By Stuart H. Schoenfeld, partner in the Eldercare Practice of Capell Barnett Matalon & Schoenfeld LLP
The U.S. has a sizeable aging population. It is estimated that 6.2 million people over the age of 65 currently live with Alzheimer’s or other types of dementia. But for this illness, these individuals may otherwise be healthy, which means they can live with this deteriorating condition for many years.
Who will care for you, and how will you pay for it?
The cost of care for long-term illnesses like dementia can easily wipe out a lifetime of savings. But the issue has deeper roots. Who will provide the needed care and supervision for you or the family member with dementia? Is it an aging spouse who also may be busy dealing with their own health needs? If there are adult children, is it their responsibility? And what if they do not live nearby or are already spread thin addressing the demands of their own very busy lives and family responsibilities.
Four strategies to plan for long-term care
The prohibitive cost of long-term care is often an individual or family’s biggest challenge. Whether the care is at home or provided in a nursing facility, the cost can easily exceed $100,000 per year.
There are generally four ways to fund this expense:
- Use savings;
- Purchase long-term care insurance;
- Tap the equity in the family residence; or
- Access the Medicaid program.
There is a fifth planning strategy often referred to as ‘failing to plan.” But as with all important life decisions, failing to plan and ignoring this issue of eldercare funding can lead to disastrous and costly results for the entire family, not just the one suffering from dementia or other long-term illness.
Plan now for all scenarios
Seniors often worry about running out of money. Imagine how much more real this issue is for someone paying for their own care or trying to care for an elderly spouse or a parent with dementia or other long-term illness.
Whichever strategy a family chooses to attack the issue of long-term care, it is crucial that the process be started many years before support is required. However, most of us do not have the ability nor the discipline to successfully set aside the funds necessary to self-fund for long-term disability. It is also safe to presume that most of us (and our children) do not want our hard-earned savings used to pay health care costs. These are funds that could otherwise be used for family vacations, the purchase of a second home, to fund education, or any other way desired.
The resurgence of long-term care insurance
Long-term care insurance has gotten a bad rap in recent years as many insurance companies stopped offering the policies or substantially increased the premiums. Most policies offered today are modified life insurance policies that allow the insured to use a policy’s death benefits to pay for the cost of long-term care. Age matters. The older a person is, the more difficult it is to secure a policy, and many pre-existing illnesses can make an individual uninsurable. Moreover, the high cost of these policies frequently is a deterrent to becoming insured.
But for those who can afford long-term care insurance, the cost-benefit analysis may be worth it as this option may provide the most flexibility and peace of mind should long-term care become necessary.
Funding care through your home equity
By way of example: A client had exhausted available savings to fund his care. He had only the equity in his home available to pay for the round-the-clock care he required. Together, we explored his options. One was to take out a conventional home mortgage. However, that would require him to start making monthly payments to the bank, which for him, at his age, was out of the question.
The other option was to take out a reverse mortgage, which would let him use the equity in his home. With a reverse mortgage, unpaid interest accrues throughout the life of the homeowner, and repayment is not required until the homeowner dies. Although some view reverse mortgages very negatively, it may be the best available alternative for those in a situation similar to this client.
Funding care through Medicaid
Medicare covers healthcare costs for most senior citizens. Medicare and Medicaid are two separate, government-run programs. Medicare is the federal program that provides health coverage if you are 65+ or under 65 and have a disability, no matter your income. Medicaid is a state and federal program that provides health coverage if you have a very low income. It is possible to be dually eligible for both Medicare and Medicaid.
If you can meet the asset and income requirements required of the program, Medicaid can be a viable alternative to long-term care coverage. However, the rules are complex, and if you elect this care-funding option, you will likely require the guidance of an attorney experienced in elder care planning.
As with other long-term care-funding techniques, you should begin Medicaid care-funding planning now, before you need it, particularly if you must transfer assets to qualify. Medicaid can penalize applicants for asset transfers made within five years of the application submission.
Expect the application process to be arduous with no guaranty the care will be sufficient for your needs. Just because you want 24-hour care in your home for yourself or a loved one does not guarantee that Medicaid will provide and pay for round-the-clock caregivers.
Discuss your long-term care plans with family and friends
Take time now to discuss the potential options for long-term care and the issues that may impact coverage. If you have children, they need and deserve to know what you, their parents, want and can afford. Parents also must understand that their children may not be in a position to be their caregivers.
Planning for your own or a family member’s long-term care can be emotional. And, in many instances, the services of capable and objective professionals like a family attorney, accountant, and/or financial provider can be invaluable in structuring the conversation and putting the plan together.
Regardless of whether your children, spouse, or partner are engaged and involved, or you are solely responsible for your care planning, engaging an experienced geriatric care manager or other qualified health care professional can also help put a care plan together that works for you and your family.
Start talking now. It may take more than one conversation to set the wheels in motion.
Stuart H. Schoenfeld ([email protected]) is a partner in the Eldercare, Trusts & Estates Practice of Capell Barnett Matalon & Schoenfeld LLP. He has extensive elder care and estate planning experience, including preserving assets for the benefit of chronically ill, developmentally delayed, and elderly individuals, planning and applying for Medicaid, guardianship proceedings, and supplemental needs planning.