Because there are notable gaps in the coverage of long-term care (LTC) services in the Medicare program, one possible path to funding such services could be through the use of a reverse mortgage. This is according to Diane Omdahl, a former technical expert for the Centers for Medicare and Medicaid Services (CMS) and a Medicare subject matter expert in a new piece published at Forbes.
Data from a 2019 Bankers’ Life study indicates that 56% of middle-income baby boomers mistakenly believe that Medicare provides ample LTC coverage on an ongoing basis. Because of that, looking at alternative ways to pay for long-term care is very important, and one such alternative can be a reverse mortgage.
Using reverse mortgages to fund LTC, source of Medicare misconceptions
“A reverse mortgage is a special type of home equity loan that allows the mortgage holder to receive cash against the value of a home without selling it,” Omdahl describes. “An approved reverse mortgage counselor can discuss the many considerations, including how the mortgage will work, the criteria for spending the funds, and what heirs need to know.”
One of the reasons that a reverse mortgage may be a viable source of LTC funding is simply due to the fact that it can be very costly, Omdahl says.
“Let’s be very clear: Medicare does not pay for long-term care,” she writes. “But this care can be very costly. In 2013, total national spending on long-term care services was almost $339 billion [based on data from the Centers for Disease Control (CDC)].”
A potential source of confusion among middle-income seniors who believe that Medicare covers LTC could stem from services that Medicare Part A, since two of those include inpatient care in a skilled nursing facility and home health care, two places where LTC is common. If a senior who requires some form of LTC moves into a nursing home, natural questions may arise concerning why Medicare does not cover the care.
“Simple answer: Medicare pays for care that is skilled, meaning that it requires the skills of a registered nurse, physical therapist, occupational therapist, or speech-language pathologist,” Omdahl writes. “If the average non-medical person can provide the care without additional training, the care is not skilled and Medicare will not pay for it.”
Of course, in order for a reverse mortgage to be used in covering LTC, the senior in question will need to maintain their residence in their home while keeping up with associated taxes and homeowners’ insurance.
Other potential sources of LTC funding
Other potential sources of LTC can come from a series of other options, including a traditional LTC insurance policy, an annuity or a combination or hybrid products, like life insurance with a long-term care rider.
“[Long-term care] insurance will pay or reimburse for some or all long-term care costs,” Omdahl writes. “Many long-term care insurance policies have limits on how long or how much they will pay. These policies can also become costly over time. Insurance companies can consider health conditions when determining eligibility for coverage. The older the applicant, the more likely he won’t qualify.”
Almost one-third of applicants ages 65-69 were denied coverage in 2019, Omdahl writes, citing a study from the American Association for Long-Term Care Insurance (AALTCI).
Read the story at Forbes.