Nursing Facilities
Use Personal and Family Assets
Most nursing facility residents initially pay for their care with their own money — selling some assets or tapping into stock portfolios, pensions, or savings accounts.
However, if extended care is needed and individuals can no longer afford to pay privately for nursing care, many turn to help from sources such as Medi-Cal, a government program that allows some older, blind and disabled people to keep some assets while getting financial help with the costs of care. Keep in mind that this also might mean that the resident may have to be moved from a facility such a Congregate Living Health Facility that does not accept Medi-Cal to a nursing home that does.
Reverse Mortgages
A reverse mortgage is a loan against the value of a home that does not need to be repaid until the owner moves out or sells it. The arrangement allows homeowners who are at least age 62 to convert equity in their homes into one-time or monthly cash payments or a line of credit. The loan advances are not taxable and generally do not affect Social Security or Medicare benefits.
If the borrower moves into a nursing facility permanently, the loan from a reverse mortgage must be repaid within a short time — usually a year or so. And if the home is sold, as is often the case when a homeowner makes such a move, the loan must be repaid out of the proceeds of the sale.
Possible pitfalls. Reverse mortgages are rarely a good option if a homeowner is likely to enter a nursing facility in the near future — or within three years or so. Some potential drawbacks include:
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Hidden costs. Reverse mortgages are expensive to secure, usually involving high costs for processing, insurance, interest, and ongoing services that are added to the overall loan costs.
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Estate planning complications. If the borrower leaves the home to family members or other beneficiaries, it will be encumbered with the reverse mortgage debt if it’s not paid off before death.
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Benefit ineligibility. Equity borrowed as a lump sum or line of credit may jeopardize eligibility for some government need-based benefits, such as Medi-Cal, SSI, and food stamps, especially if the payments cause the homeowner to exceed the allowed amount of cash on hand.
Because a lot may be at stake when people choose to get reverse mortgages, safeguards were passed to protect consumers. California law requires that, before applying for a reverse mortgage, potential borrowers must first receive advice on costs, implications, and alternatives from a housing counselor approved by the U.S. Department of Housing and Urban Development (HUD).
For more information or to report potential problems with reverse mortgages, contact HUD’s Homeownership Center.
Help from Family Members
Family members, particularly adult children, may be able to help cover the costs of nursing facility care. But beware that if such financial support is paid regularly, it may be counted as income when determining an individual’s eligibility limits for Medi-Cal coverage. If Medi-Cal coverage is a concern, then family members should make payments directly to a care provider instead of to the resident.
If there are relatives or others who are willing and able to contribute to care costs, it may also be wise to get those commitments in writing to help avoid misunderstandings and emphasize their importance.
