| Tuesday, October 7, 2008 |  |
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Information, Planning Key to Managing Costs of Assisted CareDaniel, a credit union member from Florida, recently joined the ranks of adult children faced with having to find a financially feasible way to care for aging parents who no longer can live on their own. His experience has been relatively positive, but, for many, the task of finding and funding an eldercare solution can be daunting. Nursing homes and private in-home care often are more than is needed, and both options can be prohibitively expensive. On the other hand, moving back home or having a parent move in with you may not be feasible if you don't have space or you have to work full time. One eldercare option that is gaining popularity is "assisted living," residential facilities for seniors who need extra help with some daily tasks but do not require skilled nursing care. Today, approximately one million Americans live in assisted living facilities, also known as assisted care communities and retirement homes. Residents and their families choose assisted living for various reasons—a less restrictive environment and greater affordability often top the list. Despite looking like a bargain compared with some other options, assisted living is still expensive. Before moving mom or dad into a residence, adult children need to understand the costs and their options for covering the bill. Costs of assisted care pose a challengeAccording to the 2007 Cost of Care Survey conducted for Genworth Financial, a global company that sells, among other things, long-term care insurance, the average national cost in 2007 of a single year in a private nursing home was $74,806. The average cost for a 40-hour per week home health aide was $52,977. And the cost of assisted living facilities averaged $32,573 per year for a private, one-bedroom unit. AARP, the nonprofit membership organization for those 50 and older, provides a table listing average eldercare costs by state. Costs vary from region to region, among facilities, and according to unit size and services provided. Amenities and services typically offered by assisted living facilities include two or three meals a day, housekeeping and laundry services, transportation, social activities and, if needed, individual assistance with personal tasks such as bathing and dressing. While some facilities charge a flat rate that includes all available services, many use a menu or point system, where additional charges are tacked on to a base rate. For example, someone who needs help with taking medications would pay an additional amount for that service. While the average annual cost for assisted living might be less than half that of nursing home care and significantly less than in-home care, it still means coming up with between $2,000 and $3,000, or more, each month. And then there's the application fee—typically in the $750 to $2,500 range—and security deposit. Generally speaking, Medicare does not cover long-term care, nor does Medicare supplemental insurance (Medigap) or other health insurance. Private long-term care insurance does, but these policies are relatively new and few people who already are in their 70s or older have coverage. "If you have no money or you have millions, you don't have to worry about how you'll pay for long-term care," says Michael Cohen, an elder law attorney in Dallas. That's because someone with very few assets is likely to qualify for Medicaid, a government program that pays for medical services for low-income individuals, while those with major assets are unlikely to outlive their wealth. Everyone else runs the risk of losing all or most assets to the cost of long-term care. Molly Shomer, a geriatric care manager who also runs a national eldercare information Web site called The Eldercare Team, says that after determining that assisted living is appropriate for a client, she asks "nosy financial questions, like how much is available to pay for it." According to the American Association of Homes and Services for the Aging, the average annual premium for individuals older than 65 is $2,862. If the elderly parent does not have long-term insurance and no longer can qualify for coverage at an affordable rate, and there are not sufficient cash and liquid assets available, Shomer presents the family with some options they may not have considered. For example, a reverse mortgage on the resident's home might be a possibility if one spouse will remain in the property. Veterans who were in uniform during a war could be eligible for a monthly Aid & Attendance benefit of up to $1,519 per month. A surviving spouse is eligible for up to $976 per month. Medicaid may be an option, but even in states where Medicaid does pay for assisted living (not all states do), Shomer says "there are way more applicants than Medicaid beds" available. A two- to three-year wait for a Medicaid bed in an assisted living facility is not uncommon. And for the elderly with some assets, qualifying for the government program typically requires considerable advance planning. It may appear that the middle-class elderly have little chance of avoiding impoverishment. Actually, there are a number of financial planning and legal strategies to help families pay for care and even protect assets. Options for those with knowledge of rules, toolsFirst, when planning for eldercare expenses, it's important to know something about VA (Veterans Affairs) and Medicaid rules to avoid mistakes that can disqualify people from receiving benefits. For example, under IRS (Internal Revenue Service) rules, you can give up to $12,000 to any number of people each year without penalty or tax consequences. This may seem like a good way to reduce your estate and qualify for Medicaid benefits. But Medicaid imposes a penalty on applicants who have given assets within five years of submitting an application for benefits. Children involved in the planning process also need to ensure that parents' assets are working as hard as possible. Shomer says she sees a lot of elderly people with money sitting in share certificates/certificates of deposit CDs—accounts that typically earn a relatively low rate of return. Choosing the right financial tools entails making projections for how much money a parent will need each year for assisted living costs and then looking for those products that make it possible to achieve the required rate of return. Earl Davidson, a Dallas-area certified financial planner (CFP) who does a lot of work with the elderly, says there are a number of financial products on the market designed to help fund eldercare costs. For example, there is an investment portfolio that guarantees an income stream of 5% to 6% every year regardless of what the actual portfolio performance is. (The actual annual return will fluctuate and may be higher or lower than 6% in any given year.) While this particular product might be a good solution, says Davidson, it often takes adult children to be involved with the financial planning process to get parents to feel comfortable with a more complex type of investment. Another product is a fixed annuity that pays out early if the income is needed to pay for long-term care. Investors must purchase the annuity at least seven years before it is needed, however, underscoring the value of early planning. It also should be a top priority to get crucial legal documents in place for elderly parents, including a:
Daniel, the Florida credit union member mentioned earlier, was able to take care of critical tasks for his parents as soon as it was necessary because they already had given him durable power of attorney for financial and medical purposes. "With both parents in the hospital, I proceeded to make arrangements to donate dad's car and to put their small home on the market," Daniel says. Other issues a family might want to explore, depending on their assets and goals, include:
Because there are so many financial and legal issues to consider before making decisions about how to pay for assisted care, and because mistakes can be costly and irreversible, Shomer often recommends that families speak to a qualified financial planner and an elder law attorney. A good elder law attorney should help you determine the best way to achieve your objectives using the legal tools available in your state. For Daniel and his family, that meant establishing a living trust. This allowed his father, who needed to enter a nursing home, to qualify for Medicaid, and kept the family assets available to pay his mother's assisted living costs. Shomer also recommends starting the planning process as early as possible. An early start ensures there will be more options available to you. "If you start when mom breaks her hip, you've waited too long," she says. 
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