The 5 Ways to Pay for Long Term Care
By James Gau
Under our current system there are 5 ways to pay for long term care:
1. Medicare. Medicare does pay for some long term care costs but it is only a short term solution.
In order for Medicare to cover long term care costs, a person must go into a long term care facility after at least a 3 day hospitalization. A doctor must certify that the person needs skilled nursing care and in order for Medicare to continue paying for the care, the person must be improving because of the skilled nursing care.
At most, Medicare will pay for 100 days of skilled nursing care. That is just barely over 3 months. Medicare is usually only a solution for rehabbing from the condition that caused the 3 day hospitalization.
2. Long Term Care Insurance. More and more seniors are using long term care insurance because the products have improved and the cost of the policies has gone down. If you can afford the premiums and you are insurable, the best solution to protect against significant long term care costs is long term care insurance. Most policies issued today cover home care and assisted living as well as nursing home care. A good long term care policy is a means of leveraging money and transferring risk.
By leverage I mean this. If you paid $1,500 per year for 20 years for the premium on long term care insurance, you will have paid $30,000 for the coverage over the 20 year period. If after the 20 years you have to go into a nursing home that costs $5,000 per month, you will have recouped all of the money you spent on the premium in just 6 months. Here are some things to keep in mind when shopping for long term care insurance:
* Make sure the policy covers the cost of home care and assisted living care;
* Purchase at least 3 years but ideally 5 or 6 years of coverage;
* Make sure you fill out the application for insurance truthfully so coverage will not later be denied;
* Purchase your insurance from companies rated A or A+ by services that rate insurance companies;
* Get quotes from multiple companies before making a decision;
* If you cannot afford insurance for both spouses, buy for the healthier spouse or the spouse likely to live the longest;
* Check with your tax preparer to see if your long term care insurance premiums are deductible;
* Consult with an experienced long term care insurance agent.
3. Veteran’s Administration Benefits. VA Aid & Attendance Benefits are available to a veteran or a widow of a veteran to help pay for the cost of in-home health care, assisted living care and nursing home care. This is a tax-free pension benefit if the veteran qualifies. Most veterans or their widows do not even know this benefit exists.
Basic eligibility criteria:
? The veteran must have served 90 days of active duty with at least one day of service during a designated war time period;
? The veteran must have received a discharge that is other than dishonorable;
? The claimant must have a limited net income and limited assets in their names (notice the word NET);
? The recipient must be in need of assistance with at least 2 of the activities of daily living such as meal prep, transportation, supervision, toileting, dressing, etc.
The benefits are paid directly to the veteran or their spouse and not to their residential community. The payments are retroactive to the date of application and the payments received are tax-free.
Be sure you are dealing with an accredited VA representative or attorney when asking about VA benefits. You can search for accredited representatives at [http://www.va.gov/ogc/apps/accreditation/index.asp]. Also be wary of insurance or annuity salesmen that advertise that they can get you qualified for VA benefits. That may be true, but they may actually put you in a bad situation should the time come that you need to apply for Medicaid. Only accredited attorneys can truly plan for your VA benefits in conjunction with state Medicaid. Accredited representatives are not allowed to charge for completing these applications.
4. Private Pay. The fourth way that people pay for long term care costs is the most common way and that is people pay privately out of their income and savings until they reach the countable asset limit when Medicaid kicks in. People have spent literally hundreds of thousands of dollars that could have been saved with proper Medicaid planning.
Medicaid planning is the legal process of structuring assets in a way that is permissible within the State’s Medicaid rules. The goal of the planning is to maximize non-countable or exempt assets. Many people believe that all of a person’s assets must be gone before applying for Medicaid benefits. This is NOT TRUE!
For those people who do not have long term care insurance or who are not eligible for the VA Aid & Attendance Benefits or who cannot afford to pay the high cost of long term care out of pocket indefinitely, Medicaid becomes the primary source of funding for nursing home care. Some people have termed Medicaid the long term care insurance for the middle class.
5. Medicaid. Medicaid is a joint Federal-State program. Each State operates its own Medicaid system and must conform to Federal guidelines in order for the State to receive the Federal money which pays half of the State of Illinois Medicaid costs. The State picks up the rest of the tab.
The Medicaid eligibility rules are similar from state to state but there are minor differences. Further, the Federal Government and the States seem to be continually tinkering with the eligibility requirements and restrictions. This most recently occurred with the Deficit Reduction Act of 2005 (the DRA) which became law on February 8, 2006 and significantly changed the rules governing on how asset transfers were treated and how a person’s home was treated.
As the population ages and the burden of caring for our senior residents become greater, it is expected that the rules will continue to change. Thus, something that may work today as a Medicaid planning technique may not be available in 3 months, 6 months or a year down the road.
For more information about Medicaid planning, the VA Aid & Attendance pension, or what we can do to protect your assets. Contact me.