Weighing tricky elder care decisions

Jill on Money

Long-term care is a tricky issue that is likely to affect a majority of Americans.

Seventy percent of people turning 65 can expect to use some form of long-term care during their lives, the government reports. Although most of the care comes from unpaid caregivers (generally family members or friends), those who require more care are finding that the cost is rising.

According to Genworth Financial’s Cost of Care Survey for 2017, the annual median cost of services increased by an average of 4.5 percent in 2017 from the prior year, the second-highest year-over-year increase since the study began in 2004 and nearly three times the overall rate of inflation. If you need nursing home care, the cost for a semi-private room is up 4.4 percent to $85,776 per year, and a private room jumped 5.5 percent to $97,452.

Of course, these are national numbers; the cost may be much higher or lower depending on where you live.

But what caught my eye in the survey was the 6.2 percent increase for the use of a licensed home health aide, who provides hands-on personal, not medical, care. You may think that $22 an hour to care for your mother or father doesn’t sound too bad, but 20 hours a week can set you back nearly $23,000 per year.

Any discussion of long-term care must include a basic fact that many people do not understand until it’s too late: Medicare and most health insurance plans, including Medicare Supplement Insurance (Medigap) policies, do not pay for more advanced services, sometimes called custodial care.

So here we have an issue that tugs on our heartstrings and can drain our savings, making it seem like immediate action is necessary.

Here’s a great example: My friend Kim called me a few years ago to review her mother’s situation. Her 91-year old mom was in great shape, but she and her siblings were concerned that she would soon need more assistance, which would eat into her nest egg of $60,000 and could also potentially put her $400,000 house at risk.

They met with an elder care attorney, who suggested that they put the house in a trust, which would allow them to qualify for Medicaid in the event of a long-term illness. As a reminder, Medicaid is a joint federal and state program that helps pay for certain health services for those who have limited resources.

But there are a lot of rules involved with Medicaid, including a big one for Kim and her family: the five-year look back period. When you apply for Medicaid, any gifts or transfers of assets made within five years (60 months) of the date of application are subject to penalties. That means that if mom puts the house in a trust, she would have to wait five years to claim that it was no longer part of her assets for Medicaid purposes.

More importantly, Medicaid allows an exclusion of $500,000 toward your home, so if your home is valued at that level or less at the time of your Medicaid application, it is excluded as an asset (some states use an even higher permitted exemption of $750,000).

So all that was really at risk was mom’s cash, because Medicaid would require that she spend down her $60,000 to $2,000 in order not be counted as an asset in determining Medicaid eligibility. I’m not sure why the attorney gave the advice that he did, but it might not surprise you to learn that establishing the trust would cost thousands of dollars.

As with most big financial decisions, it helps to get a second opinion, no matter what.

Jill Schlesinger, CFP, is a CBS News Business Analyst. She welcomes comments and questions at askjill@moneywatch.com.