The vast majority of people do not have long term care insurance and prefer to age in place in their own home. With limited government in-home care coverage, including Medicare, how is the long-term care to be paid for?
A reverse mortgage can help.
In a study done by the center for retirement research published in September 2021,
80% of people will need at least 12 months of part-time extensive care with 25% of those needing full time care for several years.
Caregiver hourly rates today in California, licensed agencies charge $34 per hour (the study uses a $22 per hour rate from 2018).
Part-time care may be four hours per day and adds up to $4216 per month. Double that amount, if 8 hours a day are needed and if around the clock care is needed for one full-time caregiver that’s over $25k per month. The numbers are staggering.
Some people needing care may qualify for Medicaid and qualify for nursing home facilities. But overwhelmingly, people want to age in place if possible and Medicaid, while not available in all states for in home care, has severe coverage limitations.
The study shows 64% of people needing long term caregiving is done by unpaid friend or family members, 22% using Medicaid, 8% paying out of pocket, 4% having a long-term insurance policy and 2% other sources being used to pay for long term care. These statistics are surprising being that with the amount of home equity being at an all-time high in 2022, that reverse mortgages are not being utilized as much as they could be. Why? Some people want to leave their equity as an inheritance and not use it to pay for care, but also not having a plan in place to pay for care, before you need it and come home from a hospital stay, may be the culprit as well.
Depending on how much care is needed and for what length of time, can cause a great deal of stress on family members who are providing care and trying to find daily balance in their own lives.
Taking draws from a reverse mortgage line of credit, can help ease that stress by paying for caregivers when needed.
But the bottom line is that our government has very limited coverage for long-term care. The cost for in-home long-term care is sobering but converting home equity into an FHA HECM reverse mortgage line of credit that can stay open for the rest of your life is a way to access funds to pay for in-home care expenses.
For veterans, there is some long-term care in-home care coverage available. The V.A. administration will give you income thresholds that many veterans exceed, therefore dis-qualifying them for V.A. coverage but elder attorneys have workarounds that the V.A. can’t advise you on or provide. Contact your local elder attorney for details.
A few other things to note, a bank HELOC can be frozen if property values drop without notice, it may not be the most dependable source of funds when paying for care. The funds need to be available without conditions. A HECM reverse mortgage line of credit cannot be frozen due to property values dropping, it can stay open for use for the rest of your life.
Having a living trust in place makes things easier for everyone. Trying to set up a loan without a trust may require a conservatorship and power of attorney powers if the borrower is incapacitated and that takes time. In a time of crisis, you don’t have time. It can be very stressful for someone coming home from the hospital, and not having a plan in place, and scrambling to pay for care.
Having a plan already in place, which includes funds at the ready to pay for care, is vital which means the reverse mortgage, just like insurance, needs to be set up as a standby line of credit before you need it.
Here’s a link to the Center for Retirement Research study and feel free to contact me with any questions or concerns on how reverse mortgages work and how they have changed-for the better over the years.
Best,
KW