-home assistance is needed for your loved one or when living at home is no longer an option. Realistically, while you might have an idea of what you would prefer as far as the type of care and location, the actual costs may affect those decisions.

The average costs for long-term care vary greatly depending on the type of care needed and the geographical area—in urban areas, you can expect that costs will be higher than those in nonurban areas. How do you even begin to understand what the bottom line will be when beginning the search for caregiving assistance? One reliable source would be Genworth, a leader in the long-term care industry, whose 2014 Cost of Care Survey noted the following median costs for various types of care nationwide.

Please note that the names for the various types of communities or facilities can be different across the nation and are often interchangeable. Some may refer to them as assisted living facilities, while others may call them continuing care communities; a private group home may be known as a residential care home; and a memory care facility might be referred to as a nursing home. It is important to understand the terms your state uses when identifying where your loved one would be an appropriate fit. A good way to do this is to visit your state’s department of health and human services and research its listings for communities.

Determining Needs and Budgeting for Costs of Care

Part of the problem in budgeting for health care needs is that they are often fluid, making it difficult to accurately predict the cost of care over an extended period of time. As our loved one ages, it is likely that her physical and mental health will worsen to some degree, but every senior’s journey is unique. It’s quite possible that at one point in time she may need significant help, especially if she is recovering from an acute condition like a stroke or heart attack. Of course, as she improves, her needs decrease. But if your loved one requires care because of a chronic condition such as Alzheimer’s disease, or if she is fragile because of significant age, then her needs may continue indefinitely and increase over time. In short, the greater the amount of care, the greater the cost.

It’s no wonder that making the decision on choosing care services or other living arrangements for your loved one can be a complicated and emotional task. There are three basic steps that can help you begin the process and make it easier.

When defining the monthly budget for care, many people correctly estimate the service fees, but fail to identify those smaller recurring costs that could potentially create havoc with their financial planning. The last thing you want to do is to begin services or move your loved one, only to learn later on that you failed to include hidden or unexpected expenses in your budget, which is now stressed or broken. Remember, it is better to overestimate the costs than to underestimate them and have to make changes that may be disruptive to the health and well-being of your loved one. Some items your senior may want or need regularly that should be calculated into the expenses include the following:

Identifying Ways to Pay for Care

It isn’t surprising if one of your major concerns relative to providing care is how much it will cost and how you will pay for it. Your first reaction to the initial budget might be shock and then fear. Don’t panic—the ability to pay will probably have to come from several different sources grouped together to cover the full cost. Be reassured that while you may have to pay out of pocket for one expense, another may be covered through insurance, volunteers, or government benefits.

There is one trap that too many families fall into—offsetting the costs with their own savings, home equity, and retirement accounts to help their loved one. It’s easy to jump to the conclusion that the only way to pay is through private funds, but that’s not always the case. You may unnecessarily spend down your own money and jeopardize your future when there might have been other available resources that could have reduced the amount of money coming out of your pockets. Take time to carefully evaluate any form of income coming to your senior or resources available before you spend your own money.

As you will see in the following sections, there are options other than risking your own financial future to pay for care. There are four possible categories you can draw upon to fund you elder’s care. Within these four categories, there are a number of possibilities available from financial assistance to help with other specific needs such as reduced prescriptions or free support groups. Here is a key sampling of those choices.

Personal Property

Often, utilizing personal property is the most immediate means for paying for care. These assets can be tangible or intangible possessions. Tangible resources include anything you can touch and move such as jewelry, cars, and furniture. They can easily be liquidated into funds, while intangible possessions might take much longer and more effort. Intangible materials include whatever you can’t take hold of and where your ownership is conveyed through a piece of paper like insurance policies, stocks, or home equity. Some of the most common methods for paying for assisted living care through personal property are listed in the following sections.

Private Funds

Private funds can come from a variety of sources such as savings, personal investments like 401K plans or IRAs, or other assets that people have accumulated. When identifying what money is available, start with the obvious—social security, pension, and other forms of monthly income. Next, move on to savings and retirement accounts. When considering withdrawing monies from investments and retirement accounts, it is advisable to consult with your accountant or financial planner first to discuss penalties, tax liabilities, or whether there may be other means available that you haven’t considered before depleting private funds.

Home Equity

The equity in your elder’s home may be a valuable source to pay for care. Much will depend on the amount of equity available and how much and for how long care will be required. If the home is not paid in full, if there are other large monthly expenses, or if care will exceed the available loan amount over time, this may not be the best solution. The downside to obtaining a conventional home equity loan would be that your elder is required to pay it back with interest, which may strain his or her budget.

Reverse Mortgage

Another way in which older adults can tap in to the equity of their home is through a reverse mortgage. One of the biggest differences between a reverse mortgage and a home equity loan is that with a home equity loan, your seniors may need to show proof of an adequate income level in order to make repayments. With a reverse mortgage, the homeowners can convert their equity into cash with no repayment required until they die, move out, or sell their home. A reverse mortgage gives them access to tax-free cash—only withdrawing money as they need it.

To apply for a reverse mortgage, your senior must meet the following qualifications.

Renting or Selling the Home

While your senior’s home may be his or her biggest asset, and there may be great emotional attachment, sometimes circumstances dictate the need for a new plan regarding ownership. If it becomes apparent that your loved one would be better off moving in with you or to a care community, then perhaps the best solution is to rent the home or sell it outright.

Rick Wandrych, Real Estate Broker, Senior Real Estate Specialist, and Certified Probate Real Estate Specialist, notes the pros and cons to both options.

Insurance Coverage

One of the biggest misconceptions that families or seniors have with regard to paying for eldercare is that most forms of insurance will cover all long-term care expenses. While it’s likely that your loved one’s health, long-term care, or Medicare coverage will offset specific costs, it’s also likely your senior will have to mix and match benefits to pay for the majority of or all related expenditures. It’s wise to thoroughly read the benefits section of his or her policies before assuming protection. In the following sections, Maryglenn Boals, founder of MgBoals and Associates, a long-term care planning firm in Phoenix, Arizona, explains the four common forms of insurance that may help your elder afford assisted living solutions.

Life Insurance Conversion

Converting life insurance to cash is one way of securing a large amount of money to pay for eldercare expenses. However, this option is not available with term life insurance, as it has no cash value. Also known as a life settlement, it involves the sale of an insurance policy by the policyholder to a third party in exchange for a defined amount of long-term care services while preserving a death benefit. Your loved one would sell the life insurance policy for an agreed-upon dollar value, and the buyer takes over the monthly premium payments and then collects the death benefits when the policyholder dies. The advantages include the following:

The major disadvantage to this option is that when your senior dies, the family will not receive the death benefit from the life insurance. The third party that purchased the policy is the new beneficiary.

Long-Term Care Insurance

This is an important form of insurance that will provide coverage where health insurance ends. Long-term care (LTC) refers to when your loved one’s condition progresses to the point where constant supervision or assistance with activities of daily living like bathing, toileting, and dressing is required. LTC insurance will provide funds to help cover these expenses. If your loved one qualifies, payments can be made to care providers in the home, for respite stays or adult day care, or for assisted living facilities and skilled nursing facilities.

Medicare

Medicare covers only medically necessary care such as doctor visits, drugs, hospital stays, and short-term services for conditions that will improve, like physical therapy to help you regain your function after a fall or a stroke. Medicare does not pay for long-term care services, personal care with activities of daily living, or custodial care. Medicare will pay for short-term stays in a skilled nursing facility, for hospice care, and home health care. To qualify, your loved one would need to have had a recent hospital stay of at least three days; need to be admitted to a Medicare certified nursing home within thirty days of the prior hospital stay; and need skilled care such as skilled nursing services, physical therapy, or other types of therapy.

Other Health Insurance

Most private health insurances or employer HMOs follow the same general rules as Medicare with regard to paying for long-term care services. The majority of private insurance policies do not cover personal or custodial care. If they do cover these care services, it is typically only for skilled, short-term, medically necessary care.

While private policies do not cover long-term care expenses, they can free up funds by covering other costs. This may make a difference in the ability to budget for eldercare.

Government Programs

The budgets of many seniors and their families are stretched to the breaking point when forced to pay for eldercare expenses. Fortunately, there are several government programs that can provide assistance in covering these costs. Here are some suggestions to investigate to see if your loved one might qualify for assistance.

Medicaid

Medicaid Long-Term Care is a jointly funded, state and federal insurance program for low-income seniors and disabled individuals. It provides medical care and support services. If your loved one is financially and medically qualified, Medicaid will pay nearly all the long-term care costs.

Medicaid Waivers are Medicaid programs in specific states that provide care and support to individuals outside of nursing homes—usually at home, in assisted living facilities, or in adult day care environments. These waivers are not entitlements, and have enrollment caps and often have waiting lists.

Cash and Counseling (also known as Participant/Consumer or Self-Directed Program) is a specific type of Medicaid Waiver program available in many states. Your senior receives funds for care and the flexibility to select his or her own care providers, including family members in some instances. Payments can be paid directly to you. Contact your Medicaid office to see if your state qualifies.

Veteran’s Benefits

Seniors who are also veterans may be eligible for a wide variety of benefits, including disability compensation, pension, insurance, health care, long-term care, and burial. Certain elderly veterans can receive additional monetary compensation if they are eligible for or receiving a VA Pension benefit.

The VA Improved Pension (also known as the Aid and Attendance Benefit) provides an increased monthly pension if your loved one requires help performing activities of daily living, is bedridden, resides in a nursing home, or has severely limited eyesight. The Improved Pension may be granted to a veteran or a surviving spouse.

The Housebound benefit is another increased monthly pension paid to seniors if they are confined to their immediate premises because of a permanent disability.

There are individuals or organizations that can assist individuals/families in the application process and claim to speed up the process by ensuring everything is complete before submission. You can search the Internet for assistance with the VA Aid and Attendance Pension. The following organizations would be a good place to start for guidance.

Area Agencies on Aging

Area Agencies on Aging (AAAs) are local aging programs that provide information and services on a range of assistance for older adults and those who care for them. Your local agency can help you access critical information including the following:

Some agencies will even assist you in preparing applications and documentation.

Social Security

Social Security is a federal program providing retirement income to seniors or the permanently disabled. Seniors commonly use it as a source to cover long-term care expenses. An individual must have paid social security taxes while employed in order to qualify.

Payments are made directly to the individual and can be applied in any manner needed, such as home care or residential care. Each person receives a sum calculated on the amount and number of years paid into the system along with the age at which he or she chose to receive benefits.

Supplemental Security Income (SSI) helps financially needy seniors with extremely limited income and assets, filling the gap to bring their income up to a predetermined level. The benefit amount is dependent on their current income. Unlike Social Security benefits, it is not based on an individual’s prior work. These funds can also be applied in any way chosen to pay for eldercare expenses.

Private Assistance

While there may be limited resources that will assist with direct funding for long-term care, other resources are available that can provide financial relief in other areas and free up money for the actual care itself. Here are two potential resources that may have been overlooked and could save you money to use on other needs.

Prescription Drug Assistance

There are multiple ways that you can save money on prescriptions. For example, NeedyMeds.org is a nonprofit organization offering a free card that helps families obtain prescription drugs at the lowest possible cost. Also, patient assistance programs are run by nearly all the major pharmaceutical companies and offer assistance to low-income individuals by providing reduced cost or free medicines. In addition, using mail-order or online pharmacies can provide savings over purchasing your medication directly from a retail pharmacy.

Nonprofit and Foundation Assistance

Many organizations are disease specific, but offer resources for those suffering from specific conditions. If your loved one has a condition that is contributing to a need for care, research that disorder, and you may find that there is a nonprofit or foundation geared toward helping individuals find resources that could benefit them financially, emotionally, or physically, such as free support groups, affordable respite care, or discounted medical equipment.