The cost of in-home care and how to pay for it
Home care for seniors can be expensive and emotionally demanding for caregivers. However, with COVID-19 ravaging nursing homes, many families are viewing home care as a safer option. (It bears noting that home health care does not automatically protect seniors from COVID-19, as many aides work in various facilities and homes.) It can also be cheaper than long-term care facilities, depending on factors like insurance coverage, location and level of care required.
According to Genworth, home health aides cost a monthly median of $4,576 in 2020, while a semi-private nursing home room cost $7,756 monthly. However, home care comes with additional expenses, such as homemaking aides (which cost an additional $4,481 monthly in 2020), food and supplies. There can also be a hefty personal cost for family caregivers, including time off from work.
All of these numbers vary immensely depending on circumstance, and most people don’t commit to a home care financial plan, according to personal finance expert Laura Adams. “Few people are really prepared for their own financial emergencies, much less for that of a relative or aging parent,” says Adams. “But there are ways to work it into your goals.”
Here, Adams and other experts share the steps to understanding and choosing how to pay for home care.
Assess how much — and what kind of — help the senior needs
“The first thing a potential caregiver should ask themselves is: ‘What do I need?’” says C. Grace Whiting, the President of The National Alliance for Caregiving. “A challenge for family caregivers is a lack of respite. In order to have any respite, you’re going to have to bring in a home care person.”
Home care is a broad spectrum. A senior relative may need occasional help cooking or toileting, or they may need 24-7 care with complex medical services. Typically, the higher the need, the more home care will cost, according to the experts we spoke with.
The level of care will determine whether or not a family chooses to hire help, how often they use that help and the type of professionals they need, says Whiting. A senior might be looking for someone with homemaking experience and a sunny personality or they may need an aide with a nursing degree and specific dementia training.
The average cost for non-medical home care from agencies is $21 per hour. Private aides tend to charge 20% to 30% less.
By comparison, medical aides cost on average $22 an hour, though they tend to stay for shorter periods. These costs vary widely state by state and even from town by town.
Quick hit checklist:
If possible, have a conversation with the senior about their needs. Respect their wishes.
Write down all the tasks that must be performed on behalf of the senior, including grooming, bill paying, assistance getting up and down stairs or administering pills. Try not to leave any stone unturned since even small chores can have financial or legal consequences.
Calculate how much time during the day the senior will require assistance.
Research federal benefits
When considering how you’ll foot the bill for home care, you might want to explore potential federal benefits.
Medicare: The federal program provides some coverage for short-term, acute care, says Whiting. It also provides certain medical supplies if they are deemed necessary by a doctor.
Medicaid: This coverage is broader, but it varies widely state by state. For example, many states, including New York, Iowa and Pennsylvania offer Programs of All-Inclusive Care for the Elderly (PACE) or consumer-directed care riders wherein Medicaid covers wages for home health aides. These programs may also provide a stipend for family members or friends who are caregivers.
A state assistance program: Most states also have some version of an assistance program that doesn’t require Medicaid, such as the Attendant Care Program in Maryland or the Respite for Elders Living In Everyday Families (RELIEF) program in Florida. Eligibility and program features vary widely.
If you’re looking for localized information, CeCelia Snide, a home aide in Vermont for 25 years, strongly recommends word-of-mouth. “If you go online, there are groups for everything,” she says. “Ask questions. Nine times out of 10, someone you know has gone through the same thing.”
Veteran benefits: If the senior is a veteran, they may be entitled to a completely different set of home health benefits from the VA, including free visits from home health aides.
Quick hit checklist:
Find out if a senior is eligible for Medicaid in their state. Study the state's specific coverage, and be on the lookout for waiver programs, such as PACE or a consumer self-directed program.
Head to Benefits.gov and input the senior’s information to find localized benefits options.
If a senior is a veteran, find out if they’re eligible for VA caregiving assistance.
Every state has a department that oversees eldercare. Paying For Senior Care can help you find localized options for federal benefits, including non-Medicaid programs.
Lean on local support. Senior-based agencies and community groups may be able to help families navigate the benefits system.
Look at private insurance options
If you’re not eligible for federal benefits or if you need broader coverage than your state allows, private insurance could be a way to fill the gaps. Policies vary widely, however, so it’s important to know your options before you buy, and it’s important to plan early.
Long-term care insurance
Long-term care insurance, which usually covers all types of home care, is another option for a senior who requires extensive care. But it bears noting that it’s not cheap, according to Adams. “It’s expensive, but when you compare that to what you have to pay out of pocket for around-the-clock care, long-term care insurance can definitely make sense,” she notes.
According to the American Association for Long-Term Care Insurance (AALTCI):
The average 55-year-old couple spent $3,050 in annual premiums on this type of insurance in 2020.
Single 65-year-old women with some health issues spent $3,100.
Men in the same category paid $2,100.
For a 60-year-old couple with “standard health” who paid $4,525 per year in premiums, their initial policy - worth $165,000 each - will be worth $265,000 each by the time they’re 85.
Private health or life insurance
If the senior has private health or life insurance, their policies may offer home care coverage that isn’t covered by Medicare or Medicaid. Sometimes, private companies offer special products for retired federal workers, teachers or hospital employees.
Additionally, older adults can buy insurance products, while a proxy with financial Power of Attorney may be able to change or choose insurance plans on behalf of the senior.
You can work with your insurance agent to find a policy that offers different, individualized long-term care benefits, like tax-free advances on death benefits or funds that pay out to a policyholder who is terminally ill.
A combination permanent life/long-term care insurance policy
Unlike long-term care insurance, these policies are guaranteed to be put to use: you can use the policy’s large death benefit payout, or you can use the long-term care funds, which would decrease the death benefit.
According to the AALTCI:
If you pay all at once, the average cost of a policy is $75,000 for a single person.
A leading insurance company with a $100,000 insurance policy would offer a monthly long-term care benefit of $8,079 or a death benefit of $193,906.
This can all be a lot to navigate, which is why Adams suggests researching extensively before buying a policy. “Get in touch with different brokers who specialize in health and life insurance. Do your homework. Get multiple quotes,” says Adams.
Look for a broker who has a Certification for Long-Term Care (CLTC) and has therefore undergone specific long-term care training.
Quick hit checklist:
Find out if the senior has private medical insurance or any life insurance policies. Review all terms pertaining to caregiving.
Review additional insurance policy and product options. Individual insurance companies usually offer quote calculators on their websites. These websites will also refer you to life insurance agents in your area.
Find a reliable life insurance broker by consulting trusted advisers in your life, such as your CPA, your financial planner or your lawyer. Try multiple brokers before landing on a policy.
Ask trusted family members and friends what they’re doing about private insurance vis-a-vis caregiving.
Review personal assets
Unfortunately, many caregivers are forced to use their own or their senior loved one’s personal assets to pay for home care. The reason: “A lot of people are not prepared, and they have not purchased insurance,” says Adams. “They find themselves in a situation where they need to find money immediately.”
That’s why, if possible, people with aging family members should consider saving money for the express purpose of long-term care at home, Adams says.
Without savings to fund long-term care, you might consider the following options.
Get an equity line of credit on your home. For a short-term cash infusion, you can basically take out a loan on your own home — with interest paid to a bank. (In January 2021, bank interest rates varied from 3.87% to 6.27%, according to Bankrate.) You can also do this on your senior loved one’s home if you have POA.
Take out a personal bank loan. Caregivers can take out a personal bank loan to frontload expenses. Interest rates in 2021 ranged anywhere from 3% to 36%, Bankrate says, and it’s important to shop around through different lenders. Your rate will improve depending on your personal financial situation, including your credit score and annual income.
Take a loan from your retirement funds. One major no-no: Adams strongly opposes withdrawing money from your own retirement funds, such as 401Ks, since you will incur a 10% penalty if you are under 59-½ years old.
That said, you may be able to take a loan from your retirement funds — rather than withdraw — at a much more affordable interest rate. You can borrow up to 50% of your retirement account balance according to IRS guidelines, and you’ll only be in debt to yourself, interest included.
But retirement accounts should still be a last resort, Adams says.
“Regardless, tapping your retirement funds is never a good idea,” says Adams. “If you spend all your money on your aging parents, you're going to be relying on loved ones to pay for you. It’s a downward spiral.”
Quick hit checklist:
Consider opening a high-yield savings account reserved for home care only.
Assess all of your federal and private benefits options before you dip into personal assets.
Seniors and family caregivers should collectively review assets, including savings, equity and — if absolutely necessary — retirement accounts.
Family members with the best credit and financial history may consider reviewing bank loan options.
Paying for at-home senior care can be a challenge. However, caregivers will be much more prepared if they arm themselves with research, thorough self-assessments and the right professionals.
For general informational purposes only: not a substitute for financial or legal advice from a licensed professional based on your particular circumstances.
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