Assisted living facilities are for seniors who are able to live independently, but require help with some Activities of Daily Living (ADLs), such as bathing, eating, or dressing. Genworth Financial estimates that "70% of people over age 65 will need some type of long term care during their lifetimes." According to SeniorLiving.org, more than 800,000 Americans have made the move, the majority of whom are age 85 and older.
Today, monthly rates range at assisted living facilities range from $2,000 to $7,000. This can vary as much as 50% in the same area, but the national median is a whopping $4,051 a month. Genworth's Cost of Care Survey tool can help calculate the cost of a private one-unit in an assisted living community in your state.
If you're thinking that's pretty expensive rent, remember that this covers room and board as well as care services. It also usually covers activities, amenities, light housekeeping, and laundry. According to Genworth, "Cost of care services varies by location, type of care service, who provides the service, and when the service is provided." However you can be sure that the more care required, the more it costs.
Assisted living is not covered by health insurance or Medicare. How you fund it will depend on individual circumstances and resources. AssistedLiving.org recommends reaching out to a geriatric planner or a senior living community's financial concierge service to lead you through this voyage. But first, decide if assisted living is feasible for your loved one by reading up on common ways people fund this new chapter.
Best-case scenario: your loved one is sitting on a pile of cash that they've purposely set aside for retirement and other future needs. This can include personal investment portfolios, like 401k plans or IRAs. According to the National Center for Assisted Living, self-funding through personal finances is how most residents pay for assisted living.
While dipping into personal income or savings is the most straight-forward approach, "paying out of pocket is beyond what many can afford for very long," as AssistedLiving.org notes. However, once a senior's resources have been exhausted, they may be eligible for Medicaid, which we'll discuss further below.
Perchance your loved one is one of the 8 million Americans who have purchased a Long-Term Care insurance (LTCi) policy. This is a supplement to regular health insurance, which does not cover long-term care. If they haven't already purchased LTCi, it's probably too late to do so now as the prices would be astronomical. As CNBC states, "The rule of thumb generally has been to purchase LTC coverage around age 55." Even if they did have the foresight to purchase an LTC policy, seniors may not be able to keep up with the payments on a fixed income, as another CNBC article found rates increased by 45% in 2018.
Insurance policies can be hard to understand, but taking the time to see what benefits are covered is crucial to ensure you're getting what you pay for. According to AssistedLiving.org, a policy designated for home care should be able to be used for assisted living too. However, "facility-only" policies only cover care in an assisted living facility that is licensed by the state. Benefits vary widely and can range from $1,500 to over $9,000 a month, and usually don't kick in until the policyholder requires help in at least two areas of ADLs. It is also worth mentioning that these policies reimburse the holder as opposed to paying the facility directly.
Some life insurance policies have a chronic illness or long term care riders designed to cover such expenses while the policyholder is still alive. AssistedLiving.org advises asking the senior's "life insurance agent about cashing out the policy, accelerated, or living benefits." Some life insurance companies will essentially buy back your policy for 50-75% of its value.
If the company won't cash out the policy, a third party can take over the premiums for less than the full death benefit value but more than the cash value in a practice known as life settlement. In this case, the third party will receive the original policy holder's full death benefits upon their demise. Life insurance conversion, or life care funding is another option for lesser-value policies that might not qualify for a life settlement. Life insurance conversions typically pay between 15-50% of the value of the policy.
Annuities are complicated and widely varied, but they're basically a contract with an insurance company where you give them a lump sum or multiple payments in exchange for a "series of regular payments over a specified and defined period of time," as defined by LongTermCare.gov. For an annual fee, an annuity hangs on to your money for you, with interest, untaxed--until you decide to start taking it out, at which point it gets taxed as income.
Annuities are cool because they never run out. The stream of fixed payments is guaranteed, often for as long as you live. The insurance company is hedging their bets on getting to keep your money when you expire, and you're hedging your bets that you get to use theirs when the money you invested runs out. Even if your loved one hasn't set up an annuity yet, it may not be too late. Deferred Long-term Care Annuity plans are available to people up to age 85 and Immediate Annuities don't discriminate based on age or poor health, like Long Term Care insurance policies can do. Talk with a financial and tax professional about the pros and cons before purchasing an annuity.
The Department of Veterans Affairs (VA) has its own assisted living facilities where veterans can rent a room or apartment. According to the VA's website, "The VA does not pay for the Veteran's rent, which usually includes basic services. However, the VA may pay for some of the extra services the veteran may need in an assisted living facility."
What the VA covers as far as long term care goes will vary based on the veteran's needs, the availability of services in the region, the veteran's financial eligibility, service-connected disability status, and insurance coverage. Those who already receive VA pension may be eligible to receive additional monthly monetary benefits, called Aid and Attendance, which veterans can apply for through their local Veterans Benefits Administration regional office.
Obviously, selling a senior's home is an option for paying for assisted living, if they do in fact own their home outright. But, of course, this isn't a great option for those who would rather keep the property in the family. If you do go this route, but need cash now, some senior communities will float you by deferring rent until the house sells.
Another way to use the senior's home to pay for assisted living is to rent it out. This way, the house is generated income, but it's still kept in the family.
A reverse mortgage lets the homeowner borrow against the equity, which gets paid back when the homeowner moves/sells. The catch is that you must reside in the house, so this option is really only good for couples where one spouse needs to move to assisted living and the other stays back to hold down the fort at home.
It is common for the caregiver themselves, usually a spouse or child, to dip into their own pockets to fund assisted living. According to Genworth Financial, "63% of caregivers used their own retirement and savings funds to pay for care." They also point out that pooling family support can become stressful over time and strain familial relationships.
Short term loans, like a bridge loan, help bridge the gap when you're liquidating assets or awaiting benefits.
Medicaid is the primary payer across the nation for long-term care services. According to the National Center for Assisted Living, "Approximately 16.5% [almost 1 in 6]of assisted living residents rely on Medicaid to cover their assisted living services." It is important to stress here that the key word is services, not room and board.
Medicaid is not to be confused with Medicare, which does not pay for most long-term care services or personal care. Medicaid is different in every state, so be sure to check your state's Medicaid assisted living benefits. Only low-income seniors with few assets may qualify for this joint federal and state public assistance program. See AssistedLiving.org for details on how to qualify.