In general, people are living longer, and that means more age-related diseases are showing up in our population. Memory-related diseases in particular not only take an emotional toll on family members and caregivers, but a hefty financial toll.
According to the Alzheimer’s Association, Alzheimer’s disease and other dementias will cost the nation $321 billion in 2022. By 2050, this number could reach nearly $1 trillion unless there’s a discovered treatment to slow, stop or prevent these diseases.
A recent Milken Institute report estimates 2022 per-person medical expenses for those with Alzheimer’s and dementia at $19,900—with $5,400 of those costs for dementia-related treatment only. The report also estimates that 62% to 78% of dementia cases may not be diagnosed or reported, which suggests shortcomings in dementia detection, diagnosis, treatment and communication.
The burden on dementia caregivers
Much of those costs find their way to caregivers, it seems. An RBC Wealth Management-U.S. survey reported that 83% of caregivers indicated they contributed either directly or indirectly to costs associated with dementia diagnoses, with 54% of them saying they altered their work arrangements. The study showed that caregivers gave up some $38,000 in annual income because of changing work patterns—many taking early retirement or time away from work.
Another challenge caregivers face is financial mismanagement, which can increase expenses and burdens on caregivers—often in the form of unpaid bills, unusual spending and even fraud.
“The best advice I can give is to have candid conversations with your loved ones as early as possible,” said Deborah Adeyanju, a certified financial planner and founder of Creative Financial Writing.
Stephen Landersman, a certified financial planner and president of Unifi Advisors agreed and urged people to think about the eventuality of their incapacitation – whether from dementia, an accident or another disease – and work with a financial planner to protect assets and express wishes about care.
Landersman emphasized the necessity of four legal documents: a medical power of attorney, financial power of attorney, will and living will. These four documents indicate who will take care of financial and medical matters when a person is mentally or physically incapacitated, what will happen to a person’s estate, and a person’s wishes for medical interventions, organ donations and other medical issues.
He especially emphasized the financial impact of not designating a power of attorney, giving the example of an incapacitated 71-year-old mother with $500,000 in assets. At age 72, there’s a required minimum distribution she must take from her retirement account. If there’s no power of attorney designated to withdraw from the account and there’s no withdrawal when she’s 72, she incurs a 50% penalty on that distribution, which would amount to more than $9,000.
“I’ve seen it happen many times,” he said.
Assessing income and assets, care options
Inventory all income and assets, which include property, retirement accounts, pensions, vehicles and other valuables. It’s also important to understand which assets are taxed and estimate those costs.
“How you want to live (at home or in a residential facility) is another big factor,” said Adeyanju. “Most dementia sufferers eventually need full-time care, and the costs can exceed six figures annually. Working with a planner can help you think through cost scenarios and how you’d meet them.”
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Landersman noted that 72% of elder care is provided by family members—a difficult situation, especially if those family members are working or parenting children.
This makes it important to identify who will provide the care, and decide whether extra help might be necessary. Plan on paying in-home aides at least $35 per hour, Landersman said, and consider any costs to modify your home with additions, wheelchair ramps and other aging-in-place considerations.
Funding sources to cover dementia care costs
In addition to available assets and income, one funding source for dementia care costs is a long-term-care insurance policy, which Landersman warned is expensive to purchase when seniors need it versus earlier in life. For long-term-care coverage to kick in, seniors must meet at least two of six qualifications for activities of daily living, and it covers only skilled care and not home health care. So, if you want extra help at home, that’s going to be an out-of-pocket cost.
But, what about Medicare plans?
“Many people erroneously believe that Medicare would cover the costs of their care should they develop dementia,” Adeyanju warned. “It doesn’t.”
Medicare does pay for skilled nursing care like physical therapy and short-term stays at facilities, but it’s intended for situations in which the patient is expected to improve. The benefit typically runs out after 100 days, so a dementia patient needing 24-hour care and expected to continue to decline would not quality for skilled care benefits under Medicare.
There are also specific Medicaid rules for long-term care coverage.
“The rule is a moving target,” Landersman said. “It’s five years from when you run out of money.”
Financial advisors can help navigate complex Medicaid rules, which differ by state, and perhaps help determine a Medicaid spend-down plan to qualify for benefits. Seniors can shelter their assets into trusts, Landersman said, but advance planning is crucial.
“Medicaid also has a five-year look-back period,” Adeyanju noted. “That means that if you pass away within five years of receiving Medicaid benefits, the state can reimburse itself for the costs of your care from your remaining assets – your house, your bank and retirement accounts – including those that would have gone to heirs.”
This rule is designed to prevent people from gifting assets or selling them for a price less than fair market value to qualify for Medicaid. The government reviews transactions during the lookback period and flags any gifts deemed less than fair market value.
Caregivers should also contact local Area Agencies on Aging, the Veterans Administration, the Alzheimer’s Association and more to seek financial assistance where available, Landersman said.
Tax considerations for dementia caregivers
When it comes to financing health care, families and their caregivers need all the tax advantages they can get.
“Two federal tax breaks that are important to know about include those authorizing health savings accounts and a deduction for nursing home costs,” Adeyanju said. “HSAs are pre-tax accounts that can be used to pay for qualified medical expenses. You can only open one if you are also enrolled in a high-deductible health care plan. HSAs deliver big bang for the buck, especially if you open one early and maximize your contributions. Once you reach age 65, you can withdraw these funds tax-free provided you use them to fund your health care, including actual costs and long-term care premiums.”
Nursing home care is also eligible for a tax deduction under certain conditions, she said. Costs are deductible if the senior is in a nursing home primarily for medical care. If the senior is there for nonmedical reasons, the cost of any medical care received while living there is deductible.
Health care reform
Many are calling for health care reform in the face of increasing costs for dementia-related care. Recommendations include increasing Medicare coverage of long-term care for certain enrollees, paid family and medical leave for caregivers, and supporting the passage of the Social Security Caregiver Credit Act of 2019.
Adeyanju said in the meantime, caregivers should keep an eye on the WA Cares Fund for possible state-level reforms.
“No national laws have been passed,” she said. “But Washington passed a law early this year that requires state residents to buy long-term-care insurance or pay into a state fund. The law goes into effect next year. Other states are watching with interest and considering passing their own versions.”
