How to Pay for Assisted Living Costs

Paying for assisted living: consider the costs

The cost of senior living is high in America, and it’s only getting higher. According to Seniorly data, the 2023 national median cost for assisted living runs about $4,400 a month, with wide variations across the country. In Washington, D.C , for example, that cost might be as high as $6,835, while in Florida the state average is about $3,800 per month. While prices may vary from region to region, there's no doubt that many are concerned about their ability to pay for assisted living in the long run.

Why is assisted living so expensive?

Assisted living costs are driven by a few key factors that make up most of the operating costs for senior living providers. 

• Staff: The first - and perhaps the biggest expense is staff. Well-trained, dedicated staff, including nurses, caregivers, and other professionals who are available around-the-clock to ensure the safety and well-being of the residents are expensive. In a post-pandemic era we've seen the hourly wages of these folks increase, consistent with many other sectors in the U.S. economy. And while we may struggle with the impact of these wages on the cost of assisted living facilities, most of us would agree that we want competent, well-compensated professionals looking after our loved one. Depending on the care needs of the resident, personalized care plans which may include specialized medical care or therapy services might also add to the overall monthly bill.
• Market demands: Additionally, as the influx of baby boomers continues to redefine the market, we see new trends emerging in terms of what older adults want in their assisted living community. Indeed, the cost of maintaining a safe, refined and comfortable living environment, complete with luxury amenities like pools, and regular upkeep contributes to the overall expenses.
• Regulatory requirements: Finally, keeping up with the ever-changing regulations and rising healthcare costs also adds to the financial burden. Thus, the high cost of assisted living reflects the investment in ensuring an exceptional level of care, comfort, and attention to the unique needs of older adults as they enter this new phase of their lives.

So while we may experience a temporary sticker shock when first presented with pricing, there are a multitude of legitimate factors that contribute to the cost of assisted living.

What's included in assisted living costs - and what's not?

As you evaluate an assisted living community, it will be important to understand the cost structure so you can plan effectively. Assisted living costs typically include room and board, which covers housing, utilities, and meals, as well as basic services such as housekeeping, laundry, and maintenance. Personal care services, such as assistance with activities of daily living (ADLs) like bathing, dressing, and medication management, are also generally included in the base cost as well.

However, additional services or specialized care often come with extra fees. These can include transportation to and from medical appointments, incontinence care, physical therapy, or specialized memory care services for residents with Alzheimer's or dementia.

If you're looking at a continuing care retirement community (CCRC) you will find many that charge a one-time entrance fee or community fee upon admission to cover the initial setup and administrative costs.

It's crucial to thoroughly review the pricing structure of each assisted living facility you are considering and inquire about any potential hidden or additional fees to ensure you have a complete understanding of the costs involved.

Understanding levels of care and their associated costs

As you evaluate how to pay for assisted living, you'll likely encounter pricing structures that reference levels of care. Care levels are designed to accommodate the diverse requirements of residents.

• Basic: The most basic level of care includes assistance with activities of daily living (ADLs), such as bathing, dressing, grooming, and medication management. This level of senior care is suitable for individuals who are mostly independent but require some support with their daily routines. The cost for this level of care is generally included in the base fee of the assisted living facility.
• Moderate: The next level of care often encompasses additional services and increased supervision for residents with more complex needs, such as managing chronic health conditions or mobility challenges. This level may include specialized care plans, regular health monitoring, and coordination with healthcare providers. The cost for this level of care is typically higher than the base fee, as it requires increased staff involvement and resources.
• Advanced: For individuals with cognitive impairments, such as Alzheimer's or dementia, many assisted living facilities and communities may also offer a memory care level. Memory care units provide a secure environment, specially trained staff, and activities designed to enhance cognitive function and promote a sense of well-being. The cost for memory care is usually the highest among the levels of care, reflecting the specialized services, staff training, and additional security measures in place.

Each assisted living facility may have its unique categorization and approach to levels of care, but all should be able to provide clear documentation around their care level inclusions and pricing. Make sure to ask for a print or email copy of care level categories, and inquire about typical annual increases to make sure you understand what the costs are today, what they could be in the future - and to ensure that you can pay for assisted living over time.

How to pay for assisted living: 9 solutions to explore

Private pay to fund assisted living

Most families pay for the costs of assisted living independently. By using common savings plans like a 401(k) or personal savings account, many families are able to privately fund the cost of care. Work with a financial planner to evaluate your ability to draw down from savings to pay for monthly fees. This may involve creating a budget that factors in the expected costs, ensuring your savings can sufficiently cover your needs. With regards to your 401(k), you may consider withdrawing funds to help finance your care. Keep in mind that while you can start making penalty-free withdrawals at age 59 ½, it is essential to consider the tax implications of these withdrawals. In all cases, we recommend working with a financial planner to optimize the use of your 401(k), savings and other personal assets to fund assisted living costs.

How to use Medicare to pay for assisted living

Medicare is the largest medical insurance provider in the country, and parts of it are offered for free to all citizens over the age of 65.  However, Medicare does not pay for an assisted living facility.  Medicare Part A, specifically, covers the cost of hospital stays, while Part B picks up the bills for medically necessary services like doctors’ visits, durable medical equipment and some prescription drugs. The program also provides a certain amount of coverage for a skilled nursing facility, rehab and memory care, which can be invaluable during the first few weeks while you’re moving into your new senior living community. It was never intended to provide for your long-term care, however, and so alternatives must be found before the limited nursing home allowance runs out. 

How to use Medicaid for assisted living

Medicaid, like Medicare, is a government health insurance plan, except this program is open to those who need financial assistance to help pay for assisted living. Many older adults on fixed incomes rely on Medicaid to help with some of the costs of care, though if your income is above a certain level, you may be responsible for an annual copay or share of cost. Half of Medicaid’s funding comes from the federal government and half from your state, so details of coverage and copays vary tremendously from state to state.  Please note in some select states there are Medicaid waivers that pay for the cost of assisted living, and home health aide services but these are very limited. Medicaid.gov hosts a resource center to help you understand the policies for your specific state, including eligibility, enrollment and quality of care data.

Veterans Benefits

Most veterans are able to pay for assisted living - or at least defray costs - through the Office of Veterans Affairs (VA).  A person who served in the active military, naval or air service and who was discharged or released under conditions other than dishonorable may qualify for VA health care benefits, including qualifying Reserve and National Guard members. If you are eligible, please note the VA does not provide this benefit in all areas of the country, and it’s intended to be used strictly for medical costs associated with age, not rent or other senior living expenses. Independent and assisted living are typically not covered by the above VA benefits, though some of your personal care may be. Fortunately, the VA can connect its members with a social worker who has detailed information about what’s covered and what isn’t. If you're not sure where to start, visit the U.S, Department of Veterans Affairs website to learn about how to access benefits.

Using home equity to pay for assisted living

When the temporary and partial coverage of Medicare and Medicaid have run out, or when there’s an expense your LTCI just doesn’t cover, your only option may be existing assets. Most seniors collect a fixed monthly income from Social Security and/or a pension earned from a lifetime of work. These often provide a measure of security, but they may not be enough to cover the cost of monthly care. That’s when many seniors turn to the equity in their homes for help to help pay for assisted living. This can be done in one of two ways; equity or a reverse mortgage:

Equity is the money saved up in your house. You can either sell the property for a lump sum to cover costs, or take out a line of credit backed by the property to supplement your needs.

A reverse mortgage is a loan that allows an eligible homeowner to borrow money, but it doesn't work the same as a home purchase. A homeowner who is 62 years of age or older and has a large amount of home equity can borrow against the value of their home to receive funds as a lump sum, monthly payments or line of credit. Unlike a loan used to buy a home—a reverse mortgage doesn’t require the homeowner to make any loan payments during their lifetime. This can be used to have personal care assistance plug the gaps in your care.

Using health insurance to pay for medical care

Private health insurance can also play a role in funding the medical costs of assisted living. Though private health insurance typically does not cover the full cost of assisted living directly, it can help alleviate the portion of expenses related to medical and healthcare needs. Most private health insurance plans cover hospital care, physician visits, and prescription medications, which are often part of the overall care received in assisted living facilities. Some plans may even offer supplementary benefits, such as dental, vision, and hearing services, further reducing out-of-pocket costs for assisted living resources. By using private health insurance to cover medical expenses, you can allocate more of your personal finances towards the non-medical costs of assisted living. Of course, we recommended a consultation with an insurance broker or elder law attorney to fully understand the coverage and benefits available to you through your private health insurance plan.

Using life insurance to pay for assisted living

Another option to support your financial strategy for assisted living is to take advantage of your life insurance policy. Many life insurance policies offer a feature called "accelerated death benefits," which allows you to access a portion of your policy's death benefit while you are still alive. For those with terminal illnesses or chronic conditions that require long-term assisted living care, this approach can be enormously helpful. Some programs may allow you to cash in your policy, providing a lump sum payment that can be used towards monthly payments. Again, we recommend consulting your insurance company or a financial advisor to fully understand the potential benefits and drawbacks of using your life insurance policy in this particular way. 

Using long term care insurance (LCTI) to pay for assisted living

If your Medicare and Medicaid benefits run out, or if they just aren’t enough to cover assisted living costs, it helps to have another form of insurance to fall back on. That’s where long-term care insurance can be a lifesaver. Long term care insurance (LCTI) acts like a regular insurance policy and picks up the expense of assisted living under whatever the terms were when you signed up for the policy. LTCI usually picks up where government insurance plans leave off and provides for extended residency in an assisted living community near you or memory care facility, with some allowance for nursing home care and physical rehab, just in case. Plans like these are often included as continuing coverage after retirement from a job, or they’re separately purchased as a supplement. If you're an adult looking for long term care insurance, you can find information about long term care insurance from the Administration for Community Living.

State assistance programs

State assistance programs are designed to provide financial support to seniors who may struggle to afford the expenses associated with assisted living. While Medicaid is the most commonly accessed form of state assistance, Another option to consider is the Program of All-Inclusive Care for the Elderly (PACE), which provides comprehensive medical and social services to certain older adults, most of whom are also eligible for Medicare and Medicaid benefits. In addition to these programs, some states offer non-Medicaid financial assistance, such as state-funded home and community-based services (HCBS) waivers or supplementary Social Security income. If you'd like to learn more, here are a few helpful links to get you started:

• PACE information. Visit Medicare.gov or call 1-800-MEDICARE (1-800-633-4227).
• National Council on Aging. Visit NCOA.org.
• Local Agency on Aging. Visit  eldercare.acl.gov or call 1-800-677-1116.

What happens if I run out of money to pay for assisted living?

If you find yourself in an assisted living community and unfortunately run out of money to pay for your stay, your options may vary depending on the facility and your unique situation. Typically, when the assisted living provider or manager becomes aware of your financial constraints, they'll work with you or your family to explore alternative payment options. Some communities may offer a grace period or reduced rates to allow time for arranging additional financial support. However, it is crucial to understand that not all assisted living communities accept Medicaid, and each state has different eligibility requirements. If no viable financial solution is found, you may need to consider transitioning to a more affordable facility, perhaps a nursing home or another assisted living community that accepts Medicaid or has lower rates. It is important to communicate with the facility's management and involve your family or support system in the decision-making process to ensure a smooth and well-informed transition to an alternative living arrangement that best fits your needs and financial situation.

Deciding how to pay for assisted living or any kind of senior living care for yourself or a loved one can be as challenging as finding the right care was in the first place. If you’re looking to see how the monthly fees for a community compare to others in the area, Seniorly has some great cost comparison tools; just use the link below to directly access estimated pricing for communities in your area.