THE GOOD PATIENT: How to cover costs of assisted living, long-term care
This is the 18th in a series of articles intended to demystify the experience of living in a retirement community.
Costs for basic assisted living for one person at sites studied for this series range from $28,000 to $56,000/year. A second person will add from $6,000 to $16,000/year. Additional services can add $2,000 to $20,000 per person per year. And long-term care and skilled nursing care can cost from $73,000 to well over $100,000 per person per year.
What options are available to cover the costs?
The four options mentioned in the previous article about independent living costs still apply here. These are: using the money that would have gone into a mortgage and other home expenses, drawing a small percentage every year of the money from the sale of a home, buying an immediate fixed annuity, and buying a deferred fixed annuity.
Five additional options follow.
First, consider purchasing long-term care insurance when you are still relatively young and healthy - perhaps in your mid-50s. Kenneth Stephenson, a Chartered Financial Consultant who runs Complete Financial Solutions in North Carolina, pointed out that this insurance can help protect the rest of your assets.
Second, look into deducting assisted living and long-term care expenses on federal and state tax returns. Under one scenario for tax law going forward, medical expenses that exceed 10 percent of your adjusted gross income could generally be deducted, assuming that you collect the paperwork needed to support the deduction. Someone with $50,000 in income could generally deduct medical expenses beyond the first $5,000.
The practical effect of the tax deduction is that, for example, a couple with $100,000 in adjusted gross income and $70,000 in assisted living expenses might eliminate federal and state tax on $60,000 (the deduction for medical expenses that exceed 10 percent of adjusted gross income). That deduction might free up roughly $8,000 to $27,000 that would otherwise have gone to taxes, depending on many factors such as the sources of the couple's income and their other deductions.
Third, look into taking accelerated life insurance benefits, available with some types of life insurance policies if life expectancy is relatively short.
Fourth, find out if you are eligible for the U.S. Department of Veterans Affairs' Aid and Attendance Pension Benefit, available for veterans with limited assets who served during wartime and/or their spouses. The income ceiling is about $20,000/year, but as the website payingforseniorcare.com notes, "The VA allows individuals to deduct their out-of-pocket medical expenses (such as) health insurance premiums, assisted living, home care and adult day care costs from their income." For example, if you pay $50,000 for assisted living and your income is $60,000, you might still qualify. Maximum benefits range from about $13,000 to $24,000/year.
Fifth, check into state Medicaid funding, available if assets and income meet certain limits. In Arizona, the program is named Arizona Long Term Care System (ALTCS). An individual's income must be under about $25,000 to be eligible; a couple's income limit is twice that. This source may pay most of the cost of essential care in some cases.
Virtually all retirement communities can direct you to people who can help you figure out - at no charge - what funding sources might be relevant for you and how to use them.
Another resource is www.payingforseniorcare.com. It offers an online questionnaire and then provides a very comprehensive report listing what sources of funds may be available, given the individual's or couple's particular financial and medical circumstances.
Every option listed above comes with quite a few cautionary notes and fine print details that you might be tempted to skip - but doing so could result in unpleasant surprises. That's why it's important to get competent advice before committing to decisions that would be hard to reverse.
The next column will talk about the financial profile of people who move into retirement communities - how much do they have in assets? What is their typical income? It will also explain the financial arrangements at retirement communities in Phoenix and in other parts of the country that require large upfront fees, in case you are considering such a community for yourself or for aging relatives who live elsewhere.
Elizabeth L. Bewley is president and CEO of Pario Health Institute and the author of "Killer Cure: Why Health Care Is the Second-Leading Cause of Death in America and How to Ensure that It's Not Yours." To tell Elizabeth your story or to ask her a question, write to email@example.com.