The cost of a nursing home can quickly erode everything you worked your whole life for, and leave your family with nothing, industry insiders warn.
The median annual cost of care in a skilled nursing facility in South Carolina is $42,000, according to a cost of care survey by long-term care insurance company Genworth. Don’t expect Medicare to cover it, experts say, and Medicaid coverage doesn’t kick in until the value of your assets is reduced to $2,000.
“A lot of people don’t realize that in order to qualify for Medicaid, your assets have to be spent down to almost nothing. There are some provisions for protection of your home, but that may require equity being from that as well,” said Craig Plank, Columbia State Farm insurance agent and financial planner.
Planning for long-term care includes both insurance and financial planning, though Plank said long-term care insurance options are limited.
“There are just a handful of providers left in the industry, but it’s worth exploring what that looks like,” he said. “Essentially that’s a type of plan that allows you to pay a premium in exchange for coverage for a stay in an assisted care facility, full-scale care facility or even at home. Otherwise, without that, those financial costs can really burden someone’s estate quite substantially.”
Since the cost of long-term care is so high, Plank recommends planning for your later years as early as possible. He anticipates that in the next few decades, when the baby boomer generation starts requiring long-term or assisted living care, paying for it could become a crisis.
“We’re going to have a substantial number of individuals who need elder care, specifically, assisted, or home health care, and even skilled care, and may not have private insurance to take care of it,” he said. “Medicare does not extend coverage to that. There’s some limited coverage after a hospital stay, but most people are going to have to face that cost head-on. And it can be quite substantial.”
For people who are starting to save for future care needs, financial planners recommend putting away 10% to 15% of your income. If you’re later in life and realize you don’t have enough money saved, put away at least 20% of your income. IRS guidelines include catch-up provisions for people older than 50 for IRAs and 401(k)s.
Some group insurance plans offer long-term care options, and there are some endorsements that can be added to life insurance contracts that could extend living benefits for elder care, Plank said, who said a standard rule is to plan on paying for three years of long-term care.
Medicaid does not count assets including the value of a home up to $552,000, one motor vehicle, tangible personal property, burial space for you and your spouse, pets or farm animals used for consumption.
How to pay for skilled care is just one of the issues your family may face in your later years. Goldburn Maynard, visiting associate professor of law at the University of South Carolina School of Law, recommends having a will, advance directives, medical or health care power of attorney and durable power of attorney in place to spare your family difficult decisions. He also advises making sure the beneficiaries on your insurance plans are current.
Some advance directive forms, such as living will and health care power of attorney, are available to download and fill out from the South Carolina Bar Association website. The Bar offers free online advice for senior citizens on advance directives, taxes at death and advance care planning. It also offers a free S.C. Senior Citizens Handbook, which can be ordered online or picked up at the Bar’s Columbia office.
Trusts can be helpful with planning your finances as you age, but to protect your assets from being applied to long-term care, they have to be established well in advance of your needs. Medicaid’s evaluation of finances for long-term care goes back five years, so if you placed your assets in a trust or gave large gifts of money within five years of your application for Medicaid long-term care coverage, those assets will be counted.
“Often people think that, ‘I’ll throw all my assets into a trust. I am totally fine,’ ” Maynard said. “You still have to think about those five years. So if you’re thinking way in advance, 20 years ahead, and you put the assets in a trust and you no longer have ownership over them, that’s totally fine.”
Maynard recommends, in addition to talking with a financial planner, speaking to an attorney about late-life concerns.
“It’s worth it because the amount that the attorney may save you may dwarf the amount that you pay in attorneys’ fees,” he said. “So if you’re thinking that it would cost you $6,500 a month for nursing home, care, if you went to an attorney, $6,500 per month can probably get you a pretty good Medicaid plan that may save you hundreds of thousands of dollars. So you still want to go to an attorney because there may be circumstances that you’re not thinking about that the attorney’s going to be able to identify, and they’re going to be able to find ways for you to keep as many of your assets as possible.”
Plank said it’s never too early to develop some kind of plan that can ease the financial burden for you and your family.
“It’s an important issue, and sadly, for people who are already in that stage of life and are facing that without the assets, it’s just going to be pretty tough to weather some of that,” he said.
“For those who are younger, it’s definitely worth sitting down with their financial adviser and looking at that as a real possibility and just preparing for that in some way.”
This article first appeared in the March 2 print edition of the Columbia Regional Business Report.