You may never need to move into any type of assisted living facility, but life can be unpredictable. Even though there are government programs that might be able to help you pay for some of the costs incurred by long term care, such as Medicare, Medicaid or VA benefits if you qualify, it’s best to plan ahead. In general, there are three ways you can finance long term care in a nursing home: pay for it from your own savings (self-insure), buy long-term care (LTC) insurance, or use government benefits.
While all of this may sound pretty daunting, we want you to know that there is a way Medicare.org can help you. We understand that this is a personal and important decision for you and your family. We’ve provided some helpful information below, but as always, feel free to call us at (888) 815-3313 — TTY 711 to speak with a licensed sales agent.
3 Ways to Pay for Nursing Home Care
Self-insure!
You may be able to afford to pay for nursing home care by using your own savings. To determine this, consider how much monthly income you will have after you retire. You may be able to liquidate some investments or sell your house to come up with additional funds if you need to. You might also be able to borrow against your cash value life insurance policy. (Note that the death benefit available to your survivors will be reduced.) If you are seriously ill, and the policy permits, you can take accelerated benefits from the policy. However, when you determine how much retirement income you will have and how much your nursing home costs will be, don’t forget to account for price increases and inflation. Consider also what will happen if your money runs out. Will you be able to qualify for Medicaid, or will you have to rely on your children for help?
If you plan on self-insuring, it would be wise to consult a financial professional well in advance of retirement, due to the complexity of self-insuring and the numerous estate planning and taxation issues involved.
It’s important to note that under federal law, it is illegal for a nursing home to ask a child to personally guarantee payment for your care. However, the nursing home may require you to prove you have the money to pay for your care by asking you to provide bank statements or by asking you to put down a deposit.
Buy LTC insurance
Long-Term Care (LTC) insurance pays for the cost of nursing home (or sometimes in-home) custodial care. It pays a fixed dollar amount of benefits per day to cover long-term care, so it may not pay the total cost of living in a nursing home. LTC insurance is expensive, but the premium you pay depends on your age when you buy the policy. The premium is fixed as of the date of purchase and only goes up if the insurance company raises its overall rates. Your premium is also affected by the elimination period you choose. (The elimination period is the time between when care begins and when the insurance company starts paying benefits.) Some policies give lifetime coverage, while others only give coverage for a specified number of years.
For example, Marvin bought a LTC policy at age 66. His annual premium is $3,000. He chose a 15-day elimination period and 3-year coverage at $100 per day. This means that if Marvin enters a nursing home at age 76, his LTC policy will pay the nursing home $100 per day for three years, but his coverage won’t start until he has been in the nursing home for 15 days.
Keep in mind that like any insurance policy, the features and costs of a Long-Term Care insurance policy may vary from one company to another, so you have to comparison shop.
Use government benefits
If you meet certain eligibility requirements, three types of government benefits can help you pay the cost of nursing home care: Medicare, Medicaid, and veterans’ benefits.
- Medicare: Medicare does not cover the cost of custodial care in a nursing home or at home. However, it may help cover the costs of skilled nursing care/rehabilitative care in a hospital or skilled nursing facility under specific conditions.
- Medicaid: Medicaid pays for custodial nursing home care (and in some states, in-home care), but only for low-income individuals who have few assets. If you have income and assets higher than the Medicaid limits, you will not be eligible for Medicaid. However, if you enter a nursing home and pay for care yourself for months or years, you may qualify for Medicaid once your money runs out. In addition, you may be able to qualify for Medicaid if you spend down or transfer your assets. For more information, consult an attorney who has experience with Medicaid planning.
- Veteran Benefits: If you are a veteran age 65 or over, first and foremost, thank you for your service! Secondly, you may be eligible for treatment in a Department of Veterans Affairs (VA) nursing home. You don’t have to have a service-connected illness or injury to get treatment, but since nursing home space is limited, veterans with service-connected conditions will be admitted first. Their treatment will be free; for others, treatment will be free only if certain eligibility rules are met. In addition, the VA runs other community retirement facilities that you may be eligible to enter. For more information, contact your local VA office.
Tax Considerations
You may be able to deduct LTC insurance premiums. LTC insurance premiums are deductible as medical expenses within certain limits. How much you can deduct depends upon your age at the end of the tax year.
Money you receive under your LTC insurance contract may be excludable from income for tax purposes (subject to certain limitations). In addition, if your employer provides coverage for you under a LTC insurance contract, the value of coverage is generally excludable from your income, unless the coverage is provided through a cafeteria plan or if you are reimbursed under a flexible spending account.
Here’s a scenario to help explain the situation:
Grant’s LTC insurance contract states that the company will pay for nursing home care beginning on the 16th day after care begins. Grant enters a nursing home that charges $125 a day. His total expenses for 60 days are $7,500. His insurance company sends him a check for $5,625 (45 x $125). The $5,625 he receives is excludable from his income for tax purposes when he files his annual income tax return.
When deducting your medical and dental expenses from your income taxes, you must reduce your total medical and dental expenses for the year by reimbursements you receive under a LTC or other insurance contract. You may be able to deduct nursing home costs for which you are not reimbursed.
You may be only partially reimbursed for nursing home costs under your health insurance or LTC insurance contract. However, any expenses you have for which you are not reimbursed may qualify as medical deductions for income tax purposes.
If you have questions about Long-Term Care insurance, Medicare.org can help navigate you through the process of selecting the right insurance plan at an affordable price.
Additional Resources:
What Happens If I Start Collecting Social Security After Retirement?