Ask some senior living experts how to pay for assisted living, and they’ll tell you, “Have money.”
While that clearly isn’t a real answer, the truth is that the cost of care in this setting is significant. The average expense, according to Genworth Financial’s Cost of Care survey
from 2021, is about $4,500 per month — and this doesn’t include “extras” or unexpected costs, such as medications, housekeeping or transportation to doctors’ offices.
For those individuals who don’t have millions in assets, assisted living may seem out of reach; however, there are ways to finance care without breaking the bank.
[SEE: The Advantages of Assisted Living.]
Doesn’t Medicare Pay for Assisted Living?
Perhaps the biggest mistake many people make is assuming that Medicare, Medicaid or their private health insurance will cover assisted living costs. In fact, most assisted living is private pay, meaning you need the funds to pay for care out-of-pocket.
Medicare is the federal health insurance program for Americans age 65 and older (and some younger people with disabilities, such as brain injuries). Medicare doesn’t cover most assisted living costs. Specifically, it doesn’t cover what’s known as custodial care, which can include bathing, dressing and other activities of daily living. Medicare Advantage, offered through private insurers, may help cover some custodial care costs. You will, however, need to check specific plans to see what they cover and how they might help if you go into an assisted living community.
Medicaid, a joint federal and state program, offers health care coverage to some beneficiaries, such as low-income adults as well as children, pregnant women, the elderly and people with disabilities. Medicaid may pay for some assisted living in some states. However, even in those cases, you have to spend down all your assets before it kicks in.
While they are rare, there are assisted living communities in some states that do take Medicaid as a source of payment if they have a Medicaid waiver. This is a provision of federal law that enables states to offer some benefits and services to subgroups of Medicaid beneficiaries.
For instance, in Louisiana, Medicaid reimburses personal care providers, such as assisted living communities, for help with activities of daily living. If you live in a state that has Medicaid waivers and find a community that accepts Medicaid, be prepared to provide a significant amount of information documenting your eligibility. This includes verification of income and other financial resources, birth certificate, Social Security card, marriage certification or divorce decree and Medicare and/or other health insurance cards.
“Your application will go much quicker if you have all the documentation lined up before you begin the process. The admissions office at the facility can instruct you about everything you need to know and answer your questions,” says Dr. Alec Pruchnicki, the on-site primary care physician at Vista on 5th in New York City.
[READ: Understanding Assisted Living]
Feed the Piggy Bank
The high cost of assisted living emphasizes the need to start saving as early and as much as possible. This requires an honest assessment of your assets, such as how much you can afford to save on a monthly basis. Then consider what you will need for assisted living care.
Working with a financial planner can help you determine how to make the most of your savings. The National Association of Personal Financial Advisors is a useful starting point. At the same time, if you or a loved one has serious debt that is hindering your ability to save, it will be important to address this promptly. One resource for this is Debtors Anonymous.
However, you can start with a few simple steps: List your net income and current expenses, identify all of your saving sources and then look at your goals. These goals should consider the quality of life you want and what is realistic based on your financial capabilities.
While there is no magic recipe for saving for future health care needs, David Meschel, founder of Meschel Wealth Management, suggests some basics. “When I construct financial plans for clients,” he says, “I bake in projected expenses and put them on the path to saving for these.”
He recommends exploring hybrid policies, such as a life insurance policy with a long-term care rider. A benefit of these plans is that you can access the money you put in or leave it to your heirs if you never need long-term care.
Ultimately, Meschel says, the “last line of defense is your home. Having equity in or owning your home outright can provide an important source of income if and when you are ready for assisted living or other long-term care.”
[READ: Best Exercises for Preventing Falls in Older Adults.]
Planning for Care
Whether you have money saved for the future or you are still getting organized, there is help available. For instance, the Area Agency on Aging is a nonprofit organization dedicated to addressing the needs and concerns of older adults. They can help you target your need and answer questions such as:
— Which facility type is right for my loved one or me?
— How will we pay for care? What will insurance cover?
— How should we plan for long-term care?
“It is important to talk to your physician or other trusted practitioner. They will be able to help determine what level of care is right for you or your loved one,” says Dr. Steven Buslovich, a New York-based geriatrician and medical director. “For instance, instead of going into an assisted living community, you may be able to utilize a senior/adult day center as a viable alternative, particularly if you are able to assist in the care and support of your loved one in the evenings and on the weekends.”
You’ll also need to take into account physical abilities. “It will be helpful to identify your loved one’s frailty level through an assessment that will target the risk of adverse health outcomes such as falls. This not only will help you determine what care and services are needed now, but they also can help identify and address potentially reversible issues and anticipate future needs. A geriatrician or geriatric care manager works with you to conduct a comprehensive evaluation,” Buslovich explains.
As Pruchnicki advises, make sure to get your documents and priorities in order well in advance. These documents can include your will as well as any advance directives, such as living wills or Physician Orders for Life-Sustaining Treatment, or POLST. These forms detail what care and services you would want and not want if you get ill and can no longer express your wishes. Make sure your family and physician have copies, and discuss your wishes with your family members. It also is wise to revisit these documents if you have an acute condition change, such as a heart attack or a cancer diagnosis.
You can help ensure that you don’t get costly care that you don’t want and that eats up your resources by completing two tasks. First, designate a trusted family member as financial power of attorney to manage your financial affairs if you get ill and are no longer able to do so. Second, appoint a health care proxy or power of attorney to oversee your health/medical care if you are unable to.
How to Pay for Assisted Living
If you determine that assisted living is necessary but don’t have money in the bank to pay for it, there are some possible sources of help:
— Pensions, annuities and investments.
Long-term care insurance
Long-term care policies are specifically designed to cover long-term care needs. These can help pay for services such as occupational therapy, rehab and help with activities of daily living. However, this coverage comes with a hefty price tag.
Premiums for a 55-year-old man are about $2,200 a year. That will cover $165,000 worth of benefits at the time of the policy’s purchase. If benefits increase by 3% annually, that would mean getting about $400,500 at age 85. While such coverage can be helpful, this should be just part of your strategy to pay for assisted living or other long-term care.
You may be able to cash out your life insurance policy and use this money to pay for assisted living, If you have whole life insurance, you can surrender it for its cash value tax-free. Talk to your insurance agent to calculate the value of your policy. While this can be a valuable source of cash if you need it, it may not be an optimal move for individuals who are counting on this life insurance to provide a nest egg for loved ones.
Pensions, annuities and investments
If you have a pension from your employer, this can be a useful source of money to pay for assisted living.
For those who don’t have a pension, a fixed annuity can be useful. This is a financial product that can be set up to pay you a regular sum now or in the future. You can purchase an annuity with a single payment or you can contribute to it over time. The main advantage of an annuity is that it provides a source of retirement income. On the downside, annuities at best have a low rate of earned interest, and you must wait until you’re 59.5 to make penalty-free withdrawals.
Investments, such as stock market accounts, can grow considerably over time and provide a good source of income when you, or your loved one, head to assisted living. However, the economy and the market can be very volatile, and you need to be prepared for ups and downs over time. If you count on these to pay for assisted living and you need the money when the market is down, you could get less money than if you waited for a strong market.
Veterans, as well as spouses or widows/widowers of veterans, may benefit from Veterans Aid & Attendance benefits and Housebound allowance. Such benefits can range from about $1,000 to over $2,000 per month. At the same time, these individuals may be entitled to health benefits that provide assistance for long-term care, including assisted living. Covered services include 24/7 nursing and medical care; physical therapy; assistance with daily activities, such as bathing or medication management; comfort care and pain management; and support for caregivers.
Some older adults who are homeowners and have equity in their property may benefit from a reverse mortgage. This basically involves selling your home back to the bank and collecting monthly payments while you continue to live there. This property needs to be your principal residence, and you can’t be delinquent on any payments or taxes. You will also need to comply with eligibility requirements, such as a credit check.
The pros are the extra financial security a reverse income brings and the ability to stay in your home. One main downside is that you won’t be able to leave the property to family members and other heirs. At the same time, while you continue to live in your home, you must stay current on taxes, homeowners insurance and HOA fees. If you are delinquent, you could default on the agreement and lose your home.
Another option for homeowners is to sell their house outright. If you’re not ready to move into assisted living, an option is to downsize to an apartment, senior living community or condo. You can then save at least some of the proceeds from the sale for long-term needs later on.
As you are comparing the costs of assisted living communities, it is important to understand what you will get for your money.
Communities should be transparent about key information regarding base rates, fees for additional services, occupancy levels, staffing and ownership. It may be possible to reduce costs by working with the assisted living community to limit optional services, such as medication management.
Out-of-pocket medication costs can add up, especially if you have multiple chronic conditions that require ongoing drug therapy. A senior care pharmacist, a pharmacy professional who specializes in drug therapy and medication management for older adults, can help you identify less expensive alternatives, such as generic medications, and determine if there are any duplicate or outdated drugs in your regimen. You can find a senior care pharmacist in your community from the American Society of Consultant Pharmacists, the national professional association for senior care pharmacists.
Of course, as with most forms of housing, costs for assisted living vary from state to state. According to Seniorly.com, the most expensive state for assisted living care is New Jersey, with an average cost of $5,893 per month. The least expensive is Georgia at $3,045 per month. If you are looking to cut costs, you want to consider a location where costs are lower. At the same time, if you are on a budget, you will want a community that offers modest accommodations.
If money is no object, boutique-style facilities, which can run several thousand dollars a month, offer amenities such as a variety of dining venues, upscale housing accommodations, luxurious common spaces and a wide array of activities. However, if you’re on a budget, consider more modest communities that include the basics and what you’ll need to live and enjoy day-to-day life.
More from U.S. News
Best Vitamins and Minerals for Older Adults
Top Superfoods for Older Adults to Boost Health and Longevity
Types of Rooms in Assisted Living Communities
How to Finance Assisted Living originally appeared on usnews.com
Update 03/16/23: This story was previously published and has been updated with new information.