When Your Parents Can No Longer Live Independently

Everyone is familiar with the expense of child rearing. According to most estimates, it costs around $240,000 to raise a child to the age of 17.

Yet many people don't realize caring for the long-term needs of an aging parent is even more expensive - averaging around $140,000 in out of pocket costs over just four years, rather than 17.

It goes without saying the financial implications associated with caring for parents who cannot live independently are usually profound. To help you better understand these costs, let's take a deeper look at the issue.

Caring For Aging Parents Once Independent Living Is No Longer An Option

Once the determination has been made that an aging parent should no longer live without assistance, family members should help that parent come to a decision about their future care and living situation. While there are a variety of options available, financial limitations may limit the number of feasible choices.

According to the U.S. government, some of the average costs involved with eldercare include:

• More than $6,000 per month for a semi-private room in a nursing home
• More than $3,000 per month for a room in an assisted living facility
• $21 an hour for a home health aide
• $67 per hour for services in an adult day care health facility

It's important to note that Medicare does not pay for the vast majority of long-term care options. Typically Medicare only pays for short visits to rehab centers and hospice care. The program will pay for home health care under some circumstances, but this coverage runs out after 100 days.

Medicaid, on the other hand, does pay for long-term care services. However, strict eligibility requirements (which vary from state to state) means that only those with very low income typically qualify.

Planning for Long-Term Care

Long-term care refers to assistance that a person with a chronic illness needs in order to get through the day. The person receiving these services typically suffers either from a chronic illness or disability, a condition that can be managed but not cured. The primary goal of long-term care is to help the recipient maintain as much independence as possible; its timeline is indefinite. Care is not restricted to either a hospital or to any other long-term care facility. Long-term care could begin as home-care and may progress into nursing home care or some other intermediate level of care.

Most people don't think they will end up needing long-term care and may be reluctant to plan for it. But the reality is close to half of people over 65 will require some form of nursing home care at some point in their lives, and half of them will be in a long-term care facility for a number of years.

Nationally, the average annual cost for a nursing home varies from $75,000 per year to more than $250,000 per year, depending on where you live. This figure does not include all of the other expenses incurred for care that an individual received prior to being admitted into a nursing home. Talk with your parents about what funds are allocated for their retirement income and how many years of long-term care their nest egg could provide.

Caring for Our Own

Another common scenario for families is that children of aging parents have the aging parent move in with them and care for the parent there. However, this can be complicated. Most of us do not have the necessary medical expertise required for long-term care, plus it’s a huge responsibility. Think through it carefully before you take this step.

So How Do You Pay?

The fact is the majority of nursing home care and long-term care patients currently rely on self-funding. In fact, about half of nursing home costs are paid, out-of-pocket, by either the disabled/elderly individual or their families. There are several options available to people to pay for long-term care:

• Medicare - While Medicare does provide some long-term care benefits, they are very limited in their scope and they follow fairly restrictive eligibility requirements. In general, Medicare will cover the costs associated with nursing home care for a period of one hundred days only after a prior hospitalization of three consecutive days. Also, your parents must be admitted for skilled nursing care within 30 days of their discharge from the hospital. Furthermore, the nursing home must be a government-approved facility.

• Medicaid - Approximately 50 percent of nursing home residents have their costs paid by Medicaid. While it is mostly funded by the federal government, it is administered and controlled by each state. As a result, programs vary significantly state to state. In fact, Medicaid eligibility varies by county. Medicaid is a needs-based program and eligibility is influenced by your parents’ level of prosperity.

• Veterans’ Benefits - For veterans, the Veterans Administration (VA) may be a source of funding for long-term care. The VA provides benefits for custodial care provided at home via funding from the Aid & Attendance Special Pension (A&A). However, eligibility is heavily weighted toward those veterans with limited financial means. If your parent qualifies for A&A, they will receive it as a pension benefit. Nursing home benefits, although limited, are available for most veterans with a service-connected condition or a disability that is rated 70% or more disabling. All other veterans are eligible on a resource and space-available basis. Despite the limitations and strict eligibility requirements, if your parent is a veteran, it’s worth a call to the VA.

• Long-term Care Insurance - More and more people rely on long-term care insurance to pay for long-term care.

If you decide that a long-term care insurance policy may be suitable for your parents, it’s best to find a qualified insurance agent or broker to assist you in your search for the right insurance carrier and the policy that will work best for your parents.

While the cost of long-term care can be astronomical, there are ways to mitigate the expense. These options include long-term care insurance, life insurance policies, reverse mortgages, annuities, and trusts. Premiums for long-term care policies are also tax deductible, making them a smart option for most people.

Regardless of how you choose to handle your parents' living arrangements, the key to success is preparing as early as possible. 

The Takeaway

Caring for a parent who can no longer live independently often carries enormous financial implications. By taking steps to account for this possibility early, families can avoid being caught unprepared.