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Nursing home costs can quickly devastate even wealthy families. You may disregard Medicare and especially Medicaid as forms of welfare that will never apply to you. But when unexpected illnesses hit and medical costs start rising uncontrollably, families must often choose between government help and losing most of their assets. Here are some key points to understand when considering how to finance a nursing home stay.
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Short-term solution
Medicare is government-subsidized health insurance available to qualifying people 65 years of age and older, some disabled people under 65 and people with end-stage renal disease. It consists of Part A (hospital insurance, which typically costs nothing) and Part B (medical insurance, which typically starts around $50 and augments your Part A coverage). Medicare generally covers:
- Skilled-nursing care following a hospital stay. Patients must have been in the hospital for at least three consecutive days (including the admission day) and must have entered the skilled-nursing facility within 20 days of leaving the hospital. Medicare generally limits patients to 100 coverage days per illness.
- Home health care. Medicare requires patients to receive treatment from participating home-health agencies. It typically covers a maximum of 100 visits per benefit period.
- Hospice relief. This includes pain and symptom management as well as other support services for terminally ill patients. Medicare generally covers all daily care and counseling costs.
Medicare”™s scope is limited, however. It typically covers physical therapy following, say, a broken ankle. But it won”™t cover the extended custodial care a patient with Parkinson”™s disease may need. Thus, determine exactly what Medicare will cover when you and your loved ones become eligible. And bear in mind that it covers only limited nursing home stays and provides little help for long-term care.
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Double-edged sword
Medicaid is a state-run, federally regulated health insurance program designed primarily for the poor. But, because neither Medicare nor most health insurers cover nursing home stays, many people ultimately rely on it to fund long-term care. In fact, Medicaid pays for about 60 percent of the long-term care in the United States.
When people facing long-term nursing home stays expend their Medicare benefits, they typically face two daunting prospects:
- Financing their own care ”“ which can cost anywhere from $30,000 to more than $100,000 annually, or
- “Spending down” their assets, so they”™re impoverished enough to qualify for Medicaid.
Medicaid”™s eligibility requirements are notoriously complex and vary by state. But to qualify in most states, a single person”™s assets generally can”™t exceed about $2,000 ”“ not including one home, one automobile, burial funds and some life insurance. For married couples, a nursing home bound (or “institutionalized”) spouse can receive Medicaid while the other spouse maintains his or her own income. In some states, a healthy spouse can keep a small percentage of the institutionalized spouse”™s income.
Again, Medicaid rules differ widely from state to state, and they include many exceptions and caveats. Many families have lost large portions of their assets ”“including homes ”“ to obtain Medicaid. Thus, as part of your retirement planning, learn your state”™s rules and determine which of your assets are most at risk.
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Long-term insurance
A fast-growing alternative to Medicaid, long-term care insurance can protect your assets from nursing home costs. Most long-term care policies begin paying when a person needs help with activities of daily living such as bathing, dressing and eating. Policies may also kick in when a doctor diagnoses the beneficiary with impairments requiring custodial care, such as Alzheimer”™s disease.
Of course, cost is a major factor. Generally, if your assets exceed $100,000 ”“ not including your primary residence ”“ you should consider long-term care insurance. Why? Many financial experts believe that families with assets exceeding $100,000 can afford the expense of these policies. Families below this level are less likely to be able to afford the premiums and more likely to receive care through Medicaid. When reviewing your policy options, limit prospective premiums to no more than 3 percent of your total assets.
Between retirement and death lies an often-difficult stage. Failing to adequately plan for it could hurt your finances just as much as an ill-advised retirement plan or an unforeseen estate tax.
This has been a general discussion. Consult with your financial advisers before taking any actions.
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Norman G. Grill is managing partner of Grill & Partners L.L.C., certified public accountants and consultants, with offices in Fairfield and Greenwich. Reach him at N.Grill@GRILL1.com.