You just turned 65 and applied for Medicare. Now, if you need assisted living, you’ll be set, right? Not quite.
Many people assume that Medicare covers assisted living, but that misconception can be costly. Knowing the facts about Medicare, Medicaid, long-term care insurance and other coverage options will save you money and grief when it’s time to consider assisted living.
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What Is Assisted Living, and How Much Does It Cost?
Even if you are healthy today, it’s important to plan for the “what ifs.” According to the Administration for Community Living, people age 65 or older have a 70% chance of needing some sort of long-term care in their lifetime.
One such option is assisted living. This setting is traditionally designed for those who are still somewhat independent but need assistance with activities of daily living, such as bathing, dressing and toileting. Assisted living communities also provide an environment where residents can enjoy socialization, group activities and meals with friends and family. Some communities even allow residents to have pets, as long as they can care for them.
While assisted living provides a homelike, comfortable setting for residents who can no longer live alone but don’t need 24/7 care, it can be pricey. In fact, the average expense, according to Genworth Financial — a long-term care insurance provider that publishes a Cost of Care Survey — is about $4,500 per month. That’s a national average, and some locations will cost significantly more.
This baseline fee doesn’t include “extras” or unexpected costs, such as additional care fees, medications, housekeeping or cable TV. And costs can climb much higher for luxury communities.
Selecting the right community means considering a range of variables from price to amenities, says Meg Pletcher, vice president at Atria Senior Living, based in Louisville, Kentucky.
“It’s important for older adults and their families to talk about their expectations for senior living in advance, do their research and choose the community that meets their needs socially, physically and financially,” she explains.
That’s for both right now and in the future, for as long as you may need such care. According to the American Health Care Association and the National Center for Assisted Living, the average length of stay in an assisted living community is 22 months. This means a cost of almost $100,000, and likely more. And this doesn’t account for the costs of care if you have to transfer to a nursing home or other care setting.
[SEE: Things You Should Know About Medicare.]
Does Medicare Pay for Assisted Living?
Most assisted living is private pay, meaning you need the funds to pay for care out-of-pocket. Medicare, the government-run health care insurance plan for people age 65 and over as well as some low-income individuals and those with certain disabilities, doesn’t cover most assisted living costs.
Specifically, Medicare doesn’t cover custodial, or nonskilled, care, such as bathing, dressing and other activities of daily living. These are the very tasks most people need help with in assisted living, says Diane Omdahl, Wisconsin-based co-founder and president of 65 Incorporated and author of “Medicare for You: A Smart Person’s Guide.” What Medicare does cover, to some degree, is home health and aide services, such as physical or occupational therapy or skilled nursing services ordered by a physician after a hospital stay.
Medicare Advantage, offered through private insurers, may help cover some custodial care costs, but you will need to explore specific plans.
[Read: The Highest Medical Costs to Expect in Retirement.]
How About Medicaid?
Medicaid, a joint state and federal program, may pay for some assisted living costs — with caveats.
“You may qualify for some personal care assistance that you receive in assisted living, but this depends on your state and your income, as every state has its own rules and requirements,” Omdahl says.
Qualifying income levels, which vary from state to state, are very low, and anyone who has income beyond their Social Security benefits may not make the cut, Omdahl explains. And even if you do get Medicaid to cover some costs, you likely will have to spend down all of your assets before it kicks in. This means that your personal funds will be used to cover costs until you have nothing left, and that’s when coverage starts.
To find out more about Medicaid in your state, visit Medicaid.gov or the Social Security Administration website.
[READ: Best Exercises for Preventing Falls in Older Adults.]
Is Long-Term Care Insurance the Answer?
Long-term care insurance policies are specifically designed to cover long-term care needs and services, such as rehab or help with activities of daily living and self-care tasks. This coverage can be costly, running between $1,000 and $2,000 annually or more. Among the factors that determine the cost of a policy are your age, gender, marital status, health conditions, which benefits you’re interested in and where you live.
Not surprisingly, age is a big factor; the younger you are when you purchase your policy, the better.
“For instance, a couple buying an average policy would save $1,000 a year by buying at age 50 versus waiting until age 60,” explains Jesse Slome, executive director of the American Association for Long-Term Care Insurance in Westlake Village, California.
However, if you can afford long-term care insurance, it may well be worth the investment. Consider that you purchase a policy in your 50s that covers $165,000 in benefits. If the benefits increase 3% annually, you would get more than $400,000 when you turn 85.
“It actually appears in recent years that long-term care insurance is paying for more assisted living care,” Slome notes. “The percentage of claims for this setting is higher, and policies are paying out more.”
According to the American Association for Long-Term Care Insurance, in fact, $12.3 billion in benefits was paid to long-term care insurance claims in 2021, and $13.2 billion was paid in 2022.
Like all financial products, Slome notes, “the more you buy, the more it has the potential to pay. When you purchase the coverage, you are determining the future pool of money available to you.”
Of course, it is important to realize that long-term care insurance won’t pay for everything.
“One misconception is that long-term care insurance pays rent,” Slome says.
He notes that people sometimes think that if they move into assisted living, then they will have neighbors, a social life and a sense of shared community and their insurance will cover their monthly rent.
“You have to have health-qualifying needs for the insurance to pay,” he clarifies. “These include things like care for dementia or assistance with activities of daily living.”
Most long-term care insurance claims are due to diagnoses such as cancer, musculoskeletal conditions, cognitive issues, brain illnesses or injuries and cardiovascular disease.
“If you have long-term care insurance now, keep it going,” Omdahl suggests.
If you let it lapse, you will lose the investment and your coverage. It also may be harder to get a policy if you reapply in the future.
Ultimately, you’ll need to do your homework, as policies vary considerably.
“There aren’t many companies offering these products, so they get to set their own prices. There’s not much competition, and that is why you may see policies that cost $5,000 a year and those for $14,000,” Slome notes. He adds, “Get comparisons, and talk to an independent broker.”
How Else to Pay for Assisted Living?
It’s best not to depend on one source of funding for assisted living. So, weigh the possibility of the following:
— Personal assets.
— Family assistance.
— Hybrid policies.
— Veterans benefits.
Personal assets
These may include Social Security, pension funds, money from a 401(k) or 403(b) savings account, individual retirement account distributions, or income from the sale of a home or other real estate.
Family assistance
Particularly if you are concerned about your ability to pay for assisted living over time, think about sitting down with your family and determining what, if any, help or support they might be able to provide. It also would be useful to get your finances lined up and meet with a financial planner.
Before you enter an assisted living community, find out what would happen if you could no longer afford your care. Management should be open and honest and let you know what options might be available.
Hybrid plans
While you are considering long-term care insurance, you might want to look into a life insurance policy with a long-term care rider. With this type of policy, you pay into it, and you get a payout if you need long-term care.
Any money you take for long-term care comes out of your policy. If you never need long-term care or don’t use all of your funds for this purpose, the remaining death benefit goes to your chosen beneficiary.
“These cost a little more because they are doing double duty,” Slome says.
However, they offer the opportunity to get something for your investment if you never need long-term care.
Veterans benefits
The U.S. Department of Veterans Affairs offers a benefit that covers part of the cost of living in an assisted living community. To qualify, you or your spouse would have needed to have served during specific wars and been honorably discharged. Many are unaware that a spouse of a deceased veteran can qualify for those benefits today, even though the spouse did not serve.
Consider the Benefits
While assisted living is costly, the care and services you receive there may enable you to delay placement in a nursing home or stay out of one altogether. By getting help with some tasks, for instance, you may be able to avoid accidents, injuries or other issues that cause you to lose your ability to function or practice self-care. With this in mind, it makes sense to save and plan so that you have assisted living as one viable care option.
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Understanding Long-Term Care Insurance and Medicare Coverage for Assisted Living originally appeared on usnews.com
Update 07/24/23: This piece was previously published at an earlier date and has been updated with new information.
