Steps to Prepare Your Parents for Financing Long-Term Care
Talking to aging parents about their long-term care plans is far from easy, especially if they don’t want to acknowledge that they may eventually require special assistance, even if they’re just one fall away from needing it.
It’s a bigger question than if they’ve saved enough or qualify for government programs. To use the resources they’ll have effectively, you need to plan in advance and determine the most affordable options. You don’t want a lack of communication about financing long-term care to drag on.
“I saw that so much with my own parents,” says Haley Gray, who wasn’t able to persuade her folks to move into assisted living until after her dad fell at home and was hospitalized. She was 37 years old at the time.
“It was overwhelming,” Gray says. She had four small children and a full-time job as a software engineering manager, and her dad didn’t understand why he needed to pay someone for assistance. After her experience, Gray started her own company, Extension of You Home Care, in Cary, North Carolina.
Long-term care costs can add up quickly, especially if your parents end up in a nursing home, where for a semiprivate room, the median annual cost is about $80,000 nationally, according to insurer Genworth Financial in Richmond, Virginia.
Whether you need to help your parents with planning now or to handle their finances someday, here are some steps to take to prepare them for the costs of future care they may need.
1. Discuss their finances.
Whether or not you manage their money, it helps to know where your parents stand with savings and cash flow. It could take several conversations over time, but ask about their savings and the terms of any retirement funds, pensions or Social Security benefits that your parents may have and when they take effect.
Gray emphasized that income and assets are not the same thing. Their assets, or anything of value they own, such as a home, are part of their wealth. Those assets may have to be used to pay debts down the road.
2. See what types of care programs are available.
Although you can’t predict the type of care your parents will need, it’s good to know what options they have far ahead of time. If either of your parents is a veteran, for instance, the U.S. Department of Veterans Affairs offers community-based and home care services. But there are many other resources for different levels of care.
“I would’ve certainly educated myself more,” Gray says, when asked what she might have done differently with her own parents. “I had no idea, for instance, that family care homes were a thing.”
Group homes, such as family care homes, can offer personalized services such as meals and assistance with daily activities. The U.S. Department of Health and Human Services provides resources such as an Eldercare Locator to find such communities and centers for independent living.
3. Suggest they consider long-term care insurance.
If your parents are still relatively healthy and have the funds, discuss long-term care insurance with them. It can help finance costs if their savings run dry, but policies vary in cost and length. Some pay for two to five years of care, whereas a select few may pay for care as long as your parents are alive. Bear in mind that coverage tends to be cheaper when they’re younger, but there’s no one-size-fits-all plan.
4. Understand the limits of Medicaid and Medicare.
When thinking of financing needs, Medicaid and Medicare come to mind, but these health insurance programs may not be best for sustained care. Medicare helps those 65 years or older pay for short stays at a skilled nursing facility, as well as those who require some skilled home care or hospice care. But it doesn’t cover the bulk of long-term care costs.
Medicaid, in contrast, covers a broader range of costs, but eligibility is limited to families with incomes at or below 133% of the federal poverty line, based on the Affordable Care Act’s provisions. Income for a family of two, for instance, must be less than $21,000 a year to qualify in every state except Hawaii and Alaska. Once older Americans use up their savings and other assets, they may become eligible for this coverage.
5. Prepare any wealth transfers, if necessary.
When people apply for Medicaid, they must disclose all money transactions they made within a past time frame, typically five years. This is known as a “look back” period. If they make any transfer of wealth to children or others during that time, that may make them ineligible for Medicaid for a penalty period.
Asset transfers are handled state by state when it comes to Medicaid rules. Shirley Whitenack, an attorney at Schenck, Price, Smith & King in Florham Park, New Jersey, and president of the National Academy of Elder Law Attorneys, says that if your parents prepare ahead of time, doing the right type of transfer can protect their assets.
Gray says that part of helping your parents prepare for what’s to come is understanding that “plans can change in the blink of an eye.”
In following these steps, you can ensure that your parents are financially ready for whatever care they may need in the future.
Spencer Tierney is a staff writer at NerdWallet, a personal finance website. Follow him on Twitter @SpencerNerd.