According to the National Association of Insurance Commissioners (NAIC), the average cost of nursing home in 2001 was $56,000 a year; assisted living facilities cost $23,000 a year. NAIC reported that the costs for home care ranged from $12,000 to 16,000 a year. Depending upon location, those costs can be up to $100,000, $50,000 and $30,000, respectively. For example, according to the Bureau of Long Term Care Reimbursement, NYS Department of Health, 2004 nursing home costs in New York City averaged $308.00 a day or $112,000 a year.
Misconceptions Abound About Who Pays for Long Term Care
According to a study done by AARP in 2001 and again in 2006, Americans still lack the knowledge they need to make informed decisions about their long term care needs. Many are not clear as to the difference between long term care and skilled care, how to pay for long term care, and the financial burdens long term care can impose on an individual or an individual’s family. Generally, the study reported that Americans aged 45 and older do not know as much as they think they know about long term care and the options available. They also misunderstand the costs of long term care, and in fact, usually underestimated costs. In addition, many think long term care is paid by for by public programs, such as Medicare. Finally, some think they have long term care insurance when they do not.
The Reality of Paying for Long Term Care
Not all public programs pay for long term care. According the AARP study, 59% of Americans think Medicare pays for long term care. Medicare Supplement policies, which are sold by private insurance companies, do not pay for long term care. The only public program that pays for long term care is Medicaid, and coverage is not automatic, one has to qualify for Medicaid based on true financial need.
Primarily, long term care is paid for by an individual’s own funds, savings, investments or income. If the amount of assets and income are substantial, a financial planner should be consulted in order to determine the expected stream of income that could, in part, be used to pay for long term care. Without effective planning, assets may have to be sold to pay for care if the situation warrants.
Medicare-The Basics and the Most It Will Do for Long Term Care
Medicare pays for skilled care, not long term care (custodial care.) Long term care maintains a lifestyle, without expecting improvement, or cure. Most often that means providing assistance with the activities of daily living; washing, dressing, toileting and eating. Skilled care is care that requires daily nursing or rehabilitative care, such as physical therapy. The care is ordered by a physician and must be part of a care plan.
Often, after a hospitalization, a patient will go into a nursing home until well enough to go home. Medicare will pay for daily skilled care in a Medicare-certified nursing home, if after a hospitalization of at least three days, skilled care is still required. Medicare may cover up to 100 days of skilled care; however, after 20 days the patient must pay a daily co-pay of $133.50, or a total of $10,546.50 for entire 79 days of partial Medicare coverage (from the 21st to 100th day.)
Medigap, or Medicare Supplemental Insurance
Medigap, or Medicare Supplemental insurance is designed to cover some of the costs not covered by Medicare. There are 12 available policies and one should carefully evaluate each before deciding on one. (AARP’s website provides an overview of the types of policies available.) Eight of the plans will pay the skilled care co-pay as in the example above, but none will pay anything beyond the 100th day.
Medicaid- The Last Resort
Medicaid is the only federal program that will pay for long term care, but recipients must qualify as low income individuals before being accepted into the program. From the Medicaid standpoint, low income means having no more than $13,800 in assets. In addition to nursing home care, Medicaid will pay for community and at-home services, but as with nursing home care, the individual must meet federal and state asset (and income) guidelines.
A potential applicant to Medicaid must be careful, however. There are costly penalties involved if assets are transferred before applying for Medicaid. The assumption behind the penalties is that assets were transferred out of the applicant’s name in order to become “low income” and therefore, qualify for Medicaid. The costs inherent in these penalties could effectively deplete the applicant’s assets. It is essential that an elder law attorney be consulted at the earliest point when it is determined that long term care may be necessary. The National Association for Elder Law Attorneys is a useful resource for finding an elder law attorney.
Planning Ahead
Although there are many options for long term care that facilitate independence, many of them are expensive. A careful evaluation of all options is necessary, and getting early advice from a financial planner and possibly, an elder law attorney is highly recommended.
