• Share

PRINT

This story was originally published on Nextavenue.org.

The state of Washington is taking steps to fill a huge gap in our country’s patchwork long-term care system.

Beginning this year, workers in that state must pay 58 cents of every $100 they earn into a fund to help pay their long-term care costs in the future.

In 2025, those Washington state residents who have paid in for at least three out of the prior six years, or for 10 years total, will be able to withdraw up to $36,500 to pay for their costs of home care, assisted living or nursing home care.

California has enacted a law to bring the eligibility threshold for Medicaid, the main payer for long-term care services, from $2,000 to $130,000 in total assets beginning July 1, and to totally eliminate it by the end of 2023. New York State is considering similar legislation.

These initiatives begin to solve the long-term care financing challenges facing older Americans, which will multiply in coming decades as the large boomer generation starts needing such care.

Growing need for assistance

Anyone may need assistance as they age, whether due to dementia, illness, loss of eyesight or simple frailty.

You may simply need help with meals and paying bills, or total care for a few months at the end of life, or you may need total care for many years. The unpredictability of one’s future needs makes it difficult to plan ahead.

The difficulty of planning is further exacerbated by our disjointed systems for providing care and paying for it. For most families facing a long-term care need, it’s “catch as catch can,” as they patch together care when a family member becomes ill, frail or develops dementia.

The beauty and the challenge of the American free enterprise system is that in the absence of a coherent strategy for providing care from either the federal or state governments, a huge number of for-profit and nonprofit agencies and businesses have developed to provide home care, assisted living and nursing home care.

Unfortunately, few retirees have sufficient financial resources to pay out-of-pocket costs for their care for very long. According to the Center for Retirement Research at Boston College, more than half of today’s 65-year-olds will require a medium to high level of assistance for more than a year.

Almost two-thirds of that care will be provided by family members — mostly children and spouses — at no cost, but more than a third will be provided by paid caregivers.

That care may cost as little as $1,000 a month to hire caregivers to supplement assistance provided by family members, or as high as $20,000 a month for nursing home or around-the-clock home care.

Few older adults have sufficient income or savings to pay for such care out-of-pocket. The Center for Retirement Research study estimates that middle-income seniors can pay for around-the-clock care for about three months, on average.

As we have a patchwork system for providing care, we also have a patchwork system of paying for it. In addition to savings, older adults seeking care can dip into equity in their homes or rely on Medicaid or, in some cases, Veterans Administration benefits.

According to the Congressional Research Service, 43% of long-term care services are paid for by the Medicaid program, 20% by Medicare, 15% out-of-pocket, and 9% by private insurance. (The balance comes from a mix of private and public sources that includes charitable payments and VA benefits.)

Medicare coverage

The large role of Medicare — the federal health insurance program for people age 65 and above as well as certain younger disabled individuals — in covering these costs is largely misleading because Medicare only covers so-called “skilled” needs following a hospitalization.

Medicare pays for up to 100 days of care in a skilled nursing facility following a hospitalization, and longer term for home health services. But the home health coverage is never comprehensive.

Medicaid coverage

The result is that older adults often rely on their own funds until they run out and qualify for Medicaid coverage. The rules for Medicaid coverage are complicated, but in general individuals must spend down to just $2,000 in savings and investments; married couples down to $132,380 plus their home.

While Medicaid’s coverage of nursing home care is comprehensive, its payment for home care and assisted living facility fees is only partial and differs both from state to state and sometimes from region to region. [Maryland, Washington, D.C. and Virginia all offer some Medicaid waiver help, but it differs by jurisdiction.]

While some may be able to leverage Medicaid to help pay home and assisted living care, they must also rely on their own savings.

Out-of-pocket costs

The low percentage of long-term care costs paid for out-of-pocket is surprising given the vast growth of both assisted living and private home care agencies over the last several decades.

But it reflects the fact that most older adults have limited resources to pay for anything beyond their basic living expenses. When the need for care arises, they must rely on family members or public programs, usually Medicaid.

Often families must repeatedly create new systems of care and funding as needs and resources change.

That said, many do own homes and can dip into the equity to help pay for care, whether through traditional home equity loans or reverse mortgages. Family members also sometimes extend funds which can be repaid through private mortgages.

But many older adults are reluctant to tap into their home equity both because it undermines their sense of security, and because they hope to pass something on to their children and grandchildren.

Medicaid does not require the sale of homes before granting eligibility, but it does make a claim against homes for reimbursement when the home is sold or the beneficiary passes away.

Older adults often take steps to avoid such claims through advance planning, sometimes putting their homes into irrevocable trusts or life estates.

Medigap and LTC insurance

A large part of insurance coverage for long-term care consists of Medicare supplemental insurance [known as medigap] for skilled nursing facility copayments. While Medicare will pay for up to 100 days of skilled care following a hospitalization, it actually pays entirely for only the first 20 days. For days 21 through 100, there’s a $194.50 copayment (in 2022) which for most patients is paid by their medigap insurance.

The result is that long-term care insurance policies pay for a very small share of long-term care costs [overall]. For those who have such coverage, it can be a godsend. But due to its high cost, often those who have it also have resources to pay for their care out-of-pocket, at least for some period of time.

Veterans’ benefits

More and more veterans are taking advantage of a Veterans Administration benefit known as Aid & Assistance, which will provide veterans who qualify financially with up to $2,431 a month (in 2022) to help pay for their care. This often can be vital to allowing them to stay either at home or in assisted living.

However, as the program has grown in popularity, there have been more delays in getting applications approved. [In practice, these delays and wait lists prevent many from actually obtaining the benefit.]

Planning for the future

The wide variety of benefits that are available and useful depending on one’s needs and location make planning ahead difficult. Often families must repeatedly create new systems of care and funding as needs and resources change.

A program such as the one starting in Washington state would go a long way towards filling in the gaps if it were national in scope, as would simplifying the complicated Medicaid eligibility rules as California is doing.

For more information, visit medicare.gov/coverage/long-term-care. For questions about your claims or other Medicare information, call 1-800-MEDICARE (1-800-633-4227).

This article was reprinted with permission of Nextavenue.org. Harry S. Margolis practices estate, special needs and elder law planning in Boston, answers consumer estate planning questions at Ask Harry, and is author of Get Your Ducks in a Row: The Baby Boomers Guide to Estate Planning.