How to pay for a nursing home when you have no money to spare is a predicament many people eventually face. Although it helps to plan ahead, long-term care for yourself or a loved one still can be hard to afford. But with an average U.S. life span of more than 76 years, it’s something you should think about.
The majority of nursing home residents in the U.S. – more than 60% – depend on Medicaid to pay for their long-term care, according to the American Health Care Association. Sound-alike Medicare does not cover long-term nursing home care.
Other residents, who finance their nursing home care through private pay, use means such as long-term care insurance, hybrid long-term care/life insurance policies, reverse mortgages and annuities.
Sorting out the pros and cons of all these choices can be a painstaking process. If you’re on a tight budget – or you fear that nursing home costs will put you on one – it can help to consult with an expert. Below, a certified financial planner and an elder law attorney discuss how they advise their clients.
Financial Planning for Long-Term Care
“Long-term care insurance makes sense for some people,” says Niv Persaud, a certified financial planner and managing director of Transition Planning & Guidance, based in Atlanta. “It depends on the individual’s total financial picture. If you’re younger, the long-term care insurance cost is not as egregious as it is as you get older.”
The risk of needing long-term care increases with age, so older policyholders represent a higher risk for insurance companies, which is why insurance premiums also rise with age.
Because of changes in the economy, such as dropping interest rates since the early 2000s, long-term care policies have become less profitable for companies offering them, Persaud adds. “That’s why you have companies like MetLife that no longer offer pure long-term care insurance.”
Hybrid policies that combine long-term care coverage with life insurance at a locked-in premium are an alternative. Policies vary with each insurer, so it’s important to choose carefully.
You may need help sifting through other insurance options, as well. Accelerated death benefits, life settlements and viatical settlements, in which an individual sells their life insurance policy to obtain immediate cash, are ways people sometimes leverage their life insurance to receive benefits while they’re still alive, in some cases to finance long-term care.
Nursing Home Alternatives
Creative measures can postpone, if not prevent, the need to resort to a nursing home. For instance, Persaud says, as a healthy spouse of someone who needs assistance or supervision, you could look at alternatives to nursing home admission:
- Adult day care can offer socialization and varying levels of care for your loved one while providing you respite to work during the day or just have some time for yourself.
- Combining adult day care with evening homemaker services could offer some caregiving relief.
- Although home health care can be expensive, it may work if the recipient needs limited hours of care or only needs that extra level of care a few days a week.
Reducing Nursing Home Expenses
When it’s clear that you or a loved one needs a nursing home, there are ways to reduce monthly expenses. Looking into lower-cost nursing homes is an obvious one, though you want to make sure the facility offers good-quality care. Start by researching long-term care facilities in your location of interest.
Nursing Home Care Compare, the five-star rating system run by the Centers for Medicare and Medicaid Services, or CMS, assigns a star rating to long-term care facilities based on health inspections, staffing and quality. You can look at a nursing home’s deficiencies on the online tool.
You also can locate potential facilities and find inspection data by searching the U.S. News Best Nursing Homes ratings, which are based in part on CMS surveys, as well as additional factors and methodology.
Strategies to Manage Nursing Home Costs
Once you locate nursing homes in your area, there are ways to economize:
The cost difference between a private room and a semi-private room – a shared room that usually has a curtain or other divider between roommates – is considerable. “It’s fine if you’re in a semi-private room,” Persaud says. “I know everyone wants a private room, but sometimes it just doesn’t make sense” in terms of cost.
Nationwide, the average daily rate for a private room in a nursing home facility is $297, compared to a daily rate for a semi-private room of $260, according to the 2021 Cost of Care Survey conducted by Genworth. Put another way, the average yearly cost of a private room is more than $108,000, compared to an average yearly cost of a semi-private room of $94,000.
Just like living in the community, you pay for what you get. Nursing homes that offer beauty salons and barber services will tack the costs onto the monthly bill. Similarly, having a resident’s clothing sent out for dry cleaning or providing in-room cable TV represents extra costs.
Higher-end nursing homes may provide attractive services and activities, such as massage therapy or cultural excursions, as standard options. However, you pay more for the nursing home overall. If your loved one isn’t really benefiting, consider choosing or changing to a facility with fewer frills. For example, Persaud has a client whose mother has worsening Parkinson’s disease. “The Parkinson’s has gotten to the point where a lot of the amenities at the nursing home where she’s at, she doesn’t even use,” Persaud says. “So, now we’re looking at lower-cost nursing homes.”
Whether you’re the prospective resident or looking out for a loved one, local community centers and senior centers may offer services, suggestions and support. Staff members or center users might have personal experiences with nearby nursing homes to share. In addition, contact the local Area Agency on Aging. If your parents are active older adults, they can start doing their own research, Persaud suggests.
If you’re paying for long-term care out of pocket, it might be worth looking into group homes. Also called adult family homes or board and care homes, group homes tend to be smaller residences located in regular neighborhoods. Offering fewer amenities but featuring home-like atmospheres, they typically cost less than traditional nursing home facilities.
Financial strategies like reverse mortgages could provide needed funds. With a reverse mortgage, the homeowner gives up equity in their home so they can receive regular payments.
“Lately, reverse mortgages have resurfaced,” Persaud says. “There’s a lot of regulation around it, so (lenders) have improved that product. So, if you have one spouse who needs to go into a nursing home and the other spouse doesn’t, they may want to look and see if a reverse mortgage makes sense for them to be able to afford that nursing home.”
A financial advisor can identify other options and resources you may not have considered. Persaud recommends choosing a certified financial planner via the Certified Financial Planner Board of Standards. “It’s never too early to start having these conversations so you know what’s available,” she says.
Medicaid Rules for Long-Term Care
Who pays for a nursing home if you have no money or a limited income? Medicaid is the typical answer. But don’t assume you can rely on Medicaid. Qualifying isn’t a given, and you have to be careful when making efforts to become eligible. You need to know about eligibility rules and limitations several years in advance to avoid potential financial pitfalls.
Working with an elder law attorney can reveal the soundest strategies for financing nursing home care and accounting for complex Medicaid issues, such as spend downs and subsidies. If you’re applying for Medicaid payment, elder law experts will explain eligibility requirements, suggest specific finance tactics and execute them properly.
Navigating the Medicaid Maze
You’re going to live a very long time – that’s the baseline assumption for elder lawyers, says Keith R. Miles, an attorney who specializes in estate planning and elder law in Georgia and North Carolina. In his realm, the focus is on meeting eventual health care needs that develop over the course of your life, rather than concentrating on inheritances for heirs after you die.
Mechanisms like long-term care insurance aren’t always enough to adequately finance nursing home care. Even a good policy can have shortcomings, such as daily coverage limits and having to pay the bills first and be reimbursed later, Miles says, “so, it’s very hard to have anything that will guarantee you can afford those kinds of services.”
A Medicaid “spend down” is a strategy to qualify for Medicaid to pay for long-term care. Basically, the process involves spending an individual’s income or assets to the point where they’re diminished enough for eligibility.
Spending may involve paying for health care and medical costs or putting money toward paying accrued debt. Assets that are considered “countable” by Medicaid against eligibility may include savings accounts, second homes, investment funds, IRAs and 401(k) funds. With different rules and restrictions from state to state, spending down can be tricky to navigate.
One significant hurdle to this spend-down strategy is the five-year look-back period for Medicaid eligibility; this look-back period is the government’s way of ensuring that you haven’t recently given away money or other resources in the form of ineligible transfers, such as gifts to friends and family members during that time frame.
“That divestment is what Medicaid is looking for because they understand that if someone puts in an application to have their care paid for, they may have done so after they intentionally put themselves in a position to qualify,” Miles explains. “So, they want to look back five years to make sure none of that happened.”
That’s why you need to get your ducks in a row in advance. “When we talk to people, we talk to them about proactive planning and trying to do things five years ahead,” Miles says.
However, sometimes a client’s need is more immediate, with a long-term care situation that’s forced on them. The five-year look-back period is a long qualification time, Miles notes. “There are strategies for crisis planning – it just restricts the available options so that it is likely they will spend down more money than they had to otherwise.”
By contrast, the luxury of time allows more leeway. “When you’re proactive planning with the elder lawyer, we’re saying: OK, we know that we have this look-back period,” Miles says. “We can start early enough and do these transfers in such a way that it enables you to have some kind of comfort level that you have other people in place – whether a family member, a trusted friend or a professional that can handle your assets for you – and it will qualify in a way that it won’t be considered a resource for you. Because, once you put your application in, five years-plus after the transfer, Medicaid can’t look back and see it because it’s beyond the limit.”
Protecting Assets to Afford Long-Term Care
So how can you afford a nursing home without being or going broke? “Medicaid has a resource limit of $2,000 for an individual, $3,000 for a couple,” Miles notes. But that doesn’t necessarily mean you have to spend down until you get there, he advises clients when proactively planning.
“One of the things that we try to help them to do is to also understand that there are some strategies that can help them qualify that don’t involve just straight making payments until they drain their resources,” Miles says. “There are certain strategies that are allowed.”
Proactive Financial Measures
When you consult with elder attorneys, they may discuss asset-protection strategies, including:
- Transferring a home to a minor child or to an adult child with a disability.
- Setting up a personal care arrangement to compensate a family caregiver.
- Transferring home ownership to a parent’s grown caregiver child who lives with the parent, thus delaying the parent going into a nursing home. That child must live in the home with that parent for at least two years immediately prior to the parent’s admittance to a nursing home or assisted living facility.
- Setting up a special needs trust for an individual under 65 who is disabled.
- Setting up a pooled trust with excess resources and assets paid to a charitable organization.
- Setting up an irrevocable Medicaid trust where others are named as trustees.
- Setting up a private annuity that complies with Medicaid requirements.
Arrangements like these have intricate rules that you need to understand before moving ahead, so it’s safer to consult with an expert than to DIY with online legal forms.
It’s important to carefully weigh financial strategies to help ensure that they won’t backfire and lead to penalties or leave your survivors vulnerable to Medicaid estate recovery claims to reimburse the state for long-term care.
To complicate matters further, estate planning to maximize inheritances after you die may conflict with conserving your resources to pay for long-term care in later life.
Elder law planning is for the living, Miles emphasizes. But if your budget is tight, can you afford elder law advice? “The attorney answer is: It may be a painful hit, but you can afford it,” he says.
For instance, advice on starting a trust could be invaluable. That might involve transferring a principal residence, such as a $400,000 home, to avoid the Medicaid Estate Recovery Program, and instead spending $10,000 for a Medicaid Asset Protection Trust, Miles says.
His bottom line is: “We’re doing this because we’re trying to save your life savings. And if we lay it out properly, we can demonstrate to that client: Here’s the benefit for you. Or, if not for you, then for your family.”