Costs of Care
Who Pays for LTC Services?
-- Public Programs
---- Older Americans Act Programs
---- Veterans Affairs LTC Benefits
-- Private Financing
---- Long-term Care Insurance
---- Life Insurance and LTC
---- Other Insurance
---- Reverse Mortgages
Saving for LTC
---- Continuing Care Retirement Communities (CCRCs)
Finding LTC Services
Long-term care (LTC) services include personal care services like bathing, doing household chores, and other activities, to help you stay independent in your community. Long-term care also includes community services, such as meals, adult day care, and transportation services. Residential facilities, such as assisted living facilities and nursing homes, also provide long-term care services along with housing.
Depending on how much you need, these types of services can be expensive. Medicare and other health insurance do not include most long-term care services, so planning for how you might pay for long-term care becomes important. If you have fairly low income and savings, you may qualify for Medicaid, the federal public program that pays for most long-term care services. Other federal public programs, such as the Older Americans Act, and state-funded programs, pay for long-term care services, but, like Medicaid, these programs cover services for people with high levels of disability and low income and savings.
With 70 percent of us needing long-term care services at some point during our lives after turning age 65, and the limited coverage of public programs, there is a good chance you will have to pay for some or all of the services out of your personal income and savings. Even if you only need a little assistance at home with personal care, paying for long-term care out of your personal income and savings can be difficult. For example, you would pay more than $19,000 on average for a home health aide to assist three times a week, in 2010.
Long-term care includes a range of health and support services that you may need as you age or if you have a disability. Most of these services are personal care services, such as bathing and dressing. Family members may be able to provide some or all of these services at no charge. But if your care and support needs increase, you may need paid care in addition to the services that your family members provide, or to give them respite. In addition, if your needs increase to the point where you need services in a facility like a nursing home or assisted living, you may need to plan how to pay for these services.
The cost of long-term care depends on the type and amount of care you need, the provider you use, and where you live. Here are a few examples:
Home health and home care services, provided in two-to-four-hour blocks of time referred to as “visits,” are generally more expensive in the evening, on weekends, and on holidays.
The costs of services in some community programs, such as adult day service programs, are provided at a per-day rate, but vary based on the program’s costs and activities.
Many facility-based programs charge extra for services provided beyond the basic room, food and housekeeping charges, although some may have “all inclusive” fees.
The average costs for long-term care in the United States (in 2010) are:
- $205 per day or $6,235 per month for a semi-private room in a nursing home
- $229 per day or $6,965 per month for a private room in a nursing home
- $3,293 per month for care in an assisted living facility (for a one-bedroom unit)
- $21 per hour for a home health aide
- $19 per hour for homemaker services
- $67 per day for services in an adult day health care center
If you have enough income and savings, you will likely need to pay for long-term care services on your own, from your income, savings, and possibly from the equity in your home. You can also purchase long-term care insurance to cover your personal care needs.
Three main government programs might help you pay for services if you meet their rules, though these programs cover limited numbers of people.
- Medicaid: Medicaid may pay for your care if you qualify based on your level of need or disability (also called “functional eligibility”) and have limited savings, or if you use up your savings paying for long-term care services yourself.
- The Older Americans Act: The Older Americans Act may also help you to pay for some long-term care services.
- Department of Veterans Affairs: If you are a Veteran, the U.S. Department of Veterans Affairs may provide some long-term care services.
In addition, some states offer their own programs to cover some long-term care services. You may use a variety of payment sources, some from public programs and others from private insurance, or from your own income and savings as your care needs and financial circumstances change.
Many people think Medicare or their regular health care insurance from their employer that covers hospital stays and doctor visits will pay for long-term care. Health care insurance and Medicare may pay for your care if you need skilled care or care for a short time to recover from an illness or injury. They do not cover ongoing personal care needs, like help with bathing and dressing.
Coverage Limits of Long-Term Care Offered by Health Insurance
Long-Term Care Service
Private Health Insurance
|Overview||Limited coverage for nursing home care following a hospital stay and home health if you require a nurse or other skilled provider.||Insurance purchased to cover Medicare cost sharing.||Varies, but generally only covers services for a short time following a hospital stay, surgery or while recovering from an injury.|
|Nursing home care||Pays in full for days 1–20 if you are in a Skilled Nursing Facility following a recent 3-day hospital stay.
If your need for skilled care continues, may pay for the difference between the total daily cost and your copayment of $137.50 per day for days 21-100. After day 100 does not pay.
|May cover the $137.50 per day copayment if your nursing home stay meets all other Medicare requirements.||Varies, but limited.|
|Assisted living facility (and similar facility options)||Does not pay.||Does not pay.||Does not pay.|
|Continuing Care Retirement Community||Does not pay.||Does not pay.||Does not pay.|
|Adult day services||Not covered.||Not covered.||Not covered.|
|Home health and personal care||Limited to reasonable, necessary part-time or intermittent skilled nursing care and home health aide services, some therapies if a doctor orders them, and a Medicare-certified home health agency provides them.
Does not pay for on-going personal care or only help with Activities of Daily Living (also called “custodial care”).
|Not covered under current policies.
Some policies sold prior to 2009 offered an at-home recovery benefit that pays up to $1,600 per year for short-term at-home assistance with activities of daily living (bathing, dressing, personal hygiene, etc.) for those recovering from an illness, injury, or surgery.
|Varies, but limited.|
A number of public programs help pay for long-term care services. Each program has specific rules about what services it covers, how long you can receive services, how you can qualify for services, and in some cases, how much you have to pay out-of-pocket.
Medicare only covers medically necessary care and focuses on medical acute care, such as doctor visits, drugs, and hospital stays. Medicare coverage also focuses on short-term services for conditions that are expected to improve, such as physical therapy to help you regain your function after a fall or a stroke.
Medicare pays for health care for people age 65 years and older, people under age 65 with certain disabilities, and for people of all ages with end-stage renal disease (permanent kidney failure that requires dialysis or a kidney transplant).
Medicare covers limited long-term care services
Medicare does not pay the largest part of long-term care services or personal care—such as help with bathing, or for supervision often called custodial. Medicare will help pay for a short stay in a skilled nursing facility, for hospice care, or for home health care if you meet conditions described below.
Medicare will pay for services in a skilled nursing facility if:
- you have had a recent prior hospital stay of at least three days;
- you are admitted to a Medicare-certified nursing facility within 30 days of your prior hospital stay; and
- you need skilled care, such as skilled nursing services, physical therapy, or other types of therapy.
If you meet all these conditions, Medicare will pay for some of your costs for up to 100 days. For the first 20 days, Medicare pays 100 percent of your costs. For days 21 through 100, you pay your own expenses up to $137.50 per day (as of 2010), and Medicare pays any balance left. You pay 100 percent of costs for each day you stay in a skilled nursing facility after day 100.
In addition to skilled nursing facility services, Medicare pays for the following services for a limited time when your doctor says they are medically necessary to treat an illness or injury:
- Home health care services. Unlike nursing facility services, there are no copayments for home health.
- Home health aide services.
- Part-time or intermittent skilled nursing care.
- Physical therapy, occupational therapy, and speech-language pathology that your doctor orders that a Medicare-certified home health agency provides for a limited number of days only.
- Medical social services to help cope with the social, psychological, cultural, and medical issues that result from an illness. This may include help accessing services and follow-up care, explaining how to use health care and other resources, and help understanding your disease.
- Medical supplies and durable medical equipment such as wheelchairs, hospital beds, oxygen, and walkers. For durable medical equipment you pay 20 percent of the Medicare approved amount.
There is no limit on how long you can receive any of these services as long as they remain medically necessary and your doctor reorders them every 60 days.
Hospice care: Medicare covers hospice care if you have a terminal illness and are not expected to live more than six months. If you qualify for hospice services, Medicare covers drugs to control symptoms of the illness and pain relief, medical and support services from a Medicare-approved hospice provider, and other services that Medicare does not otherwise cover, such as grief counseling. You may receive hospice care in your home, in a nursing home (if that is where you live), or in a hospice care facility. Medicare also pays for some short-term hospital stays and inpatient care for caregiver respite.
Medicaid is a joint federal and state government insurance program that helps people of low income pay for some or all of their health care bills. It covers both medical care, like doctor visits and hospital costs, and long-term care services at home, such as assistance with personal care, and nursing home services.
Overall program rules and coverage are based on federal requirements, but states have options in developing programs including which services they provide and the eligibility requirement they use. As a result, rules and services vary from state to state.
General eligibility requirements and how to apply can be found on the Centers for Medicare and Medicaid Services website. Check the Resources section of this website for how to find the eligibility standards for your state.
If you have Medicaid and need long-term care services, you may be asked to meet additional eligibility requirements. These can be complicated. Requirements include how much assistance you need with personal care like bathing and dressing—called Activities of Daily Living.
Most states use a specific number of personal care and other service needs to qualify for nursing home care or home and community based services. There may be different eligibility requirements for different types of home and community based services. Each state has its own rules for who qualifies for Medicaid long-term care services.
Your State Medical Assistance office is the best source for information about how to qualify for Medicaid in your state, and if you qualify for long-term care services, is. You can find the phone number and website for your State Medical Assistance or Medicaid office by selecting your state on the map.
Applying for Medicaid
To qualify for Medicaid long-term care services you have to have limited income and resources. You must also meet other requirements such as:
- if you are pregnant;
- if you are disabled;
- if you are blind; or
- if you are a U.S. citizen or a lawfully admitted immigrant.
In addition, to quality for Medicaid long-term care services you must require a certain amount of assistance with personal care like bathing and dressing called Activities of Daily Living. These rules vary from state-to-state. To see if Medicaid may pay for your long-term care services, you need to find out if you are eligible for the program.
How do you apply for Medicaid long-term care services?To apply for Medicaid for long-term care services, you will have to:
- Fill out an application form
- Provide documentation to verify general and financial requirements
- Go through a functional eligibility assessment.
You may apply for Medicaid coverage or you may designate another person, such as a family member, your attorney, or a friend, to apply for you. If someone else apples for you, that person should be familiar with your situation, be able to answer all eligibility questions, and have access to your financial records. The state may also require a face-to-face interview.
If you own a home, the state may ask you to document the current fair market value of the home and any loans for the home, such as mortgages or equity loans. The state may ask for these documents:
- A current tax bill
- A real estate appraisal
- Copies of your mortgage
If your savings went down a lot within the past five years, the state may ask you to show evidence of what you did with the money. If you are married and in a nursing home, you will also be asked to document your assets when you first entered the nursing home—this establishes how much your spouse is able to keep.
Where do you apply for Medicaid?
All states have local Medicaid eligibility offices where you can file applications. Many states also provide applications at different locations in your community, including Aging and Disability Resource Centers. In some states, you can also apply online.
Visit your State Medical Assistance Office to find out where you can apply for Medicaid benefits.
When should you apply for Medicaid?
The best time to apply for Medicaid depends on your medical situation, your marital status, and the complexity of your finances. If your finances are straightforward, the state may be able to process your application faster.
The Medicaid agency usually has 45 days to process your application. If the application requires a disability determination, the agency can take 90 days.
It may take longer to apply for Medicaid if you do not provide the required documents on time. If Medicaid thinks that you are not cooperating, it may deny your application for “administrative reasons.” If this happens, you will have to start your application over again once you have your documents in hand.
If the Medicaid agency determines that you are eligible, you will receive a letter with your date of eligibility and the amount you must pay toward the cost of your care. Medicaid will review your eligibility status every year. During the yearly review, you will be need to document your income and assets again. The review process is usually simpler than the original application process.
If the Medicaid agency determines that you are not eligible, you will receive a letter that explains the reason for denial. The notice will also explain how you can appeal the decision.
Medicaid Eligibility Requirements
You must meet three types of requirements to qualify for Medicaid long term care services:
- General medicaid eligibility requirements
- Functional requirements
- Financial requirements
What are general Medicaid eligibility requirements?
To meet the general Medicaid requirements for long term care services you must:
- Be age 65 or older
- Have a permanent disability
- Be blind
- Be a U.S. citizenship or meet certain immigration rules
- Be a resident of the state where you apply
What are functional eligibility requirements?
In order for Medicaid to cover your long-term care services, a medical specialist in your state must evaluate your needs and decide if you need long-term care services. Usually, the specialist will make their decision based on whether you need assistance performing certain Activities of Daily Living (ADLs), such as:
- Using the toilet
- Transferring to or from a bed or chair
- Caring for incontinence
If you do not meet Medicaid’s functional eligibility criteria, Medicaid will not cover long-term care services, regardless of financial eligibility.
If you do need long-term care services, the specialist will usually determine if you need nursing home care or home and community-based services.
The functional eligibility evaluation is not the same as your financial eligibility evaluation.
What are Medicaid's financial eligibility requirements?
To see if you meet the financial eligibility requirements for Medicaid, the state will look at your available income and assets.
Income: To get Medicaid, you must have limited income and savings. The amount of income varies by state, but is generally set at the poverty level which in 2010 is $22,050 per year for a family of four. When the state determines your financial eligibility for Medicaid, the state will count some of your income, but not all. Your income includes these sources:
- Regular payments such as Social Security
- Veterans’ benefits
- Interest from bank accounts
Medicaid will count payments to which you are entitled even if you don’t receive them. For example, if you get $500 a month from a trust that could pay you $1,000, Medicaid counts $1,000 as your income. If you and your spouse receive joint payments, such as rental income, the state allocates half to you and half to your spouse.
Assets: When the state determines your financial eligibility for Medicaid, some of your assets are considered, while others are excluded. During the Medicaid application process, you will have to document your assets. While Medicaid’s assessment of your income is relatively straightforward, the assessment of your assets is fairly complex.
Assets that do not get counted for eligibility include the following:
- Your primary residence
- Your personal belongings
- One motor vehicle
- Property that is essential to self-support
- Life insurance with a face value under $1,500
- Certain burial arrangements
- Assets held in specific kinds of trusts.
Unless specifically excluded, any other real or personal property that you and your spouse own is counted in the Medicaid eligibility determination.
If you own assets jointly with others, the assets are generally divided equally among all owners when the state determines your Medicaid eligibility.
The amount of assets you can have and still qualify for Medicaid varies from state to state. In most states, you can retain about $2,000 in countable assets and married couples who are still living in the same household can retain about $3,000 in countable assets.
If one spouse lives in an institution and the other lives in the community, the community spouse is allowed to keep more assets without disqualifying the spouse in the institution from Medicaid coverage. In most states, the community spouse is allowed to keep half of the married couples’ combined assets, subject to both a minimum and a maximum amount. In 2010, the minimum was $21,912 and the maximum was $109,560.
Medicaid LTC Services
Medicaid covers nursing home services for all eligible people age 21 and older. Medicaid also covers home and community-based services for people who would need to be in a nursing home if they did not receive the home care services.
In most states, Medicaid will also cover services that will help you remain in your home, such as personal care services, case management, and help with laundry and cleaning. Medicaid will not pay for your rent, mortgage, utilities, or food. Check to see whether your state Medicaid program offers alternatives to nursing home care services.
It is important to understand that Medicaid programs and eligibility for services vary from state to state. Services that may be available to you in one state may not be available in another. For example, some states cover assisted living services under their home and community-based services waivers, while others do not. Contact your state Medicaid office to learn more about your state’s programs and eligibility requirements.
Medicaid Estate Recovery
If you receive Medicaid coverage for long-term care services, federal law requires states to recover the amount Medicaid spent on your behalf from your estate after you die. An estate is all of the personal property you own when you die, such as your home.
Estate recovery happens after the death of a Medicaid recipient who was either permanently institutionalized or age 55 and older. Some estates are exempt from estate recovery. For example, if your spouse is still alive, your estate is exempt from recovery. In these cases, states may recover from the spouse’s estate after his or her death. Your heirs can also seek a hardship waiver from estate recovery.
The Older Americans Act provides federal funds to pay for home and community-based long-term care services for older adults, generally 60 and older, and their families. The focus of these programs is to help older adults remain in the community as independently as possible.
Older Americans Act services are provided through state and local agency networks known as the Aging Network. Services include:
- Nutrition programs such as home-delivered meals for homebound elderly or meals served in community settings
- Transportation services
- Health promotion services to help prevent disease or manage chronic illnesses
- Personal care assistance and help with household chores and shopping
- Legal assistance and services that protect the rights of older persons such as the long-term care ombudsman program
- Family caregiver services and supports including time off from their responsibility, called respite care
While there are no specific financial eligibility criteria for Older Americans Act services, they are generally targeted for low-income, frail seniors over age 60, minority older adults, and seniors living in rural areas. Specific funds are set aside for Native American older adults.
Local agencies, called Area Agencies on Aging (AAAs), work with State Units on Aging to plan and develop service and support programs based on the needs of older adults and families. More information on Older Americans Act programs is available on the Administration on Aging website.
The Department of Veterans Affairs (VA) pays for long-term care services for service-related disabilities and for certain other eligible veterans, and other health programs such as nursing home care and at-home care for aging veterans with long-term care needs.
The VA also pays for veterans who do not have service-related disabilities, but who are unable to pay for the cost of necessary care. Co-pays may apply depending on the veteran’s income level.
The VA has two more programs to help veterans stay in their homes:
The Housebound and Aid and Attendance Allowance Program. This program provides cash to eligible veterans with disabilities and their surviving spouses to purchase home and community-based long-term care services such as personal care assistance and homemaker services. The cash is a supplement to the eligible veteran’s pension benefits.
A Veteran Directed Home and Community Based Services program (VD-HCBS). This program was developed in 2008 for eligible veterans of any age. The program provides veterans with a flexible budget to purchase services. Counseling and other supports for veterans are provided by the Aging Network in partnership with the Veterans Administration.
Visit the Department of Veterans Affairs to view available programs and services or download a Veterans Benefits fact sheet. You can call the VA at 800-827-1000 to obtain information about services available in your area.
It’s difficult to predict if or how much care you will need, who will provide it, and how much it might cost. It’s easier to predict that if you need a lot of long-term care services, you will have to pay for some or all of it yourself. That’s why more people are looking into private financing options to help pay for their long-term care.
Private long-term care financing options include:
- Long-term care insurance
- Reverse mortgages
Which option is best for you depends on your age, your health status, your risk of needing long-term care services, and your personal financial situation. The charts below show how age and health status may affect your options.
Your health status
Some methods of paying for long-term care services require that you undergo health screening. Some options require that you be in relatively good health. In many cases, this means that you do not currently need long-term care services and do not currently have a debilitating chronic condition such as Parkinson’s Disease that would almost certainly mean you would need long-term care eventually. In contrast, some options are only available to you if you are in poor health.
The table below shows which payment options to consider given your current health status.
Relatively Good Health
Poor Health or Terminally Ill
Health Considerations are not important
|Long-Term Care Insurance||Options with Life Insurance||Saving for long-term Care|
|Deferred long-term annuity||Reverse mortgages|
|Continuing Care Retirement Communities|
Some private payment options are good choices for older people while others make more sense for younger people. In general, long term care insurance costs less if you purchase it at a younger age. Also, you will be in a much better position to save up for your long term care needs if you start at a younger age.
Traditional health insurance and Medicare do not cover the costs of many long-term care services. They do not cover services in your home, including personal care, as well as care in a variety of facility and community settings. Long-term care insurance, on the other hand, will cover the costs of long-term care services.
Long-term care insurance policies provide flexibility and allow for a great deal of choice. You can select a range of care options and benefits that allow you to get the services you need, where you need them.
The cost of your long-term care policy is based on the type and amount of services you choose to cover, how old you are when you buy the policy, and any optional benefits you choose, such as benefits that increase with inflation. If you are in poor health or already receiving long-term care services, you may not qualify for long-term care insurance. In some cases, you may be able to buy a limited amount of coverage, or coverage at a higher “non-standard” rate.
Coverage & Benefits Choices
Many long-term care insurance policies have limits on how long or how much they will pay. Some policies will pay the costs of your long-term care for two to five years.
Some insurance companies offer policies that will pay your long-term care costs for as long as you live—no matter how much it costs. But there are very few companies today that offer such unlimited or lifetime policies. However, some companies do have a “high coverage option” which might offer a $1 million lifetime limit.
Most policies sold today are “comprehensive” policies. They typically cover care and services in a variety of long-term care settings including:
- Your home
- Adult day service centers
- Hospice care
- Respite care
- Assisted living facilities (also called residential care facilities or alternate care facilities)
- Alzheimer's special care facilities
- Nursing homes
In the home setting, comprehensive polices generally cover these services:
- Skilled nursing care
- Occupational, speech, physical, and rehabilitation therapy
- Help with personal care, such as bathing and dressing
Many policies also cover some homemaker services, such as meal preparation or housekeeping as long as it is in conjunction with the personal care services you receive.
When you start receiving benefits is based on the policy’s “benefit trigger,” the length of the elimination period you choose, and sometimes when you start receiving paid care. Benefit triggers are the criteria insurance policies use to determine when your long-term care begins. Usually, the benefit triggers are defined in terms of Activities of Daily Living or cognitive impairments. For example, most policies pay benefits when you need help with two or more of six Activities of Daily Living or when you have a cognitive impairment.
The “elimination period” is the amount of time that must pass after a benefit trigger occurs but before you start receiving payment for services. An elimination period is like the deductible you have on car insurance, except it is measured in time rather than by dollar amount. Most policies allow you to choose an elimination period of 30, 60, or 90 days. During the elimination period, you must cover the cost of any services you receive. Some policies specify that in order to satisfy an elimination period, you must receive paid care or pay for services during that time.
Once your benefits begin, most policies pay your costs up to a pre-set limit. Other policies pay a pre-set cash amount for each day that you meet the benefit trigger whether you receive paid long-term care services on those days or not. These “cash disability” policies offer more flexibility but are much more expensive.
Things to consider before buying long-term care insurance
Things to think about before you buy long-term care insurance:
- Don’t buy out of fear or emotion.
- Don’t buy more insurance than you think you may need. You may have enough income to pay a portion of your care costs and you may only need a small policy for the remainder. You also may have family members willing and able to supplement your care needs.
- Don’t buy too little insurance. That will only delay the use of your own assets or income to pay for care. Think about how you feel about having care costs that are not covered. While you can usually decrease your coverage, it is more difficult to increase coverage, especially if your health has declined.
- Look carefully at each policy. There is no “one-size-fits-all” policy.
- If you choose a policy that only pays for room and board in a facility, plan for other expenses, such as supplies, medications, linens, and other items and services that your policy may not cover.
- It costs less to buy coverage when you are younger. The average age of people buying long-term care insurance today is about 60. The average age of those purchasing policies offered at work is about 50.
- Make sure that you can afford the long-term care insurance policy.
- Research and consider different options and talk with a professional before finalizing your decision.
Where you can buy long-term care insurance?
Most people buy long-term care insurance directly from an insurance agent, financial planner, or broker. States regulate which companies can sell long-term care insurance and the products that they can sell. There are more than 100 companies offering long-term care insurance nationally, but 15 to 20 insurers sell most policies. The best way to find out which insurance companies offer long-term care coverage in your state is to contact your state's Department of Insurance.
Many private and public employers, including the federal government and a growing number of state governments, offer group long-term care programs as a voluntary benefit. Employers do not typically contribute to the premium cost (as they do with health insurance), but they often negotiate a favorable group rate.
If you are currently employed, it may be easier to qualify for long-term care insurance through your employer than it is to purchase a policy on your own. Check with your benefit or pensions office to see if your employer offers long-term care insurance.
The U.S. Office of Personnel Management has additional information about the Federal Long Term Care Insurance Program.
What does long-term care insurance cost?
If you have a long-term care insurance policy, you pay a pre-set premium and the policy pays for the services you need when you need them (up to its coverage limits). On occasion, if the assumptions used to price the policy prove wrong, the insurance company can increase your premiums beyond the pre-set amount. Typically, you are not expected to pay premiums while you receive long-term care.
The cost of a long-term care policy varies greatly based on your age at the time of purchase, the policy type, and the coverage you select. In 2007, the average annual premium cost for individual buyers across all ages and policy types was about $2,207. Excluding the 20 percent of people who elected lifetime coverage, the average policy from 2007 covered 4.8 years worth of benefits with a daily benefit amount of $160. Most people selected a comprehensive policy that covers both facility and at-home care, and they also purchased some form of automatic inflation protection. The chart below shows the average annual long-term care insurance premium amounts for specific age groups in 2007.
Average Monthly Premiums by Age for all LTC Policies sold in 2008
Group market policies (includes FLTCIP)
Average Monthly Premium
Range of Premiums
|30 to 39||245||151-1,328|
|40 to 49||476||513-1,634|
|50 to 59||837||508-2,130|
|60 to 64||1,278||766-2,258|
Note: 8% of buyers in 2008 group market bought 5% compound IP
(company-specific numbers range from 15% to 100%)
State Partnership Programs
A Partnership Program brings together a state government, private insurance companies that sell long-term care insurance, and residents who want to buy long-term care partnership policies. The purpose of the Partnership Program is to help people purchase meaningful, shorter term, more complete long-term care insurance. The partnership links special long-term care policies, called Partnership-qualified (PQ) policies, with Medicaid for those who continue to require care.
Partnership-qualified policies must meet special requirements that vary from state to state. Most states require partnership policies to:
- offer comprehensive benefits (that is to cover both in-home and in-facility services);
- be Tax Qualified;
- provide certain specific consumer protections; and
- include certain kinds of inflation protection.
Often the only difference between a partnership-qualified policy and other long-term care insurance policies is the amount and type of inflation protection that the state requires.
A Partnership-qualified policy allows you to apply for Medicaid under modified eligibility rules that include a special feature called an “asset disregard.” This allows you to keep assets (generally your savings) that you otherwise would not be allowed to keep in order to qualify for Medicaid if you need additional help to pay for long-term care services. The amount of assets Medicaid will disregard is equal to the amount of the benefits you actually receive under your long-term care Partnership-qualified policy.
Since Partnership-qualified policies must include inflation protection, the amount of the benefits you receive can be higher than the amount of insurance protection you purchased. For example, if you have a Partnership-qualified long-term care insurance policy and receive $100,000 in benefits from it, you can apply for Medicaid and, if eligible, retain $100,000 worth of assets over and above the state’s Medicaid asset threshold. In most states the asset limit is $2,000 for a single person. Asset limits for married couples are often higher.
The following is an example of how a Partnership-qualified policy works:
- John, a single man, purchases a Partnership policy with a value of $100,000.
- Some years later he receives benefits under that policy up to the policy’s lifetime maximum coverage (adjusted for inflation) equaling $150,000.
- John eventually requires more long-term care services, and applies for Medicaid. If John’s policy was not a Partnership-qualified policy, in order to qualify for Medicaid, he would be entitled to keep only $2,000 in assets. He would have to spend down any assets over and above this amount.
- But because John bought a Partnership-qualified policy, he can keep $152,000 in assets and the state will not recover those funds after his death. John would only have to spend down his assets over and above the $152,000 in order to be eligible for Medicaid.
States must certify that partnership policies meet the specific requirements for their partnership program, including that those who sell partnership policies are trained and understand how these policies relate to public and private coverage options. The map below shows which states have implemented partnership programs and are offering long-term care partnership policies. To find out more about your state’s program, including which insurance agents are selling partnership policies, or to find out if your state offers a partnership program, contact your state’s Department of Insurance.
You can use your life insurance policy to help pay for long-term care services through the following options:
- Accelerated Death Benefits
- Life settlements
- Viatical settlements
Accelerated Death Benefits (ADB)
An Accelerated Death Benefit is a feature included in some life insurance policies that allows you to receive a tax-free advance on your life insurance death benefit while you are still alive. Sometimes you must pay an extra premium to add this feature to your life insurance policy. Sometimes the insurance company includes it in the policy for little or no cost.
There are different types of Accelerated Death Benefits, each of which serves a different purpose. Depending on the type of policy you have, you may be able to receive a cash advance on your life insurance policy’s death benefit if:
- You are terminally ill
- You have a life-threatening diagnosis, such as AIDS
- You need long-term care services for an extended amount of time
- You are permanently confined to a nursing home and incapable of performing Activities of Daily Living, such as bathing or dressing
The amount of money you receive from these types of policies varies, but typically the accelerated benefit payment amount is capped at 50 percent of the death benefit. Some policies, however, allow you to use the full amount of the death benefit.
For Accelerated Death Benefit policies that cover long-term care services, the monthly benefit you can use for nursing home care is typically equal to two percent of the life insurance policy’s face value. The amount available for home care (if it is included in the policy) is typically half that amount. For example, if your life insurance policy’s face value is $200,000, then the monthly payout available to you for care in a nursing home would be $4,000, but only $2,000 for home care. Some policies may pay the same monthly amount for care, regardless of where you receive the care.
When you receive payments from an Accelerated Death Benefit policy while you are alive, the amount you receive is subtracted from the amount that will be paid to your beneficiaries when you die.
Things to think about:
- If your life insurance policy includes an Accelerated Death Benefit feature, you may be able to use your life insurance policy to help cover long-term care services. Depending on the policy amount, there may be little or no health screenings required. So if you have a health condition that might exclude you from long-term care insurance eligibility, you can still obtain a long-term care insurance policy through the Accelerated Death Benefit feature on a life insurance policy.
- Accelerated Death Benefit policy payouts for long-term care services are often more limited than the benefits you could receive from a typical long-term care insurance policy.
- The face value of your life insurance policy may not be enough to allow Accelerated Death Benefit payments that are enough to cover your long-term care services needs. The benefit payments may be too low and the duration may be too short to cover your long-term care services expenses.
- Accelerated Death Benefit riders on life insurance policies may not offer inflation protection. If the policy does not include inflation protection, the Accelerated Death Benefit payment may not be sufficient to cover your future long-term care service costs.
- If you want to leave an inheritance, you should consider whether using your life insurance death benefit to pay for long-term care services is the right option. If you use the Accelerated Death Benefit feature for long-term care services, there may be little or no death benefit remaining for your survivors.
- Using the Accelerated Death Benefit option may affect your eligibility for Medicaid. Check with your state Medicaid agency for more information.
Life settlements allow you to sell your life insurance policy for its present value to raise cash for any reason. This option is usually only available to women age 74 and older and to men age 70 and older. You may choose to use the proceeds to pay for long-term care services.
Things to think about:
- If you sell your life insurance policy, there may be little or no death benefit left for your heirs when you die.
- The process does not require any health screens; you may be in good or poor health.
- The proceeds of the sale may be taxed.
Viatical settlements allow you to sell your life insurance policy to a third party and use the money you receive to pay for care. A viatical settlement is like a life settlement, but it is only possible if you are terminally ill. During the settlement process, a viatical company pays you a percentage of the death benefit on your life insurance policy which is based on your life expectancy. The viatical company then owns the policy and is its beneficiary. The viatical company also takes over payment of premiums on the policy. As a result, you get money to pay for care, and the viatical company receives the full death benefit after you die.
Unlike the life settlement, money you receive from a viatical settlement is tax-free, if you have a life expectancy of two years or less or are chronically ill, and the viatical company is licensed in the states in which it does business.
Things to think about:
- You can only use the viatical settlement if you are terminally ill and have a life expectancy of two years or less.
- If you use the viatical settlement option, you do not have to satisfy the health requirements for long-term care insurance.
- If you use the viatical settlement option, your life insurance policy will not pay a death benefit to your heirs.
- Viatical companies approve less than 50 percent of applicants.
The amount that you receive in cash from a viatical settlement is a percent of the death benefit on your life insurance policy. The chart below lists guidelines from the National Association of Insurance Commissioners (NAIC), for how that percent varies based on your life expectancy.
NAIC Guidelines for Viatical Payments
|Life Expectancy||Benefit (%)|
|Over 24 months||50|
Will your private health insurance or HMO pay for long-term care services?
Most forms of health insurance, such as the private health insurance or HMO you may have on your own or through your employer, follow the same general rules as Medicare with regard to paying for long-term care services. If they do cover long-term care services, it is typically only for skilled, short-term, medically necessary care.
Like Medicare, the skilled nursing home stay must follow a recent hospitalization for the same or related condition and is limited to 100 days. Coverage of home care is also limited to medically necessary skilled care. Though most people who need long-term care services need custodial or personal care, most forms of private insurance do not cover custodial or personal care services at all.
Your plan may help you pay for some of the copayments or deductibles that Medicare imposes. For example, your plan may help cover the $137.50 per day for Medicare covered nursing home care for days 21 through 100.
Will your Medicare Supplemental Policy pay for long-term care services?
Medicare supplemental insurance policies, also called “Medigap insurance,” are designed to fill in some of the gaps in Medicare coverage. Specifically, these policies help to cover Medicare copayments and deductibles. Medigap insurance enhances your hospital and doctor coverage, but does not extend to long-term care coverage. For the small portion of nursing home stays that qualify for Medicare coverage, a Medigap insurance policy may cover the daily Medicare copayment of $137.50 perday for days 21 through 100. Medigap insurance is not intended to meet long-term care needs and provides no coverage for the vast majority of long-term care expenses.
Will my disability insurance pay for long-term care services?
Disability insurance is intended to replace some of the income of a working person who can no longer work because of a disability. Disability benefits do not cover medical care or long-term care services. Most disability insurance policies do not provide benefits once you are over age 65—when you are most likely to need long-term care services.
A reverse mortgage is a special type of home equity loan that allows you to receive cash against the value of your home without selling it. You can choose to receive a lump-sum payment, a monthly payment, or a line of credit. You must use the funds you receive to pay off any existing mortgages or other debt against your home and to make required home repairs. There are no restrictions on how you use the remainder of the money.
As long as you spend the payments you receive in the month that you receive them, the money is not taxable and does not count towards income or affect Social Security or Medicare benefits. It also does not count as income for Medicaid eligibility.
When you take out a reverse mortgage, you continue to live in the home and you retain title and ownership of it. You are also still responsible for taxes, hazard insurance, and home repairs. However, you do not have to repay the loan as long as you continue to live in the home. Instead, the amount you owe, based on loan payouts and interest on the loan, becomes due when you or the last borrower, usually the last remaining spouse, dies, sells, or permanently moves out of the home.
Reverse mortgages are available to homeowners age 62 and older. Unlike traditional mortgages, you do not have to provide an income or credit history to get the loan.
Reverse Mortgage Qualifications
Typical reverse mortgage criteria include:
- All borrowers must be 62 or older.
- There is no health requirement; your health status is not a factor.
- The home must be your primary residence.
- You do not have to provide an income or credit history.
- You must meet with an approved reverse mortgage counselor before you can start the loan process. These counselors can help you decide whether a reverse mortgage is right for you.
Things to think about:
- You must use the funds you receive from the reverse mortgage to pay off any existing mortgage or other debt against the home and to make required home repairs. You can use any remaining funds for any purpose.
- You must have little or no outstanding balance on your current mortgage.
- Once you have a reverse mortgage, it is very difficult to borrow any more against your home. But you can refinance a reverse mortgage if the house increases significantly in value.
- If your heirs want to keep your home, they can repay the reverse mortgage. They can also keep the difference if the home’s sale price is greater than the reverse mortgage loan balance when they repay the loan.
Reverse Mortgages & LTC Costs
You can use the money you receive from your reverse mortgage to pay for in-home and community services and other expenses, such as home repairs and transportation, which can make it safer and more comfortable for you to live at home. Your long-term care expenses may be greater than the amount you can get in the reverse mortgage. You can also use the money to purchase long-term care insurance. It may be hard for a married couple to purchase long-term care insurance or pay for long-term care services for both spouses with the amount available from a reverse mortgage.
|Purpose||Purchase a home||Get cash from home equity|
|At the time of closing:||You owe a lot and have little equity in the home||You owe little and have a lot of equity in the home|
|During the loan:||
|At the end of the loan:||
Things to think about:
- You continue to own the house and no entity can force you to leave as long as you maintain the home, and make property tax and hazard insurance payments.
- You must meet with a government-approved reverse mortgage counselor before your loan application is complete.
- You or your heirs will never owe more than the value of the home at the time you or your heirs sell the home or repay the loan.
- In order to avoid paying taxes on your reverse mortgage payments, you must spend the entire payment in the month you received it.
Types of Reverse Mortgages
There are three types of reverse mortgages. These include:
- Home Equity Conversion Mortgage (HECM): The Department of Housing and Urban Development (HUD) offers HECMs and the Federal Housing Administration (FHA) insures them. HECMs are the most popular reverse mortgages, representing about 90 percent of the market. The federal government regulates most upfront costs for HECM loans. There are limits on the total fees and interest rates that you must pay.
- Fannie Mae Home Keeper Loan: The loan limits for Fannie Mae Home Keeper Loan is higher than for HECMs. Therefore, you may receive more cash from these loans than with a HECM.
- Financial Freedom Cash Account Loans: Financial Freedom Cash Account Loans are designed for seniors who own expensive homes.
Most people get reverse mortgages through a mortgage lender. Some credit unions and banks, with state and local housing agencies, may offer these loans as well.
The Community Living Assistance Services and Supports (CLASS) Program is a national voluntary insurance program being developed that will give most working adults a new option to pay for services and supports to help them remain independent. This program is not available at this time.
Most people don’t realize how difficult it is to save enough money to pay for long-term care services. You can use the long-term care savings calculator to get an estimate of how much money you would have to save on your own to accumulate enough money to pay for long-term care services under a variety of scenarios. Choose the one that’s most appropriate for your situation.
You may choose to enter into an annuity contract with an insurance company to help pay for long-term care services. In exchange for a single payment or a series of payments, the insurance company will send you an annuity, which is a series of regular payments over a specified and defined period of time. There are two types of annuities:
- Immediate annuity
- Deferred long-term care annuity
If you have an immediate long-term care annuity, the insurance company will send you a specified monthly income in return for a single premium payment. This option is available regardless of your current health status, so if you do not qualify for long-term care insurance because of age or poor health or if you are already receiving long-term care, you can still purchase an annuity.
The insurance company converts your single premium payment into a guaranteed monthly income stream for a specified period of time or for the rest of your life. How much you receive in income each month depends on the amount of your initial premium, your age, and gender. Since women tend to live longer than men, women generally receive a smaller monthly payment over a longer period of time than do men of the same age.
Things to think about:
- The annuity amount you receive may not be enough to pay for your long-term care expenses.
- Inflation may reduce the value of the monthly income you receive from the annuity.
- The effect that annuities can have on your taxes is complicated. Consult your tax professional before purchasing one.
Deferred long-term care annuity
Deferred long-term care annuities are available to people up to age 85. Similar to other annuities, in exchange for a single premium payment, you receive a stream of monthly income for a specified period of time. The annuity creates two funds: one for long-term care expenses and another separate fund that you can use however you desire.
You can access the long-term care fund immediately, but you must wait until a specified day in the future to access the separate cash portion. The rules of the annuity define how much you can access on a monthly basis from the long-term care fund and how much you can access on an annual basis from the cash fund.
To qualify for a deferred long-term care annuity, you must satisfy some health criteria.
Things to think about:
- If you do not use the long-term care fund, you can pass it on to your heirs.
- The annuity may not be enough to pay for your long-term care expenses.
- Inflation may reduce the value of the monthly income you receive from the annuity.
- The long-term care portion of the annuity does not satisfy the requirements for a tax-qualified long-term care policy, so the government may tax the money from your long-term care expense fund.
- The effect that annuities can have on your taxes is complicated. Consult your tax professional before purchasing one.
A trust is a legal entity that allows a person (the trustor) to transfers assets to another person (the trustee). Once the trustor establishes the trust, the trustee manages and controls the assets for the trustor or for another beneficiary.
You may choose to use a trust to provide flexible control of assets for the benefit of minor children. Another common use of a trust is to provide flexible control of assets for an older adult or a person with a disability, which could include yourself or your spouse. Two types of trusts can help pay for long-term care services:
- Charitable Remainder Trusts
- Medicaid Disability Trusts
Charitable Remainder Trusts: A charitable remainder trust allows you to use your own assets to pay for long-term care services while contributing to a charity of your choice and reducing your tax burden at the same time. You can set up the trust so that you receive payments from the trust to use for long-term care services while you are alive.
When you die, the balance of the funds in the trust goes to the charity that you selected. Since you are making a charitable donation, you can receive tax deductions for the fair market value of the assets that go to your chosen charity.
Things to think about:
- The amount of money available to you to use for long-term care services is based on the amount of your donation. These payments are only likely to be large enough to help pay for long-term care expenses if you donate a substantial amount of money to the charity.
- The donation may affect your Medicaid eligibility.
Medicaid Disability Trusts: Medicaid Disability Trusts are limited to persons with disabilities who are younger than age 65 and qualify for public benefits. Parents, grandparents, or legal guardians often set up these trusts to benefit persons with disabilities and a non-profit organization manages the assets. This is the only kind of trust that is exempt from rules regarding trusts and Medicaid eligibility.
Things to think about:
- If a beneficiary with a disability receives Medicaid benefits, the state can recover any amount remaining in the Medicaid Disability Trust when he or she dies.
- The tax implications for Medical Disability Trusts are complicated. Consult a tax professional before establishing a Medicaid Disability Trust.
Continuing Care Retirement Communities (CCRCs)
A continuing care retirement community (CCRC) is a community living arrangement, typically on a single campus, that provides housing, health care, and social services. CCRCs offer different levels of care ranging from independent housing to nursing home care.
Joining a CCRC provides a means of obtaining long-term care services more easily. You move into a CCRC as an independent housing unit resident on the CCRC campus. As an independent resident you can usually purchase and receive services in your housing unit. When you need more care or are unable to living independently, you can move from the CCRC’s independent housing to the assisted living unit or to the on-site or affiliated nursing home, depending on your needs.
The fee arrangements for CCRCs vary and include both a monthly fee and an entrance fee. CCRCs charge a monthly fee based on the size of your independent living unit. Most CCRCs also charge a sizeable one-time entrance fee. In some CCRCs, you pay an additional fee for care when you move to the assisted living or nursing home units on the complex. In others, your monthly fee is all-inclusive and does not increase even if you move to a different setting on the campus. The monthly payments and contracts for CCRCs can vary widely.
Things to think about:
- Many CCRCs provide care in the assisted living unit or nursing home, but may provide little or no care in an independent living unit.
- Some CCRCs allow you to hire your own home health care services while you live in an independent living unit. Others require you to be fully independent to remain in an independent living unit.
- The CCRCs may require that you have a health screening before you can move into the independent living unit. Some CCRCs allow married couples to move into an independent living unit even if one spouse requires some care.
- CCRCs entrance and monthly fees can be expensive.
There are several databases available to you to locate long-term care services in your state.
- Aging and Disability Resource Centers: Where available, each state links to a long-term care resource database maintained by that state for its Aging and Disability Resource Center (ADRC). ADRCs serve as single points of entry into the long-term supports and services system for older adults and people with disabilities.
- Eldercare Locator: The Eldercare Locator provides information and links to resources that enable older persons to live independently in their communities. This public service website links to state and local Area Agencies on Aging and community-based organizations that serve older adults and their caregivers.
- Centers for Independent Living: Centers for Independent Living provide access to resources for people with disabilities that empower individuals to live independently in their communities. ILRU (Independent Living Research Utilization) provides a national database of centers for independent living, and statewide independent living councils.