How are Long Term Care Expenses Paid?

There are basically three ways of paying for long term care services:

  1. Self Insurance
  2. Medi-Cal
  3. Long Term Care Insurance

Self Insurance means setting aside or having enough money to pay privately for future long term care services, if they become necessary. This plan may require a dedicated, aggressive, and immediate savings plan. It is impossible to know if or when these services will be needed, and that makes the target savings amount difficult to determine.

For example, if a family member is involved in an accident that leaves the family member even partially paralyzed or if a family member develops Parkinson’s disease, some type of long term care services would most likely be necessary to help the family member function on a daily basis.

Medi-Cal, a joint federal-state government program for low-income individuals, will provide coverage for long term care expenses if your income and assets are very low or after you have exhausted almost all of your own assets. It is an entitlement program based on strict income and asset guidelines. You may be required to spend your own money for care, living expenses, and other “allowable” expenses before becoming eligible for Medi-Cal. This is referred to as the “spend-down” period.

Even though every state has different eligibility criteria for this government program, assets and income are subject to review in order to determine your eligibility. Many people try to transfer all their assets immediately after it has been determined that they require long term care assistance; however, this time period will not always meet the “look-back” period criteria.

The look-back period is a 60-month period of time prior to a Medi-Cal application date. This means that certain assets that have been transferred for less than fair market value or simply “gifted” to others in this time period are still considered to be the care recipient’s money, funds that the car recipient must use to pay for long term care services. The look-back period for assets transferred a trust is 60 months1.

Long Term Care Insurance is designed to help cover the cost of long term care services. It is not the same as medical insurance, which generally provides coverage for doctor visits and hospital stays. Depending on the type of policy and coverage selected, long term care insurance can provide coverage for long term care in many settings: your home, adult day care centers, residential care facilities, and nursing homes. See “How Do I Become Eligible to Receive Benefits” for further information. Even though you may have a long term care insurance policy, you generally have a waiting or elimination period.

1“Transfer of Assets in the Medicaid Program,” Centers for Medicare & Medi-caid Services, January 2008.