4 Ways to Cover the Cost of Long-Term Care

Out of your pocket. Medicaid. Other options are long-term care insurance and a reverse mortgage.

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There are also simple or compound inflation factors, elimination or waiting periods, and many other factors to consider. All can substantially affect the premium. (Our long-term care checklist shows elements to consider when picking a plan.)

The policies have improved in recent years. They're more standardized, and fewer policyholders these days get hit with huge, unexpected premium increases. Still, it's a pricey product that often falls short. "The benefits tend to be limited and fixed in dollar terms," says Judy Feder, a professor of public policy at Georgetown University and an expert on long-term care. "So even if you buy ahead of time, it still leaves you exposed to substantial costs."

To take some pressure off of the Medicaid program, which covers most long-term care costs, while allowing seniors to shelter some of their assets and still qualify for Medicaid, 32 states now offer "partnership" long-term care insurance policies. In these states, policyholders who run through their long-term care insurance benefits can keep a specified amount of assets, such as the total value of the amount the policy has paid out, and still be eligible for Medicaid. Partnership policies cost about the same as standard long-term care insurance policies with comparable benefits but are typically less expansive and their terms shorter than regular policies, says Jodi Anatole, vice president for long-term care product management at MetLife. State standards for these policies vary, and the way they mesh with a particular state's Medicaid program can be tricky, so consumers considering such insurance should definitely discuss it with a State Health Insurance Assistance Program counselor or an elder law attorney, consumer advocates say.

Qualify for Medicaid by spending down. For many people of modest means, even a short-term partnership policy may not make financial sense. These people will exhaust their assets and qualify for Medicaid coverage of any nursing home costs quite quickly. State laws vary, but some Medicaid programs also cover some forms of assisted living or home care.

Get a reverse mortgage. Some counselors advise covering long-term care costs with a reverse mortgage instead of taking out a home equity loan, which poses the risk of losing the home if payments can no longer be made. With a reverse mortgage, homeowners draw on the equity, but payment on the loan is deferred until they move out or die. And reverse mortgages are "nonrecourse" loans; even if the house eventually sells at a price below the amount of the reverse mortgage, the seller never owes more than the value of the home . How much money people can qualify for depends on their age and home value; the older they are, the more they can qualify for. See how much you might get with this calculator.

Reverse mortgages aren't for everyone. The home must be your or your spouse's primary residence, and if you're single and have to sell the house to move into a nursing home, the loan will come due. But if you need funds to pay for home care, a reverse mortgage may be a good option, says Barbara Stucki, director of the reverse mortgage project for the National Council on Aging: "It's a way to leverage your home equity to stay at home."


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