What Are the Options?
Have you thought about how you would pay for long-term care? If not, you should. According to the U.S. Department of Health and Human Services, today’s 65-year-olds have a 70 percent change of need long-term care services at some point. Women are especially at risk, needing an average of 3.7 years of care, compared to the average 2.2 years of care needed by men.
That care doesn’t come cheap. In 2016, the average cost for one-bedroom unit in an assisted living facility was $119 a day or $3,628 a month, while a semi-private room in a nursing home cost $225 a day or $6,844 a month. Even if you stay in your own home, care can be expensive. Health aides charged an average of $20.50 an hour in 2016.
Considering how common it is to need long-term care services, and how expensive those services are, it’s important to consider your options for paying for long-term care now.
Option One: Medicaid
Medicare does NOT cover long-term care.
Medicare covers medical care, but it does not cover the services needed for daily living, such as eating and bathing, that comprise long-term care. Medicare will cover nursing home stays and some in-home skilled services if they are medically necessary, but only for a limited amount of time.
Medicaid, on the other hand, does cover long-term care services. To qualify for Medicaid, however, your income and assets have to be below the limits set by your state. This means that you may have to blow through your retirement savings before Medicaid will start paying for your long-term care.
Option Two: Private Long-Term Care Insurance
Although most private health insurance plans will not cover long-term care, there are insurance products that will.
Long-term care insurance is specifically designed to cover the costs of long-term care. According to the American Association for Long-Term Care Insurance’s 2018 Long-Term Care Insurance Price Index, a 55-year-old couple in select health could expect to pay $3,000 in annual premiums for coverage, while a 65-year-old couple in select health could expect to pay $4,675.
It’s also possible to purchase a life insurance/long-term care insurance hybrid policy, which can payout either to cover the cost of long-term care or in a death benefit, or an annuity with a long-term care rider.
Option Three: Personal Savings and Assets
That last way to pay for long-term care is to use your personal savings or assets. Although draining your savings account is one possibility – assuming you have enough in savings – there may be other options available to you.
If you own your own house and are at least 62 years old, you may be able to apply for a reverse mortgage to pay for your long-term care. With a reverse mortgage, you receive monthly payments that you do not have to pay back during your lifetime. This is a way to keep your home while tapping into your home’s equity.
You can also pay for long-term care using a health savings account (HSA). HSAs are available to people enrolled in high deductible health plans. Medicare is not a high deductible health plan, so Medicare beneficiaries cannot contribute to an HSA. They can, however, retain existing HSAs, and the money saved in an HSA does not expire.
You can use an HSA to pay for long-term care services directly, or you can use it to pay for long-term care insurance.