How to Pay For Long-Term Care

Long-term care for seniors provides assistance with daily living activities for people who are unable to do them themselves. This care can be provided in a variety of settings, including nursing homes, assisted living facilities, and in-home care. In times of inflation, many people are thinking about how their retirement savings will be able to cover their long-term care needs.

The average cost of an assisted living facility is over $50,000 a year, while the price of a private room in a nursing home is over $100,000 a year. This guide will take you through the strategies you can adopt to best prepare yourself for long-term care needs.

Understanding Long-Term Care

Long-term care can take many different forms under the names of various services. Long-term care can cover, but is not limited to:

• Nursing homes: A residential care facility that provides long-term care to people who need help with daily living activities. They're most appropriate for seniors who need round the clock medical care and supervision. 
• Assisted living facilities: Provides help with daily living activities to people who are able to live independently with some support.
• Home health care: A range of services that can be provided in the home to help seniors stay independent and safe. Home health care is typically provided by nurses, aides or social workers. 
• Continuing care retirement communities: A residential community that offers care and different services, from independent living to assisted living to skilled nursing care. Many have a variety of amenities like pools, gyms and dining facilities.

The primary function of long-term care providers is to provide assistance to individuals who need help with day-to-day living due to illness, old age, or disability. 

The cost of long-term care has steadily risen over the past several years and can place a financial burden on you if you haven’t planned for this eventuality. Long-term care costs can quickly run into hundreds or thousands of dollars, so the earlier you start planning, the better prepared you will be. 

One of the key strategies in planning for long-term care is through long-term care insurance. Many people have Medicare in place, but Medicare is limited when it comes to long-term care requirements. It is worth comparing long-term care insurance coverage versus standard coverage. If you want to pay for nursing home care, it is unlikely that your Medicare coverage will be sufficient.

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Exploring Long-Term Care Payment Options

So, what are your long-term care options? We’ve listed the main options available if you are looking to finance someone in long-term care.

Long-Term Care Insurance

Long-term care insurance provides financial support that is specifically geared toward long-term care costs and requirements. It covers the costs of long-term care facilities such as nursing homes, assisted living facilities, and home health care. 

Pros:

• Ultimate financial security with regard to the cost of long-term care.
• Flexibility to choose the location and type of long-term care required.

Cons: 

• Long-term care insurance can be very expensive, and premiums can often be more expensive than the cost of long-term care. Annual premiums can range from $1,500 - $,2500 per month, and increase with age.
• Pre-existing conditions can prohibit you from taking out long-term care insurance, and the criteria for inclusion are strict.

Medicaid

Medicaid is a state-run program that is available to those that meet specific criteria, such as having a low-income. If these criteria are met, Medicaid can be eligible to cover long-term care costs.

Pros:

• Medicaid offers assurance to lower-income households that may require long-term care.
• The range of services available through Medicaid are wide and includes nursing homes, assisted living, and home healthcare.

Cons:

• The criteria to qualify for Medicaid is very specific, and you need an income of under $2,742 a month and assets of under $2,000 (excluding house and vehicle) to qualify. These amounts can vary by state.
• While Medicaid covers different long-term care options, only a small selection of long-term care providers may accept Medicaid payments.

The average cost of an assisted living facility is over $50,000 a year, while the price of a private room in a nursing home is over $100,000 a year.

Veterans Benefits

Veterans benefits are designed to help eligible veterans (and veteran’s spouses) get access to long-term care.

Pros:

• Veterans benefits are available to eligible veterans without the need for financial eligibility tests, with many medical facilities available under the terms of veterans benefits.
• Aid and attendance benefit is available to people requiring round-the-clock care, people who need nursing facilities, and people who are restricted to their beds.

Cons:

• Not all veterans are eligible for veterans benefits. Check with your VA health care social worker to determine your eligibility.
• The waiting list for Aid and Attendance benefit can be long, resulting in significant waiting times.

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Reverse Mortgages

If you are 62 or older and own (or almost own) your house outright, you can qualify for a reverse mortgage. Reverse mortgages allow you to release some of the equity in your house as a cash loan. You can receive this loan on a monthly basis or as a lump sum. The loan is paid back when you move home, sell the home, or until the owner passes away.

Pros:

• Reverse mortgages are an easy way to tap into what is usually a homeowner’s largest asset while still being able to live in the property.
• Reverse mortgages can be processed quickly, giving short-term access to cash. No regular repayments are required as you pay back the loan when you sell, move, or pass away.

Cons:

• Reverse mortgages are expensive and come with high closing costs and higher-than-average interest rates. Many financial experts consider reverse mortgages a last resort for long-term care financing. 
• Terms and conditions that accompany reverse mortgages can be tricky to understand. It's recommended to consult with an independent financial advisor before entering into a reverse mortgage to ensure you understand all of the terms and conditions.

Home Equity Loan

A Home Equity Loan or Home Equity Line of Credit (HELOC) is another valid option to tap into the equity in your house to release funds. A HELOC is similar to reverse mortgages, but while reverse mortgages are only available to people over 62 years old, HELOCs are open to anyone with sufficient equity in an owned property. 

Pros:

• Quick access to large amounts of funding. HELOC does not take long to process, and you can receive money in a lump sum payment and use it for long-term care costs immediately. Also, you have the ability to only draw down the amount of money that you require.
• The cost of borrowing through HELOC is low than through reverse mortgages and other loan alternatives.

Cons:

• Repayments on HELOCs start immediately, unlike reverse mortgages. As such, you may wish to ensure that you can make these repayments, or you run the risk of foreclosure.
• HELOCs require a good credit score, so if your credit history is not good enough, your HELOC application may get rejected. 

Read more on: Home Equity Loan vs HELOC: Choosing the Best Option for Your Financial Needs.

Savings

Alternatively, using savings to pay for long-term care is one of the most ideal options if the funds are available. 

Pros:

• Freedom of choice. If you are paying for long-term care with your own savings, you can choose what care you receive and where you want to receive it. 
• No borrowing costs. Using your own funds means that you are not incurring interest or charges on your long-term care costs.

Cons:

• Many people enter long-term care without knowing how long they will require care for. While you may have the budget for a year’s worth of care, it would be best to plan for future periods.
• Long-term care is expensive and will eat through your savings quickly. If you had planned savings for other purposes or for inheritance for your family, make sure you are aware of the potential costs.

Community Resources & Assistance

Several not-for-profit institutions and community support centers provide caregiving services. Volunteers assist with caring for people who require help with day-to-day activities.

Pros:

• Community resources can be free or cheap compared with alternative options. 
• Local community support can feel like more of a personal touch compared with more significant healthcare and long-term care providers.

Cons:

• The availability of community support tends to be very limited.
• Volunteers are required to run community support resources, and if volunteers aren’t available, there is no support available.

Conclusion

Although the need for long-term care may be in the distant future, it is vital to start planning today. Given the continually increasing costs for long-term care, it may be an idea to price up long-term care insurance to give you peace of mind in the future. We’ve outlined several options available if you do require long-term care, so consider these carefully and choose the option that is best for you.

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