While you may not anticipate a need for long-term care one day, statistics suggest there’s a 52% chance you’ll need some type of long-term care services after the age of 65.1
Long-term care refers to the ongoing service and support needed by people with chronic health conditions or disabilities. The levels of care can range from skilled care — meaning round-the-clock assistance from a professional health care provider — to personal care, which is provided by family caregivers who help with the activities of daily life.
One challenge surrounding long-term care is cost. The average cost for a semi-private room in a nursing home is $7,756 per month.2
As time goes on, the cost will naturally increase. It’s easy to see how the high cost of long-term care can take a chunk out of retirement savings and jeopardize any assets you hope to leave to family.
Planning and saving now for an unexpected decline in health may ease the burden and help you avoid diversions both before and during retirement.
Tip: Check out General Electric Credit Union's (GECU) free on-demand webinar Preparing for Retirement: Long-Term Care and Medicaid. Plus, other free and informative webinars you can register for through the CU Events page.
Paying for Long-Term Care
There are a couple options when it comes to paying for long-term care:
- Pay out-of-pocket.
- Rely on government programs such as Medicare or Medicaid.
- Buy long-term care insurance.
1. Paying out-of-pocket
Paying out of pocket means using: income, savings, investments, and assets to help pay for long-term care. The major advantage of paying out-of-pocket over other options is having better control over where and how you’ll receive care.
However, counting on the ability to pay out-of-pocket is a gamble unless you are wealthy. You’re betting on the likelihood you can afford to pay for future care needs, often having to use money saved up for retirement.
2. Medicaid eligibility
Medicaid eligibility is based on rules and guidelines established by each state individually. All states count income and assets when deciding who qualifies for Medicaid, although it can differ.
In most states, your monthly income is used as the rate Medicaid would pay the nursing home for your care. And in most states, you won’t qualify if you have more than $2,000 in assets, meaning anything cash value.
To make sure you qualify for Medicaid, should you ever need care, prepare ahead by distributing your assets or giving them away (more on this later).
The major benefit of Medicaid planning is it can help you qualify for the program as soon as possible, but there are other benefits — and drawbacks — as well:
3. Private Insurance
Private insurance is utilizing a private insurance company that pays benefits if you need extended care. Like other insurance, this protects you against a specific financial risk.
Long-term care insurance is an alternative especially valuable for middle-income Americans who want to preserve their financial independence. It gives you the freedom to choose where you receive care and preserves the assets you’ve accumulated.
However, there are qualifications to buy a long-term care policy and policies vary widely. It’s important to work with a professional to ensure you qualify and compare your options.
Managing the cost of long-term care insurance can be a reason why some don’t choose this option. To help alleviate some of the cost:
- Purchase a policy when you are younger. This will help lower the premium; however, the trade-off is you will end up paying the premiums for more years.
Confirm you can afford to go this route without any impact to your budget.
- Buy from a reputable company and choose features and benefits wisely. This helps you buy what you need rather than end up with more coverage than you can afford.
Medicaid is a resource available to Americans to aid in providing health coverage and is funded by the state and federal government.
Medicaid can be used to help pay for in-home care or assisted living care if you can’t pay out-of-pocket or are ineligible for long-term care insurance.
Medicaid becomes more complicated when it comes to eligibility, as there are specific eligibility requirements, resources, assets, and transfers to consider.
There are two pieces of financial criteria taken into consideration for Medicaid eligibility: income and assets.
In Ohio, income limits differ depending on the type of Medicaid, such as Medicaid provided in nursing homes or Medicaid available at home or adult day care. Learn more about Medicaid income limits here.
Medicaid also looks at your assets to determine eligibility. This includes cash, savings, deferred annuities, retirement accounts, retirement accounts, checking accounts, stocks, and more. Your total available resources cannot exceed $2,000 if you are single. If you are married, the rules will differ slightly as some items may become exempt. These resources are reviewed and taken into consideration when applying for Medicaid. Exempt assets may include:
- Household goods.
- Term life insurance.
- Whole life insurance.
- Prepaid funeral expenses.
- House (if still occupied by qualified person).
The only exception to the house exemption is if your home equity interest was valued at over $603,000 in 2021. Learn more about asset limits here.
Medicaid Planning Strategies
There are three ways you can strategize for Medicaid eligibility: exemption planning, annuities, or transfer planning.
Exemption planning is identifying what assets may be exempt at the time you are applying. This means Medicaid will not count certain assets when determining if you qualify.
Exemption planning is the easiest way to spend down, but another method is transfer planning. This essentially means to make a gift out of the ordinary to increase your chances of eligibility.
An example of a gift is purchasing a car for your grandchild or giving your kids a down payment on a home. Gifts within the five years prior to applying for Medicaid put you at risk for a penalty.
If you are penalized, this means you will not receive payment for care from the state for a set period. You can still become eligible for Medicaid during this time, but you will not receive payments until the holding period is expired.
If you are applying for Medicaid and have given a gift in the last five years, it’s smart to consult with an Attorney and financial planner to ensure you will not run into a problem.
Strategize how you plan to invest in your health and long-term care plan. Weigh all your options to combat the rising cost of health care and set yourself up for success.
For a further in-depth analysis on the topic please visit our CU Events Page to view our on-demand webinar, What You Need to Know: Understanding Long-Term Care and Medicaid.
Ready to begin planning, but not sure where to start? Contact Todd Blessing with Investment Services* today at 513.243.4328 x173 or Todd.Blessing@cusonet.com or Erik Waldron with Investment Services at 513.243.4328 x305 or Erik.Waldron@cusonet.com.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a Registered Broker-dealer (Member FINRA/SIPC) and SEC-registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. General Electric Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
1 Nguyen, Vivian. “Long-Term Support and Services.” AARP, Mar. 2017.
2 “Cost of Long Term Care by State: Cost of Care Report.” Genworth, 12 Feb. 2021, www.genworth.com/aging-and-you/finances/cost-of-care.html.