Long-term care is a type of care that helps people with chronic illnesses or disabilities maintain their independence and quality of life.
It can be provided in a number of settings, including nursing homes, assisted living facilities and home health care.
While long-term care is not covered by Medicare, there are a number of ways to fund long-term care, including private insurance, Medicaid and long-term care insurance.
In this article we will discuss:
- The different types of long-term care
- How long-term care is paid for
- Strategies for funding long term care
How to plan for long-term care?
Long term care planning is important for everyone, but especially for those who are nearing retirement age.
If you’re healthy and have a good income, you may want to consider buying long-term care insurance. This can help cover the costs of long-term care if you ever need it.
If you’re on a tight budget, there are still ways to plan for long-term care. You can start by saving money in a dedicated long-term care account, like a health savings account or flexible spending account.
You can also look into public benefits programs like Medicaid or Veterans Affairs benefits, which may help cover the costs of long-term care.
And finally, you can make sure your estate plan is up to date. This can help ensure that your loved ones are taken care of financially if you ever need long-term care.
Types of long-term care
There are three main types of long-term care: custodial, skilled and intermediate.
- Custodial care is the most basic type of long-term care, and includes activities of daily living, such as bathing, dressing and using the bathroom.
- Skilled care is more intensive, and includes nursing care and rehabilitative therapies.
- Intermediate care is somewhere in between, and can include things like adult daycare or home health aides.
Private financing options for long-term care
Whatever you decide, it’s important to start planning for long-term care now. The sooner you start, the more prepared you’ll be if and when you need it.
Let’s look into some creative strategies you can use to fund your long-term care needs:
Health savings accounts (HSAs)
If you have a high-deductible health insurance plan, you’re eligible to open a health savings account (HSA). This is a special tax-advantaged account that you can use to save for medical expenses, including long-term care.
With an HSA, you can contribute up to $3,550 per year (or $7,100 for a family), and the money grows tax-free.
You can then use the money to pay for long-term care expenses, including in-home care, assisted living and nursing home care.
Flexible spending accounts (FSAs)
If you have a traditional health insurance plan, you may be able to open a flexible spending account (FSA). This is a special account that lets you set aside pre-tax money to pay for qualified medical expenses.
Depending on your plan, you may be able to contribute up to $2,650 per year to an FSA. This money can then be used to pay for long-term care expenses, including in-home care, assisted living, and nursing home care.
Long-term care insurance
Another option is to buy long-term care from a trusted insurance company. This is a type of insurance that helps cover the costs of long-term care.
Long-term care insurance policies vary, but they typically cover a certain amount of long-term care costs per day, up to a maximum benefit. For example, a policy might cover $150 per day for up to three years.
Long-term care insurance can be expensive, but it can help you pay for long-term care if you ever need it. And if you never need long-term care, you’ll still have peace of mind knowing that you’re prepared.
Life insurance policies for long-term care
If you have a life insurance policy, you may be able to use it to pay for long-term care. This is typically done by borrowing against the cash value of your life insurance policy.
You can usually borrow up to the cash value of your policy and you’ll only have to repay the loan with your life settlement if you pass away. This means that you can use the money from your life insurance policy to pay for long-term care, and your loved ones will only have to repay the loan if you pass away.
This can be a good option if you don’t need the death benefit from your life insurance policy right away. But it’s important to understand that you’re taking on a bit of risk by doing this.
If you need long-term care and then pass away, your family members will have to repay the loan plus interest.
Certain life insurance policies also include an accelerated death benefit rider. This rider lets you access a portion of the death benefit while you’re still alive if you need long-term care.
The amount you can receive depends on the policy, but it’s typically up to 50 percent of the death benefit.
This rider can be a good option if you’re worried about paying for long-term care.
Use a Reverse Mortgage
Reverse Mortgages are a unique type of home loan in which homeowners 55 and older can convert the property value to cash.
Unlike traditional loans, the loan is never repaid until the borrower sells or leaves the property.
These loans are taxable and can be used for expenses, excluding long-term care.
Here are five ways leveraging housing wealth by way of a reverse mortgage can help qualified homeowners cover the costs of long-term care:
Pay Off an Existing Mortgage Loan
Increase cash flow that can be used to pay for long-term care by converting a traditional mortgage to a reverse mortgage, eliminating the mandatory mortgage payment.
Establish a Reverse Mortgage Line of Credit
Establish a bucket of money outside of your portfolio for future care. This line of credit comes with a guaranteed cost of living increase each year, meaning the unused portion will grow over time.
Flexible payout options
- Select a Tenure Payout Option
Instead of making monthly payments to the lender, the lender would send YOU a check each month, helping you to budget for care.
- Take a Lump Sum Payout
A lump sum payout will give you the funds you need for care now.
- Structure a Multi-Layered Reverse Mortgage
You can combine payout options to create short- and long-term benefits. This can be helpful if you need long-term care immediately or want to increase your current cash flow to begin financing your long-term care plan.
If you are 55 or older and have at least 50 percent equity in your home, take 60 seconds to get a no-cost info kit to determine if a reverse mortgage is right for you. Click here
Using Annuities to Pay for Long-Term Care
An annuity is a long-term investment that can provide you with income in retirement.
There are two main types of annuities: immediate annuities and deferred annuities.
With an immediate annuity, you make a lump sum investment and then begin receiving payments right away. These payments can last for a set period of time, or for the rest of your life.
With a fixed deferred annuity, you make regular investments over time. These investments grow tax-deferred, and you can begin taking withdrawals when you retire.
Some annuities come with long-term care benefits. This means that if you need long-term care, you can use the money in your annuity to pay for it.
This can be a good option if you’re worried about long-term care costs, and you want to make sure that you have the money available to pay for them.
It’s important to understand that not all annuities come with long-term care benefits. And even if an annuity does come with long-term care benefits, there may be limitations on how much you can withdraw for long-term care expenses.
So, if you’re thinking about using an annuity to pay for long-term care, make sure to do your research and understand the details of the annuity before you invest.
Government/public benefits programs for long term care
If you’re on a tight budget, you may be able to get help from public benefits programs. These are government programs that can help pay for long-term care.
Program of All-Inclusive Care for the Elderly (PACE)
The Program of All-Inclusive Care for the Elderly (PACE) is a Medicaid and Medicare program that helps people who are 55 or older and need long-term care.
PACE provides all the long-term care services you need in one place. This can include things like doctor’s visits, hospital care, prescription drugs, home care, and more.
PACE is available in some states, and you may be able to get help with the costs of long-term care if you qualify.
National Council on Aging (NCOA)
The National Council for Aging provides information and resources on a variety of topics related to aging. This includes information on long-term care, and how to pay for it.
The NCOA also provides free or discounted health screenings, educational programs, and other services to people who are 60 or older.
Department of Veterans Affairs
The Veterans Administration (VA) provides long-term care veterans benefits. This can include things like home care, VA nursing homes, and more.
To get long-term care from the VA, you must have a service-related injury or illness. The VA will also consider your income and assets when determining if you’re eligible for long-term care benefits.
If you’re a veteran, or the spouse or dependent of a veteran, you may be able to get long-term care through the VA.
Social Security Administration programs
If you have a long-term care need, you may be able to get help from the Social Security Administration (SSA). The SSA has a few different programs that can offer assistance, depending on your circumstances.
Supplemental Security Income (SSI) is a program for people who have low incomes and few assets. If you qualify for SSI, you may be able to get help with long-term care costs.
The SSA also has a program called the Ticket to Work Program. This program is for people who are disabled and want to work. If you participate in the program, you may be able to get help with long-term care costs.
Finally, the SSA has a program called the Plan to Achieve Self-Support (PASS). This program is for people who have disabilities and want to become self-sufficient. If you participate in PASS, you may be able to get help with long-term care costs.
If you’re receiving Social Security benefits or if you think you may be eligible for benefits, you can contact the SSA to see if you qualify for any long-term care programs.
State Health Insurance Assistance Program (SHIP)
SHIP is a national program for health insurance assistance for individuals with Medicare, Medicaid services, and other Medicare supplemental insurances.
SHIP provides free counseling and assistance to people with Medicare. Counselors can help you understand your health insurance options, and how to use your benefits.
Long term care FAQ
Can you self-fund long-term care?
Yes, you can self-fund your long-term care. This means that you pay for your own care, without help from any government programs or insurance.
If you have the assets and income to do so, self-funding your long-term care can be a good option. It’s important to understand that self-funding your care will likely deplete your assets over time.
Can you get long-term care from Medicaid?
Yes, you can get long-term care from Medicaid. Medicaid is a government program that provides health insurance coverage for low-income people. In some states, Medicaid also provides long-term care coverage.
To qualify for Medicaid long-term care coverage, you must meet certain income and asset requirements. If you qualify, Medicaid will pay for some or all of your long-term care costs.
How many ways can you fund long-term care insurance?
Four main means of financing long-term care expenses are self-funded through personal savings, Medicaid, and traditionally backed insurance.
What is the largest source of funding for long-term care?
The largest portion is financed by Medicaid — a national health program for low-income seniors. One in every three nursing home residents rely on Medicaid to pay for their care.
What are the five levels of long-term care?
Custodial care, intermediate care, skilled nursing facility care, home health care and hospice care.
Who bears the largest cost for long-term care services?
Medicaid is the largest single payer in the US Medicaid system. In 2009, Medicaid spent $109 billion on long-term care services. This accounted for approximately 30 percent of all long-term care spending in the United States.
What is the national average cost of long-term care?
According to Genworth’s 2021 Cost of Care Survey, the national median annual costs of a private nursing home room is $108,408 per year. The median cost of a semi-private room is $94,896 per year.
The national median for in-home health care aide is $61,776 per year.
The median cost for in-home homemaker services is $59,484 per year.