Dillman: How to pay for long-term care through advance planning

I am in the business of aging. And with aging come many beautiful things — wisdom, experience and a network of people to share that wisdom and experience with. We should consider ourselves lucky to grow older, as it is a privilege not afforded to many.

But what I’ve found in this business is that we avoid aging and planning for the inevitable. Despite planning for most things in life — school, marriage, families, careers — we put off preparing for this chapter of our lives, we procrastinate, we turn a blind eye, and by doing that we lose control over our options.

It is common knowledge that long-term care costs have outpaced inflation for nearly two decades, with no sign of slowing down in the future. It’s also known that 70% of adults aged 65 and older will require long-term care at some point. (Samuels, 2023.)

By planning now for how to pay for care later, people have more options and control over how and where they age. It’s just a matter of getting started.

The cost of the care continuum

The first step in planning is to understand the potential costs you’re facing if long-term care becomes a need. Below are the various levels of senior living and the costs associated with each:

• Independent living: Independent living is a private residence, such as an apartment, that residents live in when they are still active and want to enjoy a low-maintenance lifestyle. This is the least expensive option for seniors who want to live in a community setting, and the residents are generally responsible for their own care. The cost can be anywhere from a few thousand to upward of $10,000 per month for an independent living apartment or residence.

• Assisted living: Assisted living is for residents who require more support than those in independent living. In these communities, residents receive assistance with activities of daily living such as bathing, dressing, toileting and medication management. The average cost for assisted living ranges anywhere from $4,000-$10,000 per month, and the median cost for assisted living in the U.S. in 2023 is $4,774 per month. (Cost of Care Survey, 2023.)

• Memory care: Memory care communities are designed for individuals who have a diagnosis of dementia, Alzheimer’s disease or other memory impairments. Residents living in memory care communities receive higher levels of care and supervision 24 hours a day, seven days a week. These facilities are equipped to handle behaviors that can be associated with memory loss and provide specialized activities and therapies to keep the residents stimulated and engaged, and the cost ranges anywhere from $4,000-$7,000 per month. (Cost of Care Survey, 2023.)

• Skilled nursing care: Skilled nursing care is the most intensive level of care for seniors. These facilities offer 24-hour medical and nursing care, as well as physical, occupational and speech therapies. This type of facility, also known as a nursing home, is typically recommended for individuals who require short-term rehabilitation or long-term care due to more complex medical needs. According to Genworth’s Cost of Care Survey, the national average for a private room in a nursing home is around $9,584 per month.

It’s also important to keep in mind that these averages don’t consider the costs of daily medications, durable medical equipment or ongoing medical bills.

Current payment options

How a person chooses to pay for care depends on their personal goals, timing, financial and life circumstances, and more. To truly understand all options available, I always recommend consulting with an elder law attorney as well as a financial adviser. Here are a few options to consider:

Medicaid for long-term care

If you’ve had a loved one who needed long-term care, then you’ve likely heard of using Medicaid benefits to pay for care. This is the payor source with some of the biggest misconceptions, and some of the most complex rules.

In a nutshell, Medicaid for long-term care is a program to help cover the cost of care by providing financial assistance to individuals over the age of 65 with low income and limited assets.

To qualify for Medicaid coverage, specific conditions must be met. First, the individual must require a level of care that can only be provided in a nursing home facility. This includes assistance with daily living activities such as bathing, dressing, toileting and eating. Second, the individual must meet the income and asset eligibility requirements established by their state’s Medicaid program.

It’s important to note that Medicaid has a “lookback” period to examine an individual’s financial transactions for the past five years. If any assets were gifted, transferred or sold below fair market value during this period, a penalty period may be imposed, which delays Medicaid coverage.

If someone is over-resourced and doesn’t qualify for coverage immediately, there are rules in place in the state of Indiana, such as the Spousal Impoverishment Rule, and estate planning strategies available to help them protect assets and still qualify for Medicaid benefits. If you have a client or family member who has been told they’re over-resourced, encourage them to seek an elder law attorney with experience in Medicaid to help them understand their options.

Because Medicaid planning is complex and small missteps can result in the denial of benefits and loss of personal funds, it’s important to work with someone who knows the rules and the application process well.

Long-term care insurance

Another common way to pay for care is long-term care insurance. This is a financial product designed to help individuals cover the costs associated with senior care.

Long-term care insurance is a good option for someone who is in their 50s-60s and still in good health. The issue with this financial product is that the policies typically have very high premiums, and the premiums continue to rise for both new and existing policy holders. If long-term care insurance is something you or a client is considering, encourage them to look at the coverage scope, eligibility and waiting periods, premium costs, benefit limits and inflation protection. These factors can play a big part in why this payor source may or may not be a good option for them, and having a financial adviser to walk you through these considerations is important.

VA benefits

This pension program is specifically designed to provide financial assistance to veterans and their spouses who require assistance with daily living activities or who are housebound due to disability. Under VA Aid & Attendance in 2023, eligible single veterans can receive up to $2,229 per month, while surviving spouses can receive up to $1,432 per month. For veterans who are married, the maximum monthly payment is $2,642. (Cost of Care Survey, 2023.) If VA benefits are an option for you or your client, consider seeking out an elder law attorney or VA specialist to walk you through eligibility requirements and the application process.

Private pay

Some individuals choose to use personal savings as a source of payment, including their monthly pension or retirement income. There are tax breaks available for utilizing retirement income to pay for nursing home care, and some retirement income sources, such as IRA distributions, may be eligible for certain deductions or exemptions, providing potential financial benefits for individuals needing long-term care. Consider consulting with an elder law attorney and financial adviser to see if paying privately for care makes sense for you.

Advanced planning for long-term care is a culmination of hot-button topics — politics, health care, finances, family dynamics, death — that make these conversations tough. However, we encourage our clients to begin an open dialogue with their advisers and their loved ones so that they can secure their future and alleviate the stress of coordination for their families down the road.•

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Lisa Dillman is the managing partner at Applegate & Dillman Elder Law. The firm specializes in elder law and life care planning, a holistic approach to dealing with legal, financial, medical and emotional issues involved in growing older. The firm has offices in Indianapolis, Carmel and Zionsville. Find out more at www.applegate-dillman.com. Opinions expressed are those of the author.