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Retirement

Home equity could trump Medicaid for LTC planning, expert says

A columnist for Forbes examines Medicaid may not be substantive enough to fund long-term care

Finding a way for financial resources to last is a concern for many in the reverse mortgage demographic, but these concerns may also lead to different strategies if a person is unable or unwilling to tap their home’s equity. One option is Medicaid, but that is not viable for a lot of people, according to financial columnist Bob Carlson in a new piece for Forbes.

Unlike Medicare, which pays most medical expenses for people at or over the age of 65, long-term care is not covered under Medicaid. However, under Medicaid — the program that pays medical costs for low-income or low-net-worth individuals — nursing home care and some limited home care is covered, presuming a beneficiary can qualify for the program despite the strict income requirements.

“Medicaid’s reimbursements to nursing homes are much lower than the amounts nursing homes charge to non-Medicaid residents,” Carlson writes. “Many nursing homes find it unprofitable to have too many Medicaid residents. The results are that it can be difficult for a Medicaid beneficiary to obtain residence in a high-quality facility and facilities that accept a lot of Medicaid beneficiaries don’t provide the same level of care as other facilities.”

Medicaid also does not reimburse for assisted living expenses, Carlson notes. Most people who require long-term care coverage live in an assisted living facility, meaning that an LTC plan reliant on Medicaid is an insufficient plan for most.

Still, Medicaid does have advantages, according to Carlson.

“As a recent article pointed out, federal law protects Medicaid beneficiaries who reside in nursing homes from eviction due to nonpayment of rent and other expenses,” he writes. “But the law doesn’t protect non-Medicaid recipients. It also doesn’t protect Medicaid beneficiaries receiving other types of long-term care, such care provided in assisted living residences.”

Other viable options to fund long-term care do exist, including tapping home equity, Carlson explains.

“One option is self-funding through a combination of income (Social Security and pensions), home equity (through a sale or reverse mortgage), and an investment portfolio,” he writes. “Another option is to take out a long-term care insurance policy to fund all or a portion of expected long-term care expenses. You can take out a traditional long-term care insurance policy that covers any type of long-term care but pays nothing if you never need long-term care.”