Avoiding Long-Term Care Disasters

One of your parents' and your main concerns could be their health care in their senior years, particularly if one or both of your parents need long-term care.

We remember a young man who called us with a gut-wrenching story that should teach all of us a valuable lesson. Both of his parents had entered a nursing home within 30 days of each other, and the $10,000-per-month charge (for both parents) would wipe out their life savings in less than six months! He had to sell the family business to pay for his parents' nursing home care.

A little preplanning would have saved the fruits of a lifetime's work.

The first thing you should know is that Medicare offers nowhere near enough coverage for nursing home stays. It will pay, on average, for up to 27 days of nursing home care after three consecutive days in the hospital. So there are only three ways to pay for catastrophic long-term care, which usually means a stay in a nursing home:

1. Cash
2. Medicaid
3. Long-term care insurance

If you or your parents have enough cash or income to cover the costs, well done! You can relax.

Most people, however, aren't in that position, so let's take a look at Medicaid. Since Medicaid is essentially welfare payments for health care, the government demands that your assets be close to the poverty level before you can qualify to have long-term health care financed by Medicaid. As a result, many senior citizens are forced to "spend down" until they qualify.

How low do they have to go? In most states, a Medicaid recipient can have no more than about $1,000 in bank accounts, stocks, and other liquid assets, plus money put aside for a prepaid funeral.

Personal property items, such as jewelry, furniture, artworks, and antiques, are not counted unless the state or county social service agency has an assessment that says they are of great value. The value of a home that is still occupied, whether by the recipient or by a spouse, is also not counted in the formula. But if you have a widowed parent who is in a nursing home, the house will have to be put on the market within several months. A home that is not a principal residence may have to go.

So your parents could be left with nothing for themselves – let alone their heirs – if they are able to leave the nursing home.

However, there may be a way around this dire scenario.