We featured this topic on episode 15 of the retirement podcast Retirement Starts Today Radio. Check out the episode below, and subscribe on iTunes or your favorite Android podcast player.
“Sometimes life’s changes are subtle, sometimes change is a red Dodge truck.”
My Grandmother’s health and mental acuity had been deteriorating in small bits and pieces for a few years, but not enough to warrant any drastic changes to her living situation. It wasn’t until she literally got hit by a truck (while driving, her fault) that it became obvious that she needed help with the day-to-day activities of life.
We moved her to an assisted living apartment complex about a year and a half ago, and she’s the happiest she’s been in quite some time. Hopefully, the decision for your family is a bit more subtle than a Dodge Ram truck, but we are going to focus on the financial side of things, as that is where we feel qualified to comment.
Planning for your parent’s nursing home is an uncomfortable topic (understatement of the year), but don’t let the fear of an unpleasant conversation compound into a full-blown family financial tragedy.
The way I approach the issue is this: There’s no reason to mix a difficult emotional issue with a difficult financial issue. Planning ahead, however uncomfortable, allows us to separate the emotions from the immediacy of the issue, and we can make better decisions without an emotionally clouded mind.
Many people initially dismiss the financial planning aspects of long term care planning, thinking that Medicare will cover cost of their parent’s care.
At most, Medicare will cover up to 100 days in a LTC (long term care) facility. The patient then has to be transferred directly from the hospital to the LTC facility, and had to be in the hospital for at least three days.
If your parents have a Medicare supplement, they probably won’t have to worry about the Medicare deductible. If they don’t, the deductible will probably cost about $12,000.
Medicare won’t cover anything past 100 days. Understanding the logic of the 100 days is important: Medicare simply isn’t designed for long stays. Your parent’s health must be improving for Medicare to pay at all. Don’t think that everyone in the nursing home had their 1st 100 days paid by Medicare. If their health isn’t improving the assumption is that they will be staying at the care facility permanently, thus Medicare would no longer be appropriate, and the patient would need to start self-paying.
If your parents are fortunate enough to follow that path, Medicare will get you through the first three months.
“What is it going to cost after that?”
Costs associated with a long term care facility can vary substantially. Generally, patients pay per day. Locally, I’ve seen prices as high as $10,000/month, but the national average is $229/day or a little under $7,000/month. Assisted living is a lesser need for care and tends to be about half as much as the nursing home. Nationally, assisted living costs around $3,300/month. Home health care is the least expensive option, costing approximately $21/hour for a home health nurse.
If your parents have a long term care insurance policy that is more than fifteen years old, double-check the policy to see if home health care or assisted living are covered. If their policy was issued more recently, it is likely that all three (nursing home, assisted living, and home health care) are covered.
Check out longtermcare.gov for more details.
“What will my parent’s long term care insurance pay for?”
To answer that question one must understand that long term care insurance (LTCi) has very specific qualification standards. Patients must need assistance with “activities of daily living” (ADLs), or have a cognitive impairment.
The ADLs are as follows: eating, bathing, dressing, toileting, transferring from a bed to a chair and continence. Usually your parents will need help with two ADLs to qualify. ANY cognitive impairment supersedes the ADLs.
Most long term care policies have some form of a deductible, often called the elimination period. This is the amount of time the patient will have to self-pay for their care before the policy begins benefits. Check your parent’s policy, 90 days is the most common elimination period.
“What happens if my parents are past the point of Medicare, and they don’t have long term care insurance?”
That is where things start to get tricky…
The first thing we need to do is contrast Medicare and Medicaid: Medicare and Medicaid are often confused with each other. They are similar in that they are both government-sponsored programs designed to help cover healthcare costs. They are, in fact, very different programs. In the most basic sense, Medicare is designed to help with care for the elderly, while Medicaid covers healthcare costs for the poor.
Think: Care for our elderly, Aide the poor.
Earlier, we discussed what Medicare will cover, if you follow the right path to the nursing home Medicare can cover up to the first 100 days of care.
After that point, your parents will either pay out of their assets, use insurance, or apply for Medicaid. In order to qualify they must be poverty-stricken.
Specific guidelines very state to state, but if you don’t have a spouse at home you need to use all of your assets to fund your care. If you have a spouse at home, this is where you have some leeway and room for planning.
In some states, upon entering the nursing home, an unmarried person can keep their home if they declare (in writing) their intention to return home. However, states that permit this usually put a limit on the amount of time a resident can keep the home without returning to it (usually 6-12 months). If a Medicaid beneficiary is allowed to keep their house, Medicaid will seek reimbursement from the value of the house when it’s sold.
–At the end of the day, all your assets will go to funding your care.
“Can’t Mom/Dad simply give me all their assets?”
No. You can’t artificially impoverish yourself.
Medicaid has very specific rules against giving away assets in order to qualify for benefits. It is fraud, and is taken seriously.
One of the main tools Medicaid has to prevent this fraud is the “clawback”.
Medicaid will examine your parent’s finances, looking back five years from the date of application for benefits. If Medicaid finds any improper transfers, they could attempt to “clawback” the assets from whomever you made the gift. Often times, the gift is spent and not recoverable, thus leaving the patient needing assistance, but unable to qualify.
Improper transferring of assets can actually prevent your parents from receiving assistance from Medicaid.
Selling an asset for less than market value will likely count as a gift. Don’t try and get cute, Medicaid has been there, done that.
If you have a unique situation, something more complicated, maybe some family owned property, or a family business, you are going to want to get some specialized help.
Google “Elder law attorney” + your city and seek professional help.
In summary – Making the decision to move your parents into a nursing home or assisted living facility is one of the most difficult things a family can go through, a little planning and research ahead of time can go a long way in making the process easier.
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