Planning for your long-term care (LTC) needs and choosing whether to buy LTC insurance is part of later life preparation. If you choose to buy LTC insurance, you need enough income to pay the premiums for the rest of your life, regardless of premium increases or life changes, such as the death of your spouse. You need to consider how long the benefits should last in relation to the premium you will pay. A single or widowed woman may need very different benefits than a married man, particularly if their economic circumstances are different.
If you don’t purchase insurance, you should be aware of the cost and availability of community-based services, home health care and nursing home care so you can plan accordingly. Nursing home care and other LTC services are expensive. The average cost of nursing home care in California is $256.14 per day. That amounts to an annual cost of $93,491.10 in 2014 (see the Issuers Bulletin 2014 on the Department of Health Care Services website). Care at home or in an assisted living facility can cost more or less, depending on the amount of care required, where you live and the design of the facility.
You can finance LTC services many ways, but none of the options are right for everyone. Each person’s needs and financial situations are different — some people will never need LTC. Those who do are likely to use a combination of sources, including their own resources, to pay for this care. Some will qualify for Medi-Cal (California’s Medicaid program).
Below are several ways for you and your family to consider paying for LTC. Once you have a plan, be sure to have a trusted financial advisor review it. You can also get free, objective counseling from your local Health Insurance Counseling & Advocacy Program (HICAP) office online or at 1-800-434-0222.
Good financial advice and planning is crucial to your emotional and financial well-being. Consult your accountant, your financial planner or an Elder Law attorney before buying an LTC policy. You can also review consumer information from the California Advocates for Nursing Home Reform (CANHR). In addition, you can get help from free legal service programs in your area. For a list of local agencies and attorneys, contact the State Bar of California’s Lawyer Referral Services online or call 1-866-442-2529. Representatives should be well-versed in estate planning, public programs such as Medi-Cal, and the problems, issues and needs of Medicare beneficiaries.
Get second opinions before making final decisions and remember that there is no substitute for careful planning. Be sure your family or a trusted friend knows your plans and can help implement them, if necessary. You may be unable to carry out those decisions yourself at the time you need care.
Planning for LTC requires thinking about where you will live, what type of services you may need and who will provide the necessary care. You may be able to pay for LTC services using your own resources, or as part of an alternative living arrangement such as a faith-based home for the aging or a VA facility. See our Long-Term Care Settings section for more information.
Public programs pay for certain LTC services. These programs usually have income and/or asset eligibility requirements that must be met before you can receive services. For example, Medi-Cal (California’s Medicaid program) pays for nursing home care for people who qualify. In Home Supportive Services (IHSS), another Medi-Cal program, provides some home care for others who qualify for those benefits.
Most long-term nursing home care in California is financed by Medi-Cal, but only for people who qualify. A single individual must have $2,000 or less in countable resources or assets. Special rules apply for couples that are designed to prevent the impoverishment of one spouse when the other goes into a nursing home. In either case, you can keep your home when you apply for Medi-Cal and it should not be included as a countable resource on your application. For more information, see our Medi-Cal eligibility section.
The spouse remaining at home, known as the community spouse, is permitted to keep all of the couple’s income up to $3,090 per month (in 2018). The community spouse may also obtain additional income through a fair hearing or by court order. The spouse in the nursing home is permitted to keep $35 each month for personal needs. Any remaining amount of the individual income not allocated to the community spouse is used to pay for a portion of the nursing home cost. The community spouse can also keep up to $123,600 in countable assets in 2018; the asset limit for the spouse in the nursing home is $2,000. The amount of income and assets the community spouse is permitted to keep increases each year. For specific Medi-Cal eligibility guidelines, contact your Department of Social Services (DSS) / County Human Service Agency (HSA) office online.
Note: In 2005, federal law limited a single person’s unencumbered home equity to $500,000 in order to be eligible for Medicaid benefits. California increased this limit to $750,000 in 2008, and $858,000 in 2018.
If you are an individual and qualify for Medi-Cal covered services, your home is not counted as an asset when you apply for benefits. The state will, however, include your home’s value in any estate recovery actionafter you pass away. A home is not subject to estate recovery if a spouse or disabled child lives in it.
Note: Medicaid is a federal and state program. Each state sets its own rules based on federal minimums for income, assets and estate recovery. If you move outside California, these rules for Medicaid may be different in your new home state.
In addition to LTC insurance, the other options listed below may help you pay for certain LTC services. Some may provide benefits no matter where you live when you need care. Others are more limited and will only pay for specific services in defined settings after you have met certain eligibility criteria and conditions.
LTC insurance is generally expensive and not appropriate for everyone. People who are already age 80 or older, or have a health condition, are unlikely to qualify for LTC insurance. Others may not be able to afford the premiums and will need to apply for Medi-Cal if they need LTC. Still others may not be able to continue paying premiums after the death of a spouse or after a company has increased its rates. For more information, see Premiums & Premium Increases.
Life insurance policies and annuities are sometimes sold with benefits for LTC. A life insurance policy may begin paying some portion of the death benefit (known as accelerating a death benefit) when a policy benefit trigger has been met, or it may include LTC benefits in a separate, attached rider. The death benefit is reduced by any benefits that are paid out for LTC while you are still living. An annuity policy may provide one benefit for annuitized income and another benefit amount if you receive LTC, or it may draw down the annuity. Some LTC insurance policies can be purchased by paying a large, one-time premium, or by paying a larger premium for a specific number of years (usually 10 or 20). These are known as limited-term policies and are not widely available. All of these policies vary widely and the methods used to pay benefits can be very complex.
Life insurance policies and annuities may provide an attractive combination of benefits for some people, but because they are complicated financial products that usually involve income and estate tax issues, you should not purchase one without consulting an accountant, tax attorney or other trusted financial advisor.
Home Equity Conversion
Home equity conversion (HEC), also known as a reverse mortgage, may create an income stream to help pay for care while you remain in your own home and receive monthly or periodic payments based on your home equity. The amount you can receive depends on your age, the amount of equity you own, the value of your home and the cost of the home equity loan. An HEC includes the same costs as any other mortgage, such as points, fees and interest that will accrue against the amount you receive. You can choose from various types of loans, some of which are federally insured and require that you receive counseling by a third party before the loan can be initiated. Some loans may affect your right to continue receiving public benefits such as Medi-Cal and Supplemental Security Income (SSI), and can affect your taxable income. Before you agree to use the equity in your home, review the contract carefully with an attorney or accountant before you sign it.
Viatical or Life Settlements
In certain cases, you may be able to sell your life insurance policy to a third party to help finance your LTC. Viatical or life settlements are contracts that pay you a discounted price for your life insurance benefits when you meet certain criteria. If you meet the eligibility criteria for one of these settlement offers, you can use the proceeds to pay for LTC. These companies must be licensed by the California Department of Insurance (CDI). If you already have a life insurance policy, contact your insurance company first to see if it will offer you a similar arrangement. Be sure to have an attorney review any offer you receive before you sell your life insurance policy.