Americans are now living longer compared to 40 years ago, and studies show that more than half of Americans age 65 or older will need long-term care services at some point. Living longer means you’re able to spend more time with the people you love – but raises a question: how to pay for long-term care if you need it.
As you approach retirement, it’s essential to evaluate your options and develop a strategy to pay for long-term care. We recommend our clients begin to plan for health care costs such as these around five years out from retirement.
Medicare and Medicaid are government health programs that may come to mind when you think of health care in retirement. These programs provide varying long-term care benefits, which can serve as a starting point for many people. However, it is essential to understand your eligibility for each program.
Comparing government benefit programs
Although Medicare and Medicaid may provide some benefits to pay for skilled and rehabilitative care, there are significant differences between them, which could impact your ability to use them to pay for your long-term care costs. Get to know these programs and the benefits they can – and cannot – provide to help ensure you’re adequately covered before you need long-term care.
Medicare vs. Medicaid
Medicare is the federal medical insurance program for retirees in the United States.
Eligibility: Most Americans receive Medicare coverage as a companion to Social Security benefits. If you receive Social Security or Railroad Retirement Board (RRB) benefits, you are eligible for Medicare Parts A and B starting the first day of the month you turn 65.
- If you do not receive Social Security benefits, you may sign up for Medicare within 3 months of turning 65.
- If you are under 65 and disabled, you will automatically get Medicare Parts A and B after receiving disability benefits from Social Security or the RRB for 24 months.
What Medicare covers
Much like medical insurance while employed, Medicare pays for short-term care when it is rehabilitative in nature. Medicare does not pay for custodial care – the care needed when one is chronically ill.
The Four Parts of Medicare:
Medicare supplement plans – Medicare supplement plans are not part of the Medicare program.
These plans are individual private insurance plans designed to help cover the co-payments of benefits paid for through Medicare. They:
- Do not provide extended benefits outside of what Medicare will cover.
- Help offset some of the costs for benefits for which a co-pay may be required.
- Do not cover expenses associated with custodial care.
Long-Term Care Seminar
Watch our free 30-minute seminar to educate yourself about Long-Term Care Planning.
Medicaid is a joint federal and state program for people who do not have the financial means to afford other health insurance coverage independently.
Medicate coverage varies by state, but typically provides a broad level of health insurance coverage, including doctor visits, hospital expenses, and many other medical expenses and forms of care. Medicaid also typically covers long-term care costs, including nursing home care and home health care.
There are two criteria in qualifying for Medicaid: medical and financial. Medical qualification is determined by the state, but it is sufficient to say that a person who needs support with multiple acts of daily living or supervision for a cognitive impairment would likely qualify for Medicaid medically.
Financial qualification is based on an applicant’s assets and income.
|Definition||Any personal financial resources owned or controlled by the applicant that are available to pay for care.||Non-countable assets are acknowledged by Medicaid but are not used in determining eligibility.||Assets that would have been countable but to which the applicant no longer has access.|
|Example||Checking, savings, CDs, investments, deferred annuity cash value, cash value life insurance in excess of $1,500, tax-qualified pension plans, all residences or property and, any assets in a revocable (living) trust.||A small sum of cash, usually $2,000 but it varies by state. A prepaid burial account, term life insurance, a car for personal use (states cap its value). Business assets if the applicant derives livelihood from them. Personal items and primary residence (if the equity does not exceed a cap set by the state).||Stock in closely held businesses. Prior to applying for Medicaid, using cash to pay down the mortgage of the family home, purchase a car for the spouse who is not receiving care, prepay burial expenses.|
All income, regardless of the source, is considered available to be spent on the beneficiary’s care, with three exceptions.
- A personal monthly allowance, usually between $30 and $60 per month, to cover such items as clothing, toiletries, and medical expenses not covered by Medicaid or Medicare.
- The beneficiary’s Medicare Part B and Medicare supplement insurance premiums.
- Other small deductions permitted by state law.
Marriage and Medicaid
All countable assets in a marriage are considered jointly held and available to be spent on the institutionalized spouse’s care. This includes all of the couple’s countable assets, held separately in the name of either spouse or jointly, are generally considered available to determine Medicaid eligibility. This can leave the independent spouse with little or no income or resources.
A provision called the spousal impoverishment rule allows the Community Spouse (CS) to retain a certain amount of assets and income, to allow them to continue living independently and with dignity. The Community Spouse Resource Allowance (CSRA) allows the Community Spouse to keep half of the couple’s combined, countable assets, up to $126,284 and no less than $25,284 in 2019.
Download our guide to long-term care planning. Long-term care planning does not mean buying inusrance.