How to Pay for Assisted Living

Anyone who’s priced assisted living knows why you need a plan to pay for it. The annual US median cost was $43,200 in 2015 according to Genworth, which conducts a yearly survey. That’s $3,600 per month, and rates are projected to rise 2% annually over the next few years. The good news is, depending on your insurance coverage, benefits eligibility, home equity, and/or willingness to move, you may be able to reduce the amount you pay out of pocket for assisted living.

Location, location, location

Relocating might save you thousands per year. For example, someone who lives in Stamford, Connecticut can expect to spend about $6,270 per month on assisted living there, while a resident of Port St. Lucie, Florida, will spend about $2,900 per month—and enjoy warmer winters, too.

Assisted living costs notably more than the national median in New England, New Jersey, and New York, and also in Alaska and Washington State, per Genworth. The most expensive area in 2015 was Washington, DC, with a median monthly cost of $7,838. By comparison, Hawaii looked like a bargain with a median rate of $4,000 per month.

If you live in a high-cost area, consider the benefits of moving to a more affordable place, especially if it brings you closer to friends and family. States with 2015 median assisted living costs at or under $3,000 per month included Utah, Missouri, Georgia, and North Carolina. Most of the remaining states were within a few hundred dollars of the national median.

Whether you decide to stay local or relocate, you’ll need to review your other payment options. First, we’ll look at insurance programs, then benefits, and then home equity-related choices.

What insurance may pay for, what it won’t

Let’s rule out the types of insurance that won’t help you here. Health-care insurance paid for by your employer (or you, if you’re self-employed) does not cover assisted living. Neither do disability policies intended to replace lost income for adults under age 65. Two types of insurance you may be able to use are long-term care insurance and life insurance.

Long-term care insurance

A long-term care policy, if you have one, may cover most of your assisted living expenses. Review your policy with your agent to make sure you’re clear on what’s covered, what’s excluded, and what the payout limits are. Set up an auto-payment arrangement if you haven’t already. Policyholders are more likely to forget to pay premiums when their health declines–exactly when they need coverage.

Life insurance

You may be able to withdraw some or all of the cash value of a life insurance policy to pay for care, but experts advise caution. That money may be taxable, and that can leave with you with an unexpectedly high bill the following April. This option also, of course, reduces or eliminates what you can leave to heirs. Consult with your tax preparer and financial planner before tapping your life insurance. As with long-term care insurance, stay current on premiums.

Medicare

Medicare does not pay for assisted living or long-term nursing home care. Medicare will pay for short-term stays in residential rehabilitation facilities if your doctor prescribes rehab after an inpatient hospital stay (in which you’re admitted, not kept for observation) of at least 3 days.

What benefit programs may pay for

People sometimes think Medicare covers assisted living because it’s often confused with Medicaid, which does help some people pay for care.

Medicaid

Medicaid covers qualified long-term care costs for people over 65 with:

• a documented need for daily assistance
• very low incomes, and
• in most states, assets worth less than $2,000 (excluding their home and one vehicle)

Exact Medicaid rules differ from state to state because the program uses both federal and state money. Your state’s Medicaid office can provide details on eligibility, coverage, and applications. Bear in mind, federal Medicaid rules require the recovery of the recipient’s assets after they pass away, which means your house and car may be sold off to pay back the program.

VA Aid & Attendance Pension Benefit

Honorably discharged or separated veterans, and surviving spouses of such veterans, who served at least one active-duty day during war time (although not necessarily in combat) and at least 90 active-duty days total, may qualify for the VA’s Aid & Attendance Pension. Healthy veterans with spouses who need care may also qualify.

Eligibility rules also require:

• a physician’s statement that you need help with at least one activity of daily living and
• total assets valued at roughly less than $80,000 (excluding your home and vehicle)

Take this eligibility quiz to find out if you should consider applying. Contact the nearest VA regional office for detailed application information. The VA typically takes several months to process applications. If you are awarded the pension benefit, payment will be retroactive to the date of your initial application.

Ways to use your home equity to pay for care

The traditional way to access home equity is simply to sell your home and use the proceeds to pay for care. This comes with tax consequences, of course, and if the market is slow in your area, you may not be able to sell quickly enough to cover your care costs.

Bridge loans

In these cases, bridge loans can free up a portion of your equity before the sale of your home. They’re not an option for every homeowner, though. Since the 2008 mortgage crisis, lenders are extremely selective about writing bridge loans and typically only extend them to high-net-worth buyers with excellent credit.

Reverse mortgages

Another option is a reverse mortgage, which frees up equity and allows a spouse to remain in the home. The loan proceeds aren’t taxable, which helps the money go farther. Your home will be sold to pay off the loan after you (and your spouse, if applicable) pass away. Also, if your partner who remains in the home has to move out for an extended period of time, because of illness, work, or any other reason, the lender may sell the home and settle the loan.

Any time you’re thinking of tapping your home equity, taking out a loan or selling your home, talk it over with your financial planner and tax preparer. They may be able to help you make the best possible plan for assisted living based on your financial circumstances and goals.

Casey Kelly-Barton

Casey Kelly-Barton is an Austin-based freelance writer whose childhood was made awesome by her grandmothers, great-grandmother, great-aunts and -uncles, and their friends.