Long term care is a reality that everyone will eventually explore – either for themselves, a loved one, or both. It can be an expensive proposition that too few people are prepared for or understand. See our comprehensive list of funding strategies that can help fund long term home care, skilled nursing facilities, or assisting livings.

Unfortunately, most people don’t think about how they will pay for care until they are confronted by a serious health situation for themselves or a loved one. Long-term care is a topic that people avoid and don’t understand until one day a crisis comes up, and most people are completely unprepared for or try to start planning in the midst of the crisis. Due to the complexities of the options offered to pay for care this process can feel overwhelming and frustrating in an already stressful situation.

There is a major disconnect between what people think about their lives and the realities of long-term care. 70% of people over the age of 65 will need some form of long-term care in their remaining lifetime – yet very few people realize how expensive care can be and what it will take for them to pay for it.

Impacts of Health

The ticking timebomb for the majority of retirees is the lurking stressor of failing health and the expensive costs of long-term care. Let’s look at some of the numbers –

  • Number of people receiving long-term care
    • Long Term Home Care = 12 million
    • Skilled Nursing Facility = 1,347,600
    • Assisted Living = 811,500
  • The average couple retiring in 2019 at 65 will spend $285,000 on medical costs in retirement

Who pays for care?

Long-term care is a very expensive proposition, and too few people adequately plan for or can handle these costs once they arrive. Coverage from Medicaid and Medicare is not guaranteed and is limited in its scope. Much of the burden falls on family caregivers and costs are covered out-of-pocket.

  • Average costs of care per month
    • Long Term Home Care = $5,000
    • Assisted Living = $4,500
    • Skilled Nursing Facility = $7,900 (semi-private) / $9,000 (Medicare)
  • Funding Sources
    • Entitlements = 35% Medicaid / 25% Medicare
    • Private Pay = 4% (LTCi) / 33% (out-of-pocket)

Private Pay Options for Senior Living and Long-Term Care

Families need to do all they can today to prepare to fund long-term care and protect themselves from both the financial costs and the possibilities of legal liabilities. There are actions that people can start taking today to prepare themselves for future costs, and there are long-term care funding tools that people care use to address the immediate need for care as well.

Here are some of today’s options for private pay funding of long-term care:

  • Long-Term Care Insurance: Policies that will provide a fixed monthly payment to cover approved forms of qualifying long-term care. Long-Term Care insurance can be purchased as a stand-alone policy or as a life/LTC hybrid policy. The younger and healthier a person is when buying a policy, the more affordable their premium rates and likelihood to qualify.
  • LTC-Life Settlements: A Life Settlement can be used to fund a Long-Term Care Benefit Plan which is similar to a Health Savings Account (HSA). This LTC Benefit Plan is an irrevocable Bank Account that is professionally administered with payments made monthly to long-term care providers. Medically qualified policy owners that use an LTC-life settlement are able to immediately direct tax-exempt payments to cover their senior housing and long-term care costs.
  • Pension Protection Act (PPA) Annuity: A tax-free annuity option established by the Pension Protection Act in 2006 allowing for the funding of annuities under favorable conditions for the purposes of long-term care can create either a monthly income stream drawing down on the original premium or the full premium can remain untouched until 2 ADL’s trigger the need for care and available balance increased 3x.
  • Medicaid Compliant Annuity: A single premium immediate annuity purchased to set up a guaranteed income stream for a spouse while the annuitant qualifies to go onto Medicaid and into a nursing home. It is an irrevocable annuity established for a period equal to or less than the remaining life expectancy of the annuitant. The state is named as the remainder beneficiary to receive any funds after the annuitant dies.
  • Medically Underwritten SPIA: An immediate annuity designed to provide a higher monthly income to people with impairments and suffering loss of ADLs (Activities of Daily Living) who need LTC supports and want to establish a guaranteed income stream for life.
  • Veteran’s Aide & Attendance Benefit: Veterans of active combat duty and/or their spouses are eligible to receive monthly benefits paid directly towards qualifying long-term care service. Like Medicaid, the applicant must meet both medical necessity and income/asset level requirements to qualify.
  • Reverse Mortgage: Homeowners with little to no remaining mortgage balance that are age 62 or older can qualify to take a HUD-backed Home Equity Conversion Mortgage (HECM) loan against the home in the form of a lump sum, monthly income, or line of credit. To qualify the home must still be the primary residence and the loan must be paid back with interest and fees after the homeowner dies (typically through the sale of the property).
  • Senior Bridge Loans: A loan that can be secured specifically to pay for long-term care services. These loans are secured by collateral such as a home that is for sale or guaranteed by family members who co-sign (one or more). Interest rates are similar to a credit card and the loans are typically between $50,000 – $500,000 for a term or one year or less.

The key to successfully navigating any long-term care situation is to understand the range of available financing options and understand the differences between what will be covered by Medicare, Medicaid, or Private Pay. Planning as far in advance as possible is best, but there are also a number of funding options available that can help people address a sudden and immediate need for care.

Find yourself with questions about home care – see our FAQ page.


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