You may have come to the conclusion that mom or dad are no longer capable of living on their own. This transition can be challenging, both emotionally and financially. Understanding the various options to cover these costs is the starting point for families striving to provide the best care for their loved one without compromising their financial stability.
Making decisions about long-term care can be overwhelming, but with the right information and guidance, you can confidently navigate this process. In this blog, we will explore the various financial options families have to help plan for the care of their aging parents. Plus, we’ve included some helpful resources to offer you support and guidance during this sensitive time.
When to Start Planning
When it comes to nursing home care, the earlier you begin financial planning, the better. Ideally, families should start evaluating long-term care options and financial strategies well before the care is needed, particularly if they hope to qualify for Medicaid. Starting early gives you the flexibility to make thoughtful decisions, avoid costly mistakes, and take full advantage of planning opportunities.
Proactive planning can also help alleviate emotional stress during an already difficult time. Waiting until a medical crisis occurs can lead to rushed decisions, limited care options, and financial strain. By starting conversations early–with your parents, family members, and trusted professionals–you can create a clear roadmap that reflects your loved one’s wishes while ensuring their financial security.
Understanding the Cost of Nursing Home Care
According to a 2023 Genworth Cost of Care Survey, the monthly median cost for a semi-private room in a nursing home facility is $8,669. The monthly median cost for a private room in a nursing home facility is $9,733. With annual costs exceeding those of an Ivy League college, it leaves many wondering how they or their family members can keep up with the rising cost of nursing home care.
The cost of nursing home care varies greatly depending on several factors, including location, room type, and level of care.
Location
Costs can vary significantly from state to state and even within the same state. Urban areas and regions with higher costs of living generally have higher nursing home costs. For example, the monthly median cost of a private room in Massachusetts is $14,600 compared to $8,000 in Kansas, as per the Cost of Care survey.
Facility
Nursing homes can be owned by individuals, organizations, corporations, limited liability companies, local councils, charities, or non-profit organizations, which means there is little to no governance on the average cost per month.
As most nursing home facilities are privately owned, they have the ability to set and control the cost of the facility based on several factors, like room type, amenities, recreational activities, and more. Room occupancy and location generally impact the cost per room, meaning a double room with a view of the parking lot will likely be more affordable than a single living space with a nature view. Be mindful of room selection during the nursing home vetting process as these costs can add up over time and erode your senior’s savings.
Level of Care
Nursing homes typically conduct a mental and physical examination to determine the level of care needed during the senior’s stay; this is a major contributor for the increased cost of nursing home living.
Based on national criteria of physical functional ability, medical needs, cognitive impairment, and behavioral problems, the nursing home may recommend specialized care for your loved one. This may include being moved to a memory care facility for those with Alzheimer’s or Dementia, where costs typically increase by 20- 30%, or a specialized care plan for more complex health conditions.
Other factors, like staffing levels, operational costs, quality ratings, and local demand can influence the per month or per year cost of a nursing home. You should also anticipate an average increase of about 2.4% each year in nursing home care.
Nursing home care can be a significant financial burden for many families. With these staggering costs, it is crucial to plan ahead and explore financial options to avoid depleting savings or assets.
Financial Options to Cover the Cost of Nursing Home Care
Now that you have an understanding of how the cost of nursing home care is influenced by various factors, let’s dive into the financial options you and your loved one have to cover these costs.
Here are the primary ways nursing home care is funded:
Private Payment
Many individuals pay for nursing home care out-of-pocket using personal savings, investments, or assets. This can include income from pensions, Social Security benefits and other retirement funds.
Accumulating assets over your lifetime is not only crucial for ensuring financial security and achieving personal and family goals, but will also be an important financial asset later on in life.
Long-Term Care Insurance
Long-term care insurance is specifically designed to cover the cost of nursing home care, as well as other long-term care services, like in-home assistance, social and therapeutic services, and transportation. These policies vary in coverage and premiums, and they typically need to be purchased well before the need for care arises. By purchasing a policy early on, you can protect your assets and ensure that you have access to quality care when needed.
Medicaid
Medicaid is a joint federal and state government program that provides health coverage for low-income individuals, including coverage for nursing home care. Medicaid eligibility and coverage vary by state, but it generally covers the full cost of nursing home care for eligible individuals.
To qualify, individuals often must meet strict income and asset requirements, and may need to spend down their assets to become eligible. An experienced financial advisor can help you navigate the complex eligibility requirements and develop a plan to protect your assets while qualifying for this important program.
Some nursing homes prefer residents who can pay privately because private pay rates are often higher than Medicaid reimbursement rates. In some cases, a resident might start as a private pay patient and transition to Medicaid once their private funds are depleted. However, this transition depends on the facility’s policies and whether Medicaid beds are available.
Not all nursing homes accept Medicaid. An estimated 80-90% of nursing homes accept Medicaid, however many nursing homes offer just a limited number of “Medicaid beds”. Once these beds are filled, a nursing home may not accept additional Medicaid patients until a bed becomes available again. If there is no availability at you or your loved one’s current nursing home, you may need to find a Medicaid-certified nursing home that offers the same great care, but with alternative payment options.
Understanding the Five-Year Look-Back Rule
When applying for Medicaid to help cover the cost of nursing home care, families must be aware of the five-year look-back rule. This rule allows Medicaid to review all financial transactions made within the 60 months prior to the application to identify any asset transfers made for less than fair market value. Common examples include gifting money to family members, selling a home below market value, or transferring assets into certain trusts. These actions can trigger a penalty period where Medicaid will not cover care costs, even if the applicant is otherwise eligible.
Because of this, early planning is key. Ideally families should begin long-term care planning well in advance of any anticipated care needs by consulting an elder law attorney or an experienced financial advisor. These professionals can help structure asset protection strategies and ensure that any financial moves comply with Medicaid rules.
Medicare
Medicare Part A, the federal health insurance program primarily for people aged 65 and older, covers short-term nursing home care under specific conditions, such as after a hospital stay. However, it does not cover long-term custodial care.
Establishing a Trust
Setting up a trust to pay for nursing home care can be a strategic way to manage assets and ensure that funds are available for long-term care, while potentially preserving eligibility for government benefits.
An irrevocable trust allows for asset protection. Once the assets are placed in the trust, they are no longer considered the individual’s property. This can be particularly important since assets within the trust are not counted toward Medicaid eligibility after the five-year look-back period.
Veterans Benefits
Veterans and their spouses may be eligible for long-term care benefits through the Department of Veterans Affairs (VA), which can help reduce or even eliminate the cost of nursing home care. The VA operates its own nursing homes, known as Community Living Centers (CLCs), and also partners with state veterans homes and private facilities that contract with the VA to provide care. Eligibility for these services is based on factors like service history, income level, and medical need, and priority is often given to veterans with service-connected disabilities or low incomes.
One key benefit is the Aid and Attendance (A&A) pension, an additional monetary benefit that can be added to the veteran’s regular VA pension. It is available to certain veterans and surviving spouses who require the assistance of another person to perform everyday personal functions, such as bathing, dressing, or feeding. A&A funds can be used toward in-home care, assisted living, or nursing home costs.
Annuities
Annuities are financial products that provide a steady stream of income in exchange for a lump-sum payment. Some people purchase annuities to ensure a continuous income flow that can be used to pay for long-term care expenses.
An annuity rider is an additional feature that can be added to an annuity contract, usually for an extra cost, to customize the annuity to better meet the policyholder’s specific needs. In this instance, a Long-Term Care (LTC) rider provides additional payments or increases the annuity payout if the policyholder needs long-term care services, such as nursing home care or in-home assistance.
The cost of an annuity can vary widely depending on several factors, including the type of annuity and any riders included. Most annuities have minimum investment requirements, ranging from several thousand to several hundred thousand dollars, along with administrative fees, mortality and expense risk fees, and investment management fees.
Life Insurance
Some life insurance policies offer options to access funds for long-term care through accelerated death benefits or life settlements. This can provide additional financial resources to pay for nursing home care. Depending on your policy, you may be able to use a small portion of the policy’s face value to cover the cost of nursing home care.
You also have the option of surrendering your insurance policy for the cash value in order to cover the cost of nursing home care. This option, however, means you not only give up the death benefit, but you will likely be hit by significant surrender charges and fees.
Reverse Mortgages
A reverse mortgage can be a valuable financial tool for older homeowners looking to cover the cost of care within their own residence. Specifically available to individuals aged 62 and older, a reverse mortgage allows homeowners to convert a portion of their home’s equity into cash without having to sell the property or make monthly mortgage payments.
However, it’s important to understand the limitations. If the homeowner permanently moves out of the home–such as to enter a nursing facility–the reverse mortgage typically becomes due. This means the loan must be repaid, usually by selling the home. For this reason, reverse mortgages may be more suitable for covering short-term costs for couples where one spouse remains in the home. Like any major financial decision, it’s crucial to consult a financial advisor to weigh the benefits and potential risks, and to determine if a reverse mortgage aligns with your broader long-term care and estate planning goals.
Family Contributions and Caregiver Agreements
In some cases, family members may contribute to the cost of nursing home care. This can be through direct financial support or through shared living arrangements that reduce overall expenses.
Families should be cautious with gifting or transferring assets before applying for Medicaid, as this can affect eligibility due to the look-back period.
State Programs and Grants
Some states offer additional programs and grants to help cover the cost of nursing home care. These programs vary widely and may provide financial assistance based on need, disability, or other factors.
For example, California offers the In-Home Supportive Services (IHSS) program, which allows eligible seniors to receive personal care assistance at home rather than entering a nursing facility. This helps delay or prevent the need for a nursing home while providing flexibility for aging seniors and their families. Meanwhile, Florida offers the Statewide Medicaid Managed Care (SMMC) Long-Term Care Program, which provides services like skilled nursing, respite care, and home health services through managed care plans.
If it’s time to seek an alternative living arrangement for your loved one, visit their state’s Department of Aging or Medicaid office to learn more about eligibility requirements and available programs.
Seeking Professional Assistance
As your parent transitions into nursing home care, managing the financial and legal intricacies can be daunting. Ensuring that you have the right professionals by your side can make a significant difference in safeguarding their assets and securing their comfort.
Here’s who you should consider working with to help you navigate this crucial period.
Elder Law Attorney
An elder law attorney specializes in addressing the legal needs of aging individuals. They can assist with structuring wills, trusts, and other estate planning documents.
Many state or local bar associations have sections dedicated to elder law and can provide referrals or you can use a lookup site like NAELA.org to find a qualified elder law attorney near you.
Financial Advisor
A financial advisor can provide critical guidance on managing your parent’s finances both leading up to and during their stay in a nursing home. They can help with assessing and relocating assets to ensure long-term care affordability, ensuring retirement funds are used effectively to cover nursing home care expenses, and minimize tax liabilities.
Consider working with a Certified Financial Planner (CFP) who has experience in retirement and elder financial planning, like Prudent Investors.
Geriatric Care Manager
Geriatric care managers are professionals who specialize in planning and coordinating care for elderly individuals. This role helps ensure that your parent’s physical and emotional needs are met, providing peace of mind for you and your family.
Many times this role is offered through your family member’s primary care physician, so be sure you’re leveraging their valuable resources and experience.
Accountant
An accountant will assist you with the financial documentation and reporting required during your parent’s nursing home stay. They can prepare financial statements, track and manage nursing care expenses, manage retirement income, and make sure you are making the most of tax breaks available to seniors.
Tip: Look for a CPA with experience in retirement and estate taxes.
Depending on the type of care needed, your loved one may benefit from additional professional help, but they aren’t the only ones. Entering your parent into a new living situation and taking on the financial responsibilities can be physically and emotionally draining. Remember to lean on professionals to help with the transition and your own mental well-being.
Peace of Mind for Mom and Dad
Helping your parents make the right financial decisions for nursing home care is a meaningful way to support them in their later years. It requires careful planning, open communication, and a solid understanding of the available financial options.
By working together and involving the right professionals, you can help your parents receive the care they need without exhausting their financial resources. Ultimately, this collaboration not only preserves their financial security but also provides peace of mind for the entire family.
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