Long-Term Care – The Middle Class Problem
The burden of paying for long-term care falls disproportionately on the middle class. If the rich require long-term care services, they have the money to buy what they need. The poor can be taken care of by Medicaid. It’s the middle class that’s in trouble here – they lack the resources needed to cover long-term care and they aren’t poor enough to qualify for Medicaid. What can they do when they need long-term care??
Long-term care refers to the services required to care for people unable to care for themselves: maintaining personal cleanliness, feeding oneself, dressing oneself, preparing meals, transportation, etc. Depending on the degree of disability, these are services performed by visiting nurses, adult day care ‘sitters’, home services, assisted living facilities and/or nursing homes. This all comes at a price.
A 2011 survey of long-term care prices by Met Life Mature Market Institute reported a 4.5% increase in the cost of long-term care in just this last year. Today, according to the survey, a semi-private nursing home room averages $6420 a month, an assisted living apartment, $3477 a month and adult day care services, $70 a day. Long-term care is now the fastest growing category of health care spending.
That’s no wonder! The “oldest old” is the fastest growing segment of our population according to the U.S. Census Bureau. Today the chances are far greater that a family will face long-term care and the huge costs that come with it. The Department of Health and Human Services (HHS), in fact, sees 40% of today’s 65 year olds can expect to enter a nursing home sometime during their life times with 10% facing a 5 year stay!
Right now, almost 1/2 of all the people now in nursing homes are covered by Medicaid, a joint state and federal program to help the poor with medical expenses. To qualify for Medicaid benefits, an individual’s income and assets must meet certain state poverty guidelines. However, the equity invested in a person’s home, if it meets certain limits, can be exempt from the calculation if the individuals or their spouses remain in the home or plan on returning to it after recuperation. $500,000 is the most amount of equity most states allow one to have in their home and still qualify for Medicaid. However, California is among the few that allow $750,000 as the limit, widening the window for some middle-income people.
People over the home equity limit, however, have other options, assuming their other income and assets are below Medicaid’s maximums allowed. Reverse mortgages allow a people to draw down specific monthly amounts against their home equity. Payback doesn’t occur until the house is sold, allowing the infirm and their spouses to keep their home in the meantime. The monthly reverse-mortgage checks can help finance long-term care needs until the home’s equity falls below the requisite $500,000 or $750,000 limit. At that point, Medicaid can take over long-term care coverage.
There’s another option that middle income people can consider. California is one of several states that participates in Partnership for Long-Term Care, a program that gives people credit for purchasing long-term care insurance. Most long-term care policies pay a fixed benefit amount on a daily, weekly, or monthly basis. The benefit is a reimbursement of actual expenses and can be applied toward in-home services, special enabling-devices or equipment, and assisted-living or nursing home facilities.
If the policy holder in the Partnership for Long-Term Care program is unfortunate enough to reach the time or amount limit stated in the insurance plan, the total value of the policy is deducted from the assets used to determine Medicaid eligibility. Thus, a policy paying $150,000 in benefits, for example, will allow the policy holder to shelter $150,000 and still qualify for Medicaid.
Both the Internal Revenue Service and California Franchise Tax Board offer some tax relief for long-term care expenses. Both allow long-term care expenses to be treated as medical expenses in tax reporting. Both also allow individual taxpayers to treat premiums paid for tax-qualified long-term care insurance as a personal medical expense as well. The maximum deduction allowed, adjusted for age, goes up to $4,240 for policy holders over 70. California also allows a $500 tax credit to be taken on a sliding scale when long-term care exceeds 180 days and the person’s adjusted gross income does not exceed $100,000.
These are some of the strategies that, while they don’t solve the problem of long-term care finances, can help soften the blow. But the best solution would be for more middle-class individuals to purchase long-term care insurance when they are young and healthy, making insurance premiums affordable and long-term care support available when they need it. Certainly, offering tax incentives for this type of insurance would be a substantial cost saving for the government as well as for the families involved. In the meantime, no one should forget the free health insurance policy: maintaining a healthy active life style to ward off the chronic health problems that so often necessitate long-term care in the first place.