How to Pay for Assisted Living

Using Personal Savings, Income, and Family Help

Paying from one's own money is usually where the planning starts. The NIA states that "most people pay the full costs of assisted living themselves." It adds that older adults may use "personal savings, a pension or other retirement fund, income from investments, or proceeds from the sale of a home" (NIA, Paying for Long-Term Care).

Monthly income, such as a pension or Social Security, can cover part of the bill. The Social Security Administration can say how a move affects a person's own benefit. For a family already stretched on a fixed income, the situation looks a lot like living on Social Security with a new and larger bill added.

Retirement accounts such as an IRA or a 401(k) are another source. Withdrawals may have tax effects, and a tax professional can explain how they apply to a person's own accounts.

Adult children sometimes share the cost. This is a family arrangement, not a financial product, and a written understanding can keep it clear for everyone.

The trade with savings is simple. Savings are flexible and available right away, but they run out. It helps to think early about what comes next if they run low.

Medicaid and Home- and Community-Based Services

Medicaid is a public program, and its help with assisted living depends on the state. The NIA states that "Medicaid may provide coverage for some aspects of assisted living, depending on the state and whether the person is eligible."

Medicaid's help with assisted living can come through a waiver. A Home and Community-Based Services (HCBS) waiver is a state program that uses Medicaid funds for long-term care outside an institution. Medicaid.gov states that states can develop these waivers "to meet the needs of people who prefer to get long-term care services and supports in their home or community, rather than in an institutional setting." To qualify, a person "must demonstrate the need for a Level of Care that would meet the state's eligibility requirements for services in an institutional setting." States also "choose the maximum number of people that will be served."

A waiver may help with care services but not with rent. Under 42 C.F.R. § 441.310, federal funds for these services are not available for "the cost of room and board," except as part of respite care in a state-approved facility that is not a private residence, and for a portion of the rent and food of an unrelated caregiver who lives in the same household. Room and board means housing and meals.

Medicaid also has financial eligibility rules, and Medicaid.gov notes that states "can also use spousal impoverishment rules to determine financial eligibility for waiver services." The NIA adds that "the benefits and eligibility requirements of these programs can change, and some benefits differ from state to state." The state Medicaid agency publishes the current rules.

Medicare is different. It is federal health insurance, and Medicare.gov states that "Medicare doesn't pay for long-term care." It treats skilled nursing facility care separately. Medicaid rules are detailed, and a benefits counselor or an elder law attorney can explain how a state's rules apply to a family's facts.

Veterans Benefits: Aid and Attendance

For a family with a veteran or a veteran's surviving spouse, this benefit is worth asking about. According to the U.S. Department of Veterans Affairs, "VA Aid and Attendance or Housebound benefits provide monthly payments added to the amount of a monthly VA pension for qualified Veterans and survivors."

The VA says a person may be eligible if they get a VA pension and meet at least one more requirement. One of them is needing "another person to help you perform daily activities, like bathing, feeding, and dressing." The VA's list continues beyond that example. Aid and Attendance and the Housebound allowance can't be paid at the same time.

Aid and Attendance is added to a monthly VA pension payment, and the VA publishes the current rates. A person can apply online, by mail with VA Form 21-2680, or in person at a VA regional office, and a medical examiner must fill out the examination information section. A person in a nursing home will also need to fill out VA Form 21-0779. The VA says the time to a decision depends: it processes claims in the order it receives them, unless a claim requires priority processing.

If a Policy Exists: Long-Term Care Insurance

If a parent bought a long-term care policy years ago, finding it is a good early step. Long-term care insurance is a private policy bought before care is needed. The Administration for Community Living explains that these policies "reimburse policyholders a daily amount (up to a pre-selected limit)" for help with daily activities such as bathing, dressing or eating.

Many current policies can be used in more than one setting. ACL lists "assisted living facilities" among them (ACL, What Long-term Care Insurance Covers). The policy itself says when its benefits begin.

When reading an existing policy, a family can look for:

• The daily benefit. This is the most the policy pays per day. ACL explains that this amount times the number of days a policy pays "determines the lifetime maximum amount that the policy will pay."
• The benefit period. ACL notes that many policies "have limits on how long or how much they will pay."
• Inflation protection. ACL lists "benefits that increase with inflation" among the optional benefits a buyer may choose.
• The settings it covers. ACL notes that most policies sold today "typically allow you to use your daily benefit in a variety of settings."

The NIA suggests contacting the insurer "to find out the details of your policy."

Your Home as a Source: Using Home Equity for Care

For a homeowner, the house is often the largest thing they own. Home equity is the part of the home's value that is not owed to a lender. There are several ways to turn some of it into money for care, and each one trades something different.

Selling. A sale can pay for care directly. The trade is that the home is gone as a place to live and as an asset.

Downsizing. Selling a larger home and buying a smaller one frees up some equity and keeps the person a homeowner. This fits best when a full-time move to assisted living has not happened yet.

A home equity loan or line of credit. A HELOC is a line of credit the borrower can draw on as needed. The Federal Trade Commission warns that with either product "you're using your home as collateral," and "if you don't repay the loan as agreed, your lender can foreclose on your home." Both require monthly payments, and the lender reviews the borrower's income and credit.

A cash-out refinance. This replaces the current mortgage with a larger one and pays out the difference. It also carries monthly payments and a lender review.

A reverse mortgage. A Home Equity Conversion Mortgage (HECM) is a federally insured reverse mortgage. It lets an older homeowner who meets HUD's age and other requirements borrow against equity without monthly mortgage payments. It is a loan, not income or a benefit, and the home can be lost if the terms are not met. Interest and charges are added to the balance, so the amount owed grows over time. The borrower must keep living in the home as a principal residence, pay the property taxes and homeowners insurance, and keep the home in repair. The Consumer Financial Protection Bureau states that a HECM must be paid off when the last surviving borrower or Eligible Non-Borrowing Spouse dies, sells the home, or "no longer lives in the home as their principal residence."

That last condition matters most here. When the last surviving borrower or Eligible Non-Borrowing Spouse moves to assisted living for good, the home is no longer their principal residence, and the loan must be paid off. The CFPB also notes that after more than 12 consecutive months in a facility such as assisted living, with no co-borrower living in the home, others living there must move out unless they repay the loan or qualify as an Eligible Non-Borrowing Spouse. A reverse mortgage may help pay for care at home or support a spouse who stays. It is a poor fit for a borrower's own permanent move.

The tradeoffs are laid out further in this site's page on paying for long-term care with home equity. A HUD-approved housing counselor can walk through any of these options, and the HECM process includes an independent counseling session.

Other Financial Assistance Options

When the main sources fall short, a few others may help.

Other private options. The NIA lists "several private payment options, including long-term care insurance, reverse mortgages, certain life insurance policies, annuities, and trusts," and notes that "which option is best depends on many factors, including the person's age, health status, and financial situation."

State and local programs. Help differs by state and locality. The state Medicaid agency can describe what exists. The NIA points families to the Eldercare Locator at 800-677-1116 "for help finding care in your area" (NIA).

Each of these has its own eligibility rules, costs and timing.

Planning Ahead: Combining Sources and Thinking Through the Timeline

The real question for a family is often how the pieces fit together over time. One possible order is income and savings first, then an insurance benefit, then home equity if it is needed.

Order matters because the sources affect each other. Medicaid's financial eligibility rules apply before help starts. A reverse mortgage depends on living in the home, so a permanent move changes whether it can be used. Selling the house affects both of these.

Talking early, before a fall or a hospital stay forces a quick decision, usually leaves more choices open. A benefits counselor, an elder law attorney or a financial planner who works with older clients can help a family build a plan for its own facts. Families comparing care at home with a facility may also find it useful to read about paying for in-home care.

Not knowing every option yet is normal. Knowing their names is what makes the next conversation easier.

Understanding how the pieces affect each other is what turns a list of options into a plan that holds together over time.