Many older adults with chronic diseases, dementia, or those who have suffered from accidents requiring special care, may benefit significantly from transitioning to an assisted living facility. Assisted living offers your aging loved one a social, active, and engaging lifestyle, with meals and amenities. But of course, this comes at a cost.
The question is, how to plan and pay for this cost? Read on to learn more about assisted living and how to pay for it.
- How Much Does Assisted Living Cost?
- How to Pay for Assisted Living
- Paying for Assisted Living from Savings
- Does Medicare Pay for Assisted Living?
- Does Medicaid Pay for Assisted Living?
- Using Long Term Care Insurance to Pay for Assisted Living
- Do VA Benefits Help Veterans Pay for Assisted Living?
- How to Use Life Insurance to Pay for Assisted Living
- Renting Your Home to Pay for Assisted Living
- Taking Out a Reverse Mortgage vs. HELOC to Pay for Assisted Living
- Using an Annuity to Pay for Assisted Living
- Start Planning Early for Assisted Living Care
How Much Does Assisted Living Cost?
The average cost of assisted living in the United States for 2020 was $4,300. This was a 6% increase from the previous year, where the figures stood at $4,051 and are expected to rise steadily in the future.
The cost of assisted living varies from one state to another and with the level of care required. However, most assisted living facilities operate with a fixed base rate and other variable costs based on the level of care a person needs.
How to Pay for Assisted Living
It’s worth mentioning that there are many options that seniors and their family members use to pay for assisted living. The method you use depends on your family and the unique circumstances you’re facing.
Fortunately, there are several financial solutions you can turn to for help to pay for assisted living. These include:
- Long term care insurance
- VA benefits
- Life insurance
- Renting your home
- Reverse mortgage/HELOC
- An annuity
Paying for Assisted Living from Savings
The most simple and straightforward way of paying for long-term care senior living is from savings, often referred to as private pay. This typically involves significant savings well ahead of time and then cashing out those savings and private funds to pay for assisted living.
While this might be simple, it might not be practical for a large number of seniors due to the high and rising long-term care costs. Additionally there may be other financial assistance or payment options that could help reduce the cost of care.
Does Medicare Pay for Assisted Living?
Medicare is a type of health insurance designed for elderly Americans. To be eligible, one must be aged 65 and above. While many people assume their long-term care costs will be covered by Medicare, it doesn’t pay for assisted living or room and board at any senior care arrangement. Medicare does cover typical medical care while experienced while living in an assisted living facility as well as some medical device costs.
Medicare will cover a short stay in a rehabilitation community or rehab at home if the person is recovering from an illness or injury.
Related: Does Medicare Cover Assisted Living
Does Medicaid Pay for Assisted Living?
If your parent falls within a low-income and little assets category, they can qualify for Medicaid. This is government and state-funded coverage for the elderly. As such, coverage for assisted living and assisted living communities varies from state to state, depending on the regulations.
The great news is that almost all states offer Medicaid programs covering assisted living. However, eligible residents benefit in specific areas only, not the entire cost of assisted living. In fact, like Medicare, Medicaid does not pay for the cost of living in the community.
If your state Medicaid plan does not cover assisted living, and you qualify for Medicaid, you may want to look into nursing home options in your area as Medicaid plans do cover long term care at approved nursing home facilities.
Medicaid coverage will typically pay for the following services associated with assisted living:
- Nursing care
- Medical exams
- Medication management
- Case management
Granted, Medicaid can get a bit complicated. But it’s a viable option that’ll pay for your loved one’s long-term care.
Common Hurdles With Medicaid
Qualifying for an HCBS waiver is a task with many challenges, including:
- Your senior may fall short of the level of medical needs that HCBS waiver programs require them to meet.
- Usually, the spots are limited. So, you may have to wait longer even after qualifying from a financial or medical position.
- Have a list of other assisted living payment methods as a plan B
- Establish whether your state provides non-Medicaid government programs to help with assisted living.
Using Long Term Care Insurance to Pay for Assisted Living
Long term care insurance is another option to pay for assisted living. With a long term-care insurance policy, you or your loved one signs up and begins paying premiums before long-term care is needed.
When you qualify to receive benefits, your insurer will pay for your care at an assisted living community. Some plans will pay for other types of senior living care such as home care, skilled nursing facilities, and memory care.
Plans have started to introduce more limits on the maximum amount of benefits they will provide. Many will only pay for 3-5 years of care now. Make sure to research plan details before signing up.
Many older plans have much more generous benefit maximums, if your loved one signed up for a long-term care policy before insurance companies reduced benefits, they may be well situated to pay for their care.
If you are planning ahead for you or a loved one, a long-term care insurance policy might be a beneficial way to help offset the cost of care. In order to get the best rates and minimize the odds of being denied for coverage, it is advisable to apply for care around 60 years old.
Do VA Benefits Help Veterans Pay for Assisted Living?
The Department of Veterans Affairs (VA) awards eligible veterans, as well as a surviving spouse of a veteran, a monthly pension to assist them in performing activities of daily living (ADLs). This benefit is on top of a veteran’s basic pension benefit.
Another part of veteran’s benefits that help provide senior living care for are state run veterans homes – these are senior care homes for veterans that provide services like nursing care, help with activities of daily living, adult day care, etc while creating a community for senior veterans to live in. State run veterans homes are certified by the VA but are administered and run by each state.
Similar to state run veterans homes, VA community living centers are another Veteran’s benefit. These community living centers provide skilled nursing care and social services. Some VA community living centers provide specialized care such as memory care, palliative care, or hospice care.
Eligibility requirements for each of these benefits varies, check out our guide to veterans benefits and long term care for more details.
How to Use Life Insurance to Pay for Assisted Living
There is a common belief that funds from a life insurance policy may only be accessed when a person dies. However, there are situations where the policy can provide financial support while the person is still alive if you’re in need of the money for long-term care.
While the process and means to leverage a life insurance policy will vary by policy, there are typically two ways to get the money and pay for assisted living. These are:
- Sell the life insurance policy to a third party for cash while still retaining some benefits upon the death.
- Sell the policy back to the insurance provider, who will buy it at a lower value of 50% to 75%. With this arrangement, you get no benefits upon death.
Renting Your Home to Pay for Assisted Living
If your loved one owns their own home and there is no spouse or other relative living in their home, renting out the home may be a good option to help pay for assisted living. Depending on your location, renting out your loved one’s house may cover a significant portion of their assisted living residence and medical expenses.
While this is one of the common ways to help pay for assisted living or moving to a senior living community, this can be difficult in practice. Many seniors either think they will move back into their home eventually or don’t want other people living in their home. This can lead to difficult conversations with loved ones, particularly if the rent is need to help pay for the assisted living costs.
When renting out the home to generate cash for assisted living costs, make sure to calculate the continued costs of home ownership (home repairs, property taxes, property management fees, etc).
A variation of this option is to sell the house rather than rent. If your loved one has high anticipated costs of care that will not be well covered by medicaid, medicare, a long-term care policy, or other financial assistance options, selling the home would help generate additional funds to cover all treatment costs. Selling the house might be a good option if there is a spouse who cannot move into assisted living and would need to find another senior living arrangement.
Taking Out a Reverse Mortgage vs. HELOC to Pay for Assisted Living
A reverse mortgage allows you to borrow money based on your home equity. Repayment is made when you sell the house, move out, or die.
Because a reverse mortgage requires you to continue living in the house, this is a good option for seniors whose spouse currently needs assisted living care, but you can still live in the house to qualify for the reverse mortgage.
This situation may also be beneficial for individuals who would prefer to live at home with increasing levels of home health care rather than moving into an assisted living facility and move through the care spectrum there.
Similarly, you can also take out a HELOC (Home Equity Line of Credit), where your house is the collateral for a certain term.
While in a reverse mortgage, the lender pays you, in HELOC, you have to pay monthly installments to the lender after receiving a lump sum from which you withdraw the amount you require to pay for the assisted living.
Unlike a reverse mortgage which requires that you are at least 62 years old, the HELOC has no age requirement.
Both the reverse mortgage and HELOC offer financial assistance based on the equity you’ve built in your home and give you the ability to transition into an assisted living facility. A reverse mortgage requires selling your home which may be difficult for some families. A HELOC allows you to avoid this, but requires cash repayments – This may be a good option for buy in fees or deposits at an assisted living facility.
Using an Annuity to Pay for Assisted Living
Although this is not an option for all seniors, those with sizable investments or savings can consider an annuity.
This method involves purchasing an annuity by paying a large sum of money to the annuity underwriters. In return, they’ll send monthly payments throughout your lifetime, which you can use to pay for assisted living care.
One advantage of annuities is that you can get more money than you invested – compared to long-term care insurance or hybrid life insurance where you can max out your benefits.
Also, when you apply for government aid, Medicaid doesn’t consider an annuity as an asset, which could potentially help with qualification for assistance.
Start Planning Early for Assisted Living Care
The best way to ensure you don’t struggle to pay for assisted living is to start planning early. Research and review the available options early enough to make everything easier for you when the time comes to transition into assisted living care.