There are only three ways to pay for long-term care:
1. Use your own money.
2. Become impoverished and qualify for MediCAID
3. Own LTC insurance.
As we've already seen, long-term care is very expensive. Unfortunately, private health insurance, Medicare, and Medicaid (Medi-Cal in California) are not realistic options to rely on to pay for your long-term care. This section addresses who pays for long-term care - and who does not - and what the limitations and disadvantages are in relying on those programs.
This chart is misleading. It appears that Medicare is a signifianct source of funding of long-term care expenditures. As you'll see in a moment, Medicare pays NOTHING for LONG-term care. And the "private insurance" cited is primarily health insurance, NOT LTC insurance. Which means out-of-pocket funds and Medicaid become the only sources unless you make other plans in advance.
Medicare
It is very important for you to be aware of Medicare's limits. Medicare may be one of the most misunderstood government programs in defining what is actually covered for long-term care services. Medicare is a federal health insurance program administered by the Centers for Medicare and Medicaid Services (CMS). It is available to most people at age 65 or those with a permanent disability or end stage renal disease. Medicare was never designed to cover long-term custodial or "maintenance" care.
The reason Medicare doesn't pay for LONG-term care is that most long-term care is not skilled care - it's custodial. Medicare only pays for skilled care, only if it's rehabilitative and only for a limited period of time.
Medicare technically should not be included in long-term care statistics. Medicare only pays for SHORT-term care.
There are three parts to Medicare: Part A (inpatient services), Part B (outpatient and physicians' services), and Part D (prescription drug benefit). As it relates to this subject, Medicare Parts A & B will pay for skilled nursing facility care, home health care (very limited), and end-of-life hospice care.
Medicare & Skilled Nursing Facilities
Medicare only pays for up to 100 days in a skilled nursing facility (SNF).
To even qualify for that you must:
Medicare fully pays for the first 20 days. The next 80 days, Medicare pays all but a patient co-pay in 2010 of $137.50 per day. (Most Medicare supplement plans pick up this co-payment.) However, the average is only 21 days according to CMS.
Medicare only pays for SHORT-term care.
It is also important to point out that if you only needed custodial or maintenance care you would not receive any Medicare benefits.
Example: If you had Alzheimer's disease and needed supervision, or if you needed help with your activities of daily living due to old age, these conditions would not qualify for Medicare benefits.
Medicare Home Health Care Benefits
Technically Medicare will pay for an unlimited amount of home care - there is no 100-day limit like in a nursing home, nor is there a 3-day hospitalization requirement. But again it's limited because Medicare only pays for skilled, rehabilitative care that is leading to improvement. Once "progress toward recovery" ends, so does the Medicare benefit. The average beenfit is only about 30 days according to CMS.
Medicare does not pay for full-time care at home. If qualified, it only pays for "visits" - typically just an hour or two at most, you must be homebound, and need skilled therapy fewer than five days a week.
Medicare only covers SHORT-term care.
Common Misconceptions
If Medicare doesn't pay, won't my Medicare Supplement pay for my long-term care?
Medicare supplements only pay the patient's deductibles and co-payments for Medicare-approved services. If Medicare doesn't cover a service - like custodial long-term care, then your Medicare supplement will not pay either.
I have a Medicare Advantage plan, doesn't that pay for my long-term care?
Generally, Medicare Advantage (private insurance alternatives to "traditional Medicare") must offer the same benefits that Medicare offers. To encourage people to assign their Medicare benefits to a private insurer, many Advantage plans offer additional ancillary benefits like more preventive services, vision and podiatry care. However, they generally use the same criteria that Medicare does when it comes to paying for long-term care services: skilled, rehabilitative care only.
For more information on Medicare you can call 1-800-Medicare (1-800-633-4227) to speak to a Medicare Customer Representative or visit www.medicare.gov.
Private Health Insurance
Like Medicare, major-medical health insurance for working-age adults under age 65 pays health insurance pays NOTHING for LONG-term care. It does pay for SHORT-term, skilled, rehabilitative care, but often with very strict time limits ranging from 30 days to no more than 90 days. Again, the statistics reflected in the chart above for "private insurance" primarily reflect health insurance expenditures for very expensive, but short-term skilled rehabilitative care. For example, physical therapy after a surgery or car accident.
Medicaid
Medicaid (called "Medi-Cal" in California and "MassHealth" in Massachusetts) is a joint federal-state program that provides care for those who financially qualify. Medicaid is "means-tested". To qualify for Medicaid, an individual must have few assets and income that's less than the cost of care. Medicaid is the health care benefit of our welfare system that also pays for general medical care, hospitalization, doctors, prescription drugs, and both skilled and custodial nursing home care.
Medicaid eligibility rules are complicated, and different states apply different rules. Each state operates its own Medicaid program, consistent with federal law.
Medicaid pays for a majority of our nation's nursing home care costs. Unlike Medicare, Medicaid does pay for custodial care, but in most cases it is limited to nursing home care.
There are several disadvantages to relying on Medicaid:
First, in most states Medicaid does not pay for home care or even assisted living.* Home or a home-like setting is usually where people want to stay so applying for Medicaid can require receiving your care in a nursing home.
Second, the choice of nursing homes with Medicaid beds may be very limited. There are excellent facilities with Medicaid beds, but they do not have to admit a person who is already qualified for Medicaid. Typically the best facilities that offer Medicaid beds (sometimes called "vendor" beds) reserve them for residents who have been private-paying in the facility for a period of time. This is often referred to as "key money" - 6, 12, 18 or more months of private pay, often while spending down assets to qualify for Medicaid. Once the money is gone, the facility then transfers the resident to a Medicaid bed. Again, if you show up at the front door with your already-approved Medicaid card, they do not have to take you.
*States have the right to apply for home and community-based services (HCBS) waivers. These waivers make funds available to provide custodial care in the community. HCBS Waiver patients, like Medicaid patients, will still be limited to receiving care from providers willing to accept less compensation for their services than they receive from their private pay clients. Most states have a home care waiver program under Medicaid, but benefits are very limited if even offered.
Asset Limits
In order to be eligible for Medicaid benefits the nursing-home resident must spend down to $2,000 to 3,000 in "countable" assets (varies by state). The spouse of a nursing-home resident - called the "community spouse" is limited to one-half of the couple's joint assets up to a maximum of $109,560 in "countable" assets (in 2010). (This does not include the house, car, and a few other personal items.) This figure changes each year to reflect inflation. The community spouse may keep the first $21,912 (in 2010), even if that is more than half of the couple's assets. This figure is higher in some states. There are a few states which automatically allow the at-home spouse to keep the maximum of $109,560 (in 2010) if the couple has at least that much in countable assets.
Transferring Your Assets to Qualify for Medicaid
Many people think a solution to qualify for Medicaid is to artificially impoverish themselves by giving their assets away. When applying for Medicaid, the federal government requires a "look back" period where they review your financial records to see if you have transferred assets for less than fair market value (i.e. to children or others).
The 1993 budget bill (OBRA '93) required the Medicaid program to "look back" 36 months prior to applying for Medicaid. The Deficit Reduction Act (DRA '05) now requires Medicaid to "look back" 60 months (5 years!) for all transfers including gifts and transfers made to or from certain kinds of trusts.
If a transfer is found during the "look back" review, there is a penalty that makes you ineligible for Medicaid for a period of tiem. The penalty period is determined by dividing the amount given away by what Medicaid determines to be the average private pay cost of a nursing home in your state.
For example: If you gave away $100,000 anytime in the 5 years before applying for Medicaid, and if the state says care costs $5000 per month, then the gift would create a 20-month period of ineligibility for Medicaid. You must pay out of pocket. The larger the gift, the longer the penalty period.
Income Limits
Even after assets have been reduced to qualify, the income of a Medicaid beneficiary--usually Social Security and pension income--must be used to pay the costs of long-term care. Income is paid to the nursing home, Medicaid makes up the difference. Medicaid is a 100% co-pay program, all your income must be spend on care, even after assets have been reduced to poverty level. Medicaid is not "free"!
Medicare Part B premiums continue to be withheld from Social Security checks, the patient can continue to pay Medicare supplement premiums, and can keep only a "personal-needs allowance" which averages $30-$60 per month. (This varies by state.)
However, if the Medicaid nursing-home patient is married, the "community spouse" is allowed to keep income that comes in his or her name alone, they can keep that income and it does not have to be applied to the nursing-home patient's long-term care costs.
If the community spouse doesn't have much income, a minimum income is guaranteed, which can vary between $1,821.25 and 2,739.00 (in 2010) depending on the state. The community spouse can keep additional income from the Medicaid-spouse to meet this minimum. If the community spouse doesn't have income above the minimum limits, she or he will suffer a dramatic loss of lifestyle by being forced to live on only the Medicaid minimum income allocation while the rest of the Medicaid-spouse's income goes to the nursing home as a co-payment for care.
Generally speaking, if the nursing-home patient has enough income to pay for their own care they will not qualify for Medicaid even if they meet the asset requirements. If a couple has enough income to provide the "community spouse" with the minimum income requirements and pay for the nursing home spouse's long-term care, they will not qualify for Medicaid either even if they meet the asset requirements.
Estate Recovery for Medicaid Benefits
Even after death you're still on the hook. Federal Law requires states to recover what was spent on care at the death of the Medicaid beneficiary or the second spouse if later. Any assets that were able to be kept when first applying for Medicaid are now at risk of estate recvoery. State rules and practices for estate recovery vary significantly. Some states are stricter than others, and most states are increasing their recovery efforts. In some states, placing a lien on your home is part of the estate recovery act.
New "Partnership LTC Insurance" plans in many states can protect assets from Medicaid spend-down and estate recovery. This requires that you buy a qualifiying LTC insurance plan and use that benefit first before applying for Medicaid. Partnership LTC insurance protects assets up to the total amount of benefits paid out of the policy. (In New York and Indiana unlimited assets can be protected by Partnership LTC insurance.) This is another reason to plan ahead with LTC insurance.
Veteran's Administration
There are other funds that can pay for long-term care, but they all have strict criteria and guidelines that must be met. An example would be the Veteran's Administration. The Veteran's health care benefits include medically necessary hospital and nursing home care and some outpatient care. The VA prioritizes veterans that qualify for care according to several categories. The first priority of veterans for receiving care is those who have a severe, service-connected disability. Without a service-connected disability the veteran stays at the bottom of the priority list. There are income and asset requirements to be met as well.
To learn more about your eligibility benefits as a veteran, contact your local Department of Veterans Affairs Regional Office, or write to:
Veteran's Benefits Department
Paralyzed Veterans of America
801 18th Street N.W.
Washington, D.C. 20006
Or call 800-424-8200
Out of Pocket Expenses
If you do not qualify for Medicare, run out of short-term Medicare benefits and don't financially qualify for Medicaid, then you have to pay long-term care costs out of your own pocket. This may mean reallocating your income, depleting your savings, cashing in your CDs, selling stocks and bonds, or even using cash value in your life insurance policies. Unfortunately, for many people it does not take long before they deplete their hard-earned savings and end up qualifying for Medicaid.
In the next section we'll look at a number of problems that indivduals and familes encounter when there is a long-term care disability ...
1. Use your own money.
2. Become impoverished and qualify for MediCAID
3. Own LTC insurance.
As we've already seen, long-term care is very expensive. Unfortunately, private health insurance, Medicare, and Medicaid (Medi-Cal in California) are not realistic options to rely on to pay for your long-term care. This section addresses who pays for long-term care - and who does not - and what the limitations and disadvantages are in relying on those programs.
This chart is misleading. It appears that Medicare is a signifianct source of funding of long-term care expenditures. As you'll see in a moment, Medicare pays NOTHING for LONG-term care. And the "private insurance" cited is primarily health insurance, NOT LTC insurance. Which means out-of-pocket funds and Medicaid become the only sources unless you make other plans in advance.
Medicare
It is very important for you to be aware of Medicare's limits. Medicare may be one of the most misunderstood government programs in defining what is actually covered for long-term care services. Medicare is a federal health insurance program administered by the Centers for Medicare and Medicaid Services (CMS). It is available to most people at age 65 or those with a permanent disability or end stage renal disease. Medicare was never designed to cover long-term custodial or "maintenance" care.
The reason Medicare doesn't pay for LONG-term care is that most long-term care is not skilled care - it's custodial. Medicare only pays for skilled care, only if it's rehabilitative and only for a limited period of time.
Medicare technically should not be included in long-term care statistics. Medicare only pays for SHORT-term care.
There are three parts to Medicare: Part A (inpatient services), Part B (outpatient and physicians' services), and Part D (prescription drug benefit). As it relates to this subject, Medicare Parts A & B will pay for skilled nursing facility care, home health care (very limited), and end-of-life hospice care.
Medicare & Skilled Nursing Facilities
Medicare only pays for up to 100 days in a skilled nursing facility (SNF).
To even qualify for that you must:
- Be hospitalized for 3 full days
- Enter a SNF for care of the same condition for which you were hospitalized.
- You must need care on a daily basis.
- AND care must be for skilled, rehabilitative services.
Medicare fully pays for the first 20 days. The next 80 days, Medicare pays all but a patient co-pay in 2010 of $137.50 per day. (Most Medicare supplement plans pick up this co-payment.) However, the average is only 21 days according to CMS.
Medicare only pays for SHORT-term care.
It is also important to point out that if you only needed custodial or maintenance care you would not receive any Medicare benefits.
Example: If you had Alzheimer's disease and needed supervision, or if you needed help with your activities of daily living due to old age, these conditions would not qualify for Medicare benefits.
Medicare Home Health Care Benefits
Technically Medicare will pay for an unlimited amount of home care - there is no 100-day limit like in a nursing home, nor is there a 3-day hospitalization requirement. But again it's limited because Medicare only pays for skilled, rehabilitative care that is leading to improvement. Once "progress toward recovery" ends, so does the Medicare benefit. The average beenfit is only about 30 days according to CMS.
Medicare does not pay for full-time care at home. If qualified, it only pays for "visits" - typically just an hour or two at most, you must be homebound, and need skilled therapy fewer than five days a week.
Medicare only covers SHORT-term care.
Common Misconceptions
If Medicare doesn't pay, won't my Medicare Supplement pay for my long-term care?
Medicare supplements only pay the patient's deductibles and co-payments for Medicare-approved services. If Medicare doesn't cover a service - like custodial long-term care, then your Medicare supplement will not pay either.
I have a Medicare Advantage plan, doesn't that pay for my long-term care?
Generally, Medicare Advantage (private insurance alternatives to "traditional Medicare") must offer the same benefits that Medicare offers. To encourage people to assign their Medicare benefits to a private insurer, many Advantage plans offer additional ancillary benefits like more preventive services, vision and podiatry care. However, they generally use the same criteria that Medicare does when it comes to paying for long-term care services: skilled, rehabilitative care only.
For more information on Medicare you can call 1-800-Medicare (1-800-633-4227) to speak to a Medicare Customer Representative or visit www.medicare.gov.
Private Health Insurance
Like Medicare, major-medical health insurance for working-age adults under age 65 pays health insurance pays NOTHING for LONG-term care. It does pay for SHORT-term, skilled, rehabilitative care, but often with very strict time limits ranging from 30 days to no more than 90 days. Again, the statistics reflected in the chart above for "private insurance" primarily reflect health insurance expenditures for very expensive, but short-term skilled rehabilitative care. For example, physical therapy after a surgery or car accident.
Medicaid
Medicaid (called "Medi-Cal" in California and "MassHealth" in Massachusetts) is a joint federal-state program that provides care for those who financially qualify. Medicaid is "means-tested". To qualify for Medicaid, an individual must have few assets and income that's less than the cost of care. Medicaid is the health care benefit of our welfare system that also pays for general medical care, hospitalization, doctors, prescription drugs, and both skilled and custodial nursing home care.
Medicaid eligibility rules are complicated, and different states apply different rules. Each state operates its own Medicaid program, consistent with federal law.
Medicaid pays for a majority of our nation's nursing home care costs. Unlike Medicare, Medicaid does pay for custodial care, but in most cases it is limited to nursing home care.
There are several disadvantages to relying on Medicaid:
First, in most states Medicaid does not pay for home care or even assisted living.* Home or a home-like setting is usually where people want to stay so applying for Medicaid can require receiving your care in a nursing home.
Second, the choice of nursing homes with Medicaid beds may be very limited. There are excellent facilities with Medicaid beds, but they do not have to admit a person who is already qualified for Medicaid. Typically the best facilities that offer Medicaid beds (sometimes called "vendor" beds) reserve them for residents who have been private-paying in the facility for a period of time. This is often referred to as "key money" - 6, 12, 18 or more months of private pay, often while spending down assets to qualify for Medicaid. Once the money is gone, the facility then transfers the resident to a Medicaid bed. Again, if you show up at the front door with your already-approved Medicaid card, they do not have to take you.
*States have the right to apply for home and community-based services (HCBS) waivers. These waivers make funds available to provide custodial care in the community. HCBS Waiver patients, like Medicaid patients, will still be limited to receiving care from providers willing to accept less compensation for their services than they receive from their private pay clients. Most states have a home care waiver program under Medicaid, but benefits are very limited if even offered.
Asset Limits
In order to be eligible for Medicaid benefits the nursing-home resident must spend down to $2,000 to 3,000 in "countable" assets (varies by state). The spouse of a nursing-home resident - called the "community spouse" is limited to one-half of the couple's joint assets up to a maximum of $109,560 in "countable" assets (in 2010). (This does not include the house, car, and a few other personal items.) This figure changes each year to reflect inflation. The community spouse may keep the first $21,912 (in 2010), even if that is more than half of the couple's assets. This figure is higher in some states. There are a few states which automatically allow the at-home spouse to keep the maximum of $109,560 (in 2010) if the couple has at least that much in countable assets.
Transferring Your Assets to Qualify for Medicaid
Many people think a solution to qualify for Medicaid is to artificially impoverish themselves by giving their assets away. When applying for Medicaid, the federal government requires a "look back" period where they review your financial records to see if you have transferred assets for less than fair market value (i.e. to children or others).
The 1993 budget bill (OBRA '93) required the Medicaid program to "look back" 36 months prior to applying for Medicaid. The Deficit Reduction Act (DRA '05) now requires Medicaid to "look back" 60 months (5 years!) for all transfers including gifts and transfers made to or from certain kinds of trusts.
If a transfer is found during the "look back" review, there is a penalty that makes you ineligible for Medicaid for a period of tiem. The penalty period is determined by dividing the amount given away by what Medicaid determines to be the average private pay cost of a nursing home in your state.
For example: If you gave away $100,000 anytime in the 5 years before applying for Medicaid, and if the state says care costs $5000 per month, then the gift would create a 20-month period of ineligibility for Medicaid. You must pay out of pocket. The larger the gift, the longer the penalty period.
Income Limits
Even after assets have been reduced to qualify, the income of a Medicaid beneficiary--usually Social Security and pension income--must be used to pay the costs of long-term care. Income is paid to the nursing home, Medicaid makes up the difference. Medicaid is a 100% co-pay program, all your income must be spend on care, even after assets have been reduced to poverty level. Medicaid is not "free"!
Medicare Part B premiums continue to be withheld from Social Security checks, the patient can continue to pay Medicare supplement premiums, and can keep only a "personal-needs allowance" which averages $30-$60 per month. (This varies by state.)
However, if the Medicaid nursing-home patient is married, the "community spouse" is allowed to keep income that comes in his or her name alone, they can keep that income and it does not have to be applied to the nursing-home patient's long-term care costs.
If the community spouse doesn't have much income, a minimum income is guaranteed, which can vary between $1,821.25 and 2,739.00 (in 2010) depending on the state. The community spouse can keep additional income from the Medicaid-spouse to meet this minimum. If the community spouse doesn't have income above the minimum limits, she or he will suffer a dramatic loss of lifestyle by being forced to live on only the Medicaid minimum income allocation while the rest of the Medicaid-spouse's income goes to the nursing home as a co-payment for care.
Generally speaking, if the nursing-home patient has enough income to pay for their own care they will not qualify for Medicaid even if they meet the asset requirements. If a couple has enough income to provide the "community spouse" with the minimum income requirements and pay for the nursing home spouse's long-term care, they will not qualify for Medicaid either even if they meet the asset requirements.
Estate Recovery for Medicaid Benefits
Even after death you're still on the hook. Federal Law requires states to recover what was spent on care at the death of the Medicaid beneficiary or the second spouse if later. Any assets that were able to be kept when first applying for Medicaid are now at risk of estate recvoery. State rules and practices for estate recovery vary significantly. Some states are stricter than others, and most states are increasing their recovery efforts. In some states, placing a lien on your home is part of the estate recovery act.
New "Partnership LTC Insurance" plans in many states can protect assets from Medicaid spend-down and estate recovery. This requires that you buy a qualifiying LTC insurance plan and use that benefit first before applying for Medicaid. Partnership LTC insurance protects assets up to the total amount of benefits paid out of the policy. (In New York and Indiana unlimited assets can be protected by Partnership LTC insurance.) This is another reason to plan ahead with LTC insurance.
Veteran's Administration
There are other funds that can pay for long-term care, but they all have strict criteria and guidelines that must be met. An example would be the Veteran's Administration. The Veteran's health care benefits include medically necessary hospital and nursing home care and some outpatient care. The VA prioritizes veterans that qualify for care according to several categories. The first priority of veterans for receiving care is those who have a severe, service-connected disability. Without a service-connected disability the veteran stays at the bottom of the priority list. There are income and asset requirements to be met as well.
To learn more about your eligibility benefits as a veteran, contact your local Department of Veterans Affairs Regional Office, or write to:
Veteran's Benefits Department
Paralyzed Veterans of America
801 18th Street N.W.
Washington, D.C. 20006
Or call 800-424-8200
Out of Pocket Expenses
If you do not qualify for Medicare, run out of short-term Medicare benefits and don't financially qualify for Medicaid, then you have to pay long-term care costs out of your own pocket. This may mean reallocating your income, depleting your savings, cashing in your CDs, selling stocks and bonds, or even using cash value in your life insurance policies. Unfortunately, for many people it does not take long before they deplete their hard-earned savings and end up qualifying for Medicaid.
In the next section we'll look at a number of problems that indivduals and familes encounter when there is a long-term care disability ...
