Managing the Cost of Care

 April 2014

Nan Hayes for Caring Transitions®

If you haven't planned for senior living care, you aren't alone. Surprisingly few people do, although the estimated out-of-pocket expense of long term care for a couple turning 65 in 2013 exceeds $350,000. Many believe government subsidies will cover any care they need in old age; however this just isn’t the case. Medicare covers a generous percent of health care costs, but not all long term care and little housing. Below we have listed some common financial considerations for families facing the real costs of long term care.

Private Funds

Over 90% of people currently pay for independent living, assisted living, and Continuing Care retirement Communities (CCRC’s) out of their own private funds, relying on the sale of their home, income and investments to cover the costs, which vary greatly across states.

According to the latest MetLife market survey, the national average for assisted living base rates is $3,550 per month, with Alaska, New Jersey, Delaware, Connecticut and Massachusetts among the most expensive ($4,000-$6,000) and Missouri, Alabama, Georgia, Kentucky and Michigan among the least ($2,800- $3,000).

More than half of assisted living communities offer a pricing model based on the services a resident requires. For example, a resident who needs little assistance would be at the lowest end of the cost spectrum and someone who requires assistance with everything to include laundry, meals, medications and personal care needs would be at the higher end of a pricing tier. Other pricing models include all-inclusive, a la carte, or fee-for-services.

Short Term Options

With today’s real estate challenges, some individuals may feel they are ready to move to senior housing, but are having difficulty selling their home. These folks have two financing options, a home equity line of credit (HELOC) or a traditional bridge loan.

HELOC

A HELOC is a relatively fast solution, particularly for those who have a lot of equity built up in their home. The underwriting process can be handled in advance and loan fees are minimal. The interest rate paid on the line is typically prime rate index, plus or minus a fixed margin based on the homeowner’s credit rating. This type of financing must be set up before the house is listed for sale. The main drawback of a HELOC, is that the individual must be able afford all three payments, the payments or mortgage on the new residence, the first mortgage on the original home and the HELOC second mortgage on your original residence.

Bridge Loan

Compared to the HELOC, a bridge loan, while useful, may carry a higher interest rate and be more costly or carry higher fees of 2-4 points. An advantage to a bridge loan is a flexible repayment plan, which means the borrower may not need to make monthly payments on the loan until the home is sold. At that time, the balance on the loan, along with all the accumulated interest due to the lender, would be paid in full.

Line of Credit

Thousands of senior living communities nationwide participate in a line of credit program that is specifically tailored for families who wish to move a loved one to independent or assisted living. This finance option is especially helpful if families need time to sell a home or other assets to wait for a government benefit to begin. Typically a personal line of credit allows families to borrow only what is needed on a monthly basis. Like most loans, the line of credit is subject to credit approval and typically requires a strong credit rating.

Government Programs

Medicaid

Medicaid is a joint Federal-State program which pays for medical services to eligible needy and vulnerable families and individuals. States must offer basic services in order to receive Federal matching funds, and the Medicaid program varies from state to state.

Medicaid currently pays for 60 percent of nursing facility care and only about 10 percent of assisted living services, the majority being paid for with private funds. Several states have adopted Medicaid waiver programs to earmark funds towards assisted living.

Medicaid services commonly include hospital services, nursing facilities, prenatal care, physician services, medical or surgical dental services, home health and community-based care, lab and x-rays, family planning and family nurse practitioner services.

Medicare

Medicare is a Federal health insurance program for aged (65+) and certain disabled individuals regardless of income. It is comprised of two parts:

Part A (Hospital Insurance): Provided automatically to individuals 65 and over who are entitled to Social Security, and to disabled persons who have received such benefits for at least 24 months. The health services covered under Part A include skilled nursing facilities ONLY when following a hospitalization, and also include home health care, hospice care and inpatient hospital care.

Part B (Supplementary Medical Insurance): Requires payment of a monthly premium and primarily covers physician services. Also covered by Part B are non-physician services, including diagnostic tests, ambulance services, clinical laboratory tests, flu vaccinations, and some therapy services.

Supplemental Security Income (SSI)

SSI is a monthly cash payment from the U.S. Treasury fund to U.S. citizens who are in dire financial need and who are aged 65 or older, or meet other disability requirements. Typically, a person eligible for SSI payments has no or little income, total assets of less than a few thousand dollars. In certain circumstances, the SSI payment may be used toward the housing and care needs of the individual.

Veteran's Benefits

United States veterans and their surviving spouses may qualify for the Aid & Attendance Program and receive monthly benefits to help cover the costs of long term care, including housing, as long as they meet specific requirements.

Aid and Attendance can help pay for care in the home, in a nursing home or in an assisted living community. A Veteran is eligible for up to $1,644 per month, while a surviving spouse is eligible for up to $1,056 per month. Couples are eligible for up to $1,949 per month.

Long-Term Care Insurance

Long-term care insurance will cover the cost of assisted living in care facilities, depending upon the policy. Policies may cover licensed nursing facilities or home health care. The policies are sold by licensed, private insurance companies, employers and some independent organizations.

Premiums for Long-Term Care Insurance are based on the age of the person at the time of purchase, the deductible, the benefit amount, the benefit time period, the elimination period and other options that may be offered by the insurance agent.

Life Settlement

A life settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value but less than its death benefit value. Proceeds from a life settlement can be used for any purpose, including financing senior living and healthcare needs.

Ask us for more information about financial solutions for your parents, yourself or your clients!

Sources: U.S. Government, MetLife. Genworth Financial
©2014 Caring Transitions.