Planning for the Cost of Long-Term Care

Around 70 percent of people over the age of 65 will require long-term care services at some point in their life. According to the Administration on Aging (AOA), the average woman needs long-term care services for 3.7 years, and the average man needs those services for 2.2 years. The time for someone with an advanced stage of Alzheimer’s disease may be much longer. One-third of people aged 65 and older may never need long-term care support, but one-fifth will need it for longer than 5 years. Long-term care is the largest out-of-pocket health care expense for those aged 65 and older.

Sobering facts about the cost of the types of long-term care from the Genworth Cost of Care Survey (2021).

The average cost of Long-term Care nursing homes in Montana for 2024 is estimated to be $287.00/day and Assisted Living varies depending on services ranging from $1120.00 to $3550.00/month.

Is it any wonder a major concern for Montana families is “How are we going to cover the potential cost of long-term care without losing what we have worked hard to accumulate for ourselves and our families?”

Sources to pay for long-term care

Montanans use a variety of sources to pay for long-term care including personal income and savings, annuities, Medicare, Medicaid, long-term care insurance, long-term care partnership insurance, reverse mortgage, VA benefits, and/or family financial support.

Personal Income and Savings. There are Montana families who can pay the annual cost of long-term care from their present income, savings, investments, IRAs, or other retirement plans. Others borrow from their life insurance policies. Still others are faced with selling a home, farm or ranch to fund monthly payments for care.

Annuity. Another way to pay for the cost of long-term care is to buy an annuity. An annuity is a written contract typically between a person and a life insurance company. The life insurance company makes a series of regular payments (monthly, quarterly, or annually) to the annuitant in return for a premium paid. These payments can be used for any type of long-term care. The main advantage of an annuity is payments are stretched over time and regular payments are guaranteed by the company. Also, savings placed into an annuity are shielded from consideration on applications for Medicaid. A person who lives a long life could draw more from the account than they put into it. The main disadvantage of an annuity is the value lost in commissions to the company and agent plus annual maintenance charges. Also, penalties are charged if funds in the annuity are withdrawn early.

Medicare. One source a family often “believes” can be used to pay for long-term care is Medicare.

However, there are common misunderstandings about the conditions under which Medicare pays for services. Medicare pays for long-term care only if a physician prescribes skilled services or rehabilitation care. Medicare also pays for services at home if the person needs home health or other skilled in-home services. Further information about Medicare is available at: https://www.medicare.gov/coverage/long-term-care.

Medicaid. Medicaid is a public program providing health coverage to low-income families and individuals, including children, parents, pregnant women, older adults, and people with disabilities.

The program is funded jointly by the federal government and the states. A Montanan who is considering applying for Medicaid will have to meet the assets and income tests for eligibility purposes. Assets must be under $2,000 and income must be less than the cost of nursing home care. The application process for Medicaid includes three forms: a resource assessment, a pre-screening medical determination, and an application for assistance.

Making gifts to qualify for Medicaid. Some Montanans believe the best protection against depleting their assets for long-term care is to become “impoverished.” By giving away all their property, they believe they would automatically qualify for Medicaid. Anyone who promotes this thinking is sadly MISTAKEN! First, there is a period of ineligibility if a Medicaid applicant gifts an asset to others during the look-back period. Any asset transfer made by the applicant has a look-back period of five years before the Medicaid application date. Simply giving away the house, farm or ranch is not a solution.

The amount of time the applicant is ineligible for Medicaid depends on the value of the gift and the date a gift was made. This period of ineligibility is calculated by taking the value of the gifted assets and divided by the daily cost of a room in a nursing home. The ineligibility period is one day for every daily nursing home rate day the applicant gave away. Every gift to family members has legal, emotional, and tax consequences that should be discussed with an accountant and attorney before the gift is made.

Long-Term Care Insurance. Long-term care insurance was developed to provide people with protection against significant expenses associated with a prolonged illness requiring extended care.

The purchase of a long-term care insurance policy requires serious deliberation. The National Association of Insurance Commissioners (NAIC) has a resource guide titled “A Shopper’s Guide to Long-term Care Insurance.” Download or order without charge. https://csimt.gov/wp-content/uploads/2022/10/publication-ltc-lp-shoppers-guide-long-term.pdf.

Long-Term Care Partnership Insurance Program in Montana. Montana is one of 43 states having this type of insurance. Farmers and ranchers who buy a long-term care partnership insurance policy are protected from the requirement they must “use up” all their financial resources to qualify for Medicaid. When a Montanan who bought a qualified long-term care partnership insurance policy needs care, the benefits will help cover the costs of care up to the lifetime benefit limit (often called benefit pool) of the policy. If the lifetime limit is reached and the individual still needs long term care, any assets equal to the value of the policy limit will not be included when a determination is made about the person’s eligibility for Medicaid. The website of the Commissioner of Securities and Insurance in Montana provides links to nineteen companies in Montana selling long term care partnership policies: https://csimt.gov/your-insurance/long-term-care/. More information is also available in the MSU Extension Mont Guide Long-Term Care Partnership Insurance in Montana. (MT 201202MR). https://store.msuextension.org/publications/FamilyFinancialManagement/MT201202HR.pdf.

Reverse annuity mortgage (RAM) program in Montana. A reverse mortgage is a special type of home equity loan allowing an individual to receive cash against the value of a home without selling it.

The home must be in Montana. Mobile and manufactured homes are excluded from eligibility. The Department of Commerce runs the program https://housing.mt.gov/Homeownership/Reverse-Annuity-Mortgages. A person can choose to receive a lump-sum payment, a monthly payment, or a line of credit. There are no restrictions on how the money is used. A person can continue to live in their home, keep the title and ownership of it. The owner pays property taxes, homeowner’s insurance, and home repairs.

Veterans’ benefits (VA). Care for Veterans needing long-term care is provided by VA health care services. Depending on the Veteran's needs, services may include home based primary care, homemaker and home health aide, respite care, adult day health care, outpatient clinic, inpatient hospital, nursing home, palliative care, or hospice care. Caregiver Support is also an essential part of these services. If a Montanan is enrolled in VA health care, the VA covers long-term care services under standard health benefits. The veteran may still need to pay a co-pay for other covered services. More information about VA benefits is available here: https://www.va.gov/resources/does-va-cover-nursing-home-assisted-living-or-other-long-term-care/.

Family. Some Montanans may want to depend on their adult children to pay for their long-term care costs. This could create financial hardships for family members who are paying their own bills, paying for their children’s college education, saving for retirement, or making mortgage payments on a home, family farm or ranch or other business.

Summary

Montanans who make long-term care plans have a greater likelihood of leaving an estate to their family members, because they are less likely to use all their financial resources to pay for long-term care. Planning also means less emotional and financial stress on the individual and family when the need for long-term care arises.

The State Health Insurance Assistance Program (SHIP) is offered in Montana. SHIP has one-on-one counseling for Medicare, Medicare supplemental insurance (Medigap) and Medicaid. A SHIP counselor can help navigate eligibility, coverage, appeals, and out-of-pocket costs. The counselors have training to answer questions about a family’s unique situation. Learn more about SHIP in Montana at https://dphhs.mt.gov/sltc/aging/ship. Call 1-800-551-3191 to be connected to your local SHIP counselor.