How
to Pay for Nursing Home Care
Presented by Jared Daniel of Wealth Guardian Group
What is it?
Paying
for nursing home care is a burden that most Americans bear, whether directly or
indirectly. Even if you never need nursing home care yourself, you are already
paying for the nursing home care of others by paying income taxes that, in
part, finance Medicaid and veterans' benefits. In addition, you are probably
paying Social Security or self-employment taxes that help pay the cost of
skilled nursing home care provided through Medicare. Although your own nursing
home care may someday be financed by one of these government programs, you may
find yourself struggling to pay the high cost on your own if you are not poor
enough to qualify for Medicaid
or if you need custodial rather than skilled nursing care. In general, there
are three ways you can finance nursing home care: pay for it from your own
savings (self-insure), buy long-term care (LTC) insurance, or use government
benefits.
Ways to pay for nursing home care
Self-insure
You
may be able to afford to pay for nursing home care by using your own savings.
To determine this, consider how much monthly income you will have after you
retire. You may be able to liquidate some investments or sell your house to
come up with additional funds if you need to. You might also be able to borrow
against your cash value life insurance policy. (Note, though, that the death
benefit available to your survivors will be reduced.) If you are seriously ill,
and the policy permits, you can take accelerated benefits from the policy.
However, when you determine how much retirement income you will have and how
much your nursing home costs will be, don't forget to account for price
increases and inflation. Consider also what will happen if your money runs out.
Will you be able to qualify for Medicaid, or will you have to rely on your
children for help?
Tip: If you plan on self-insuring, it would be wise to consult a
financial professional well in advance of retirement, due to the complexity of
self-insuring and the numerous estate planning and taxation issues involved.
Buy LTC insurance
LTC
insurance pays for the cost of nursing home (or sometimes in-home) custodial
care. It pays a fixed dollar amount of benefits per day to cover nursing home
care, so it may not pay the total cost of nursing home care. LTC insurance is expensive, but
the premium you pay depends upon at what age you buy the policy. The premium is
fixed as of the date of purchase and only goes up if the insurance company
raises its overall rates. Your premium is also affected by the elimination
period you choose. (The elimination period is the time between when care begins
and when the insurance company starts paying benefits.) Some policies give
lifetime coverage, while others only give coverage for a specified number of
years.
Example(s): Marvin bought a LTC policy at age 66. His annual premium is
$3,000. He chose a 15-day elimination period and 3-year coverage at $100 per
day. This means that if Marvin enters a nursing home at age 76, his LTC policy
will pay the nursing home $100 per day for three years, but his coverage won't
start until he has been in the nursing home for 15 days.
Like
any insurance policy, the features and price of a LTC policy may vary from one
company to another, so you have to comparison shop.
Use government benefits
If
you meet certain eligibility requirements, three types of government benefits
can help you pay the cost of nursing home care: Medicare, Medicaid, and
veterans' benefits.
Medicare
Medicare does not pay the cost
of custodial nursing home care. However, it may pay part of the cost of skilled
nursing care/rehabilitative care in a hospital or nursing home under the
following conditions:
·
·
You
have been hospitalized for at least three days prior to entering the nursing
home (and entered the nursing home within 30 days of being discharged from the
hospital)
·
A
doctor certifies that you need skilled nursing care
·
The
nursing home or hospital is a Medicare-certified skilled nursing facility
Caution: Relying solely on Medicare to pay for nursing home care is a
mistake, because Medicare defines skilled nursing care narrowly and pays
limited benefits for care. For instance, if skilled care in a Medicare facility
is approved, Medicare will pay for the first 20 days of care, and then will pay
only part of the cost for days 21 to 100.
Medicaid
Medicaid does pay for custodial
nursing home care (and in some states, in-home care), but only for low-income
individuals who have few assets. If you have income and assets higher than the
Medicaid limits, you will not be eligible for Medicaid. However, if you enter a
nursing home and pay for care yourself for months or years, you may qualify for
Medicaid once your money runs out. In addition, you may be able to qualify for
Medicaid if you spend down or transfer your assets. For more information,
consult an attorney who has experience with Medicaid planning.
Veterans' benefits
If
you are a veteran age 65 or over, you may be eligible for treatment in a Veterans Administration (VA)
nursing home. You don't have to have a service-connected illness or injury to
get treatment, but since nursing home space is limited, veterans with
service-connected conditions will be admitted first. Their treatment will be
free; for others, treatment will be free only if certain eligibility rules are
met. In addition, the VA runs other community retirement facilities that you
may be eligible to enter. For more information, contact your local Veterans
Administration office.
Tax considerations
You may be able to deduct LTC insurance
premiums
LTC
insurance premiums are deductible as medical expenses within certain limits.
How much you can deduct depends upon your age at the end of the tax year.
You may be able to exclude LTC
insurance reimbursements from income
Money
you receive under your LTC insurance contract may be excludable from income for
tax purposes (subject to certain limitations). In addition, if your employer
provides coverage for you under a LTC insurance contract, the value of coverage
is generally excludable from your income, unless the coverage is provided
through a cafeteria plan or if you are reimbursed under a flexible spending
account.
Example(s): Grant's LTC insurance contract states that the company will
pay for nursing home care beginning on the 16th day after care begins. Grant
enters a nursing home that charges $125 a day. His total expenses for 60 days
are $7,500. His insurance company sends him a check for $5,625 (45 x $125). The
$5,625 he receives is excludable from his income for tax purposes when he files
his annual income tax return.
Caution: When deducting your medical and dental expenses from your
income taxes, you must reduce your total medical and dental expenses for the
year by reimbursements you receive under a LTC or other insurance contract.
You may be able to deduct nursing home
costs for which you are not reimbursed
You
may be only partially reimbursed for nursing home costs under your health
insurance or LTC insurance contract. However, any expenses you have for which you
are not reimbursed may qualify as medical deductions for income tax purposes.
Questions & Answers
Can your son or daughter be asked to
guarantee payment to a nursing home if you don't qualify for Medicaid?
No.
In fact, under federal law it's illegal for a nursing home to ask a child to
personally guarantee payment for your care. However, the nursing home may
require you to prove you have the money to pay for your care by asking you to
provide bank statements or by asking you to put down a deposit.
Jared Daniel may be reached at www.WealthGuardianGroup.com or
our Facebook
page.
IMPORTANT
DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide
investment, tax, or legal advice. The information presented here is not
specific to any individual's personal circumstances.To the extent that this
material concerns tax matters, it is not intended or written to be used, and
cannot be used, by a taxpayer for the purpose of avoiding penalties that may be
imposed by law. Each taxpayer should
seek independent advice from a tax professional based on his or her individual circumstances.These
materials are provided for general information and educational purposes based
upon publicly available information from sources believed to be reliable—we
cannot assure the accuracy or completeness of these materials. The information in these materials may change
at any time and without notice.
No comments:
Post a Comment