Month: April 2017

EXECUTIVE SUMMARY

Most seniors and their families see the monthly cost of a senior housing facility as much higher than the monthly cost of living at home with family care, or even with part-time or full-time home healthcare.   But the math that most seniors and families use to make this comparison assumes no implied cost for occupying a home without a mortgage, much less paid care than is provided in a seniors housing facility and places no value on the companionship and social interaction that a seniors housing community can provide.

This analysis, using data from a variety of sources, attempts to make a fair apples-to-apples comparison, before and after taxes, of the cost for a senior living at-home without care, living at-home with a modest amount of paid care and living in an independent living, assisted living or memory care facility.

The chart below shows the comparison on a pre-tax basis of living at home with a modest level of care to the cost of various types of seniors housing communities.   Bottom Line – The cost of living in a $150,000 home with even a modest level of home healthcare can easily exceed the cost of an independent living community and approaches the cost of assisted living.  In addition, a senior living at home with part-time care does not get the companionship and social interaction that a seniors housing community can provide and which many studies show are beneficial for a senior’s mental acuity and well being.

Please read below for details and I welcome your comments and questions.

THE COST OF A SENIOR HOUSING COMMUNITY

The cost of various seniors housing settings is easy for seniors and their families to see because most facilities charge a monthly fee for housing and care.   The average monthly cost for this care according to a recent survey by the National Investment Center for the Senior Housing and Care Industry (NIC) is as follows:

• Independent Living – $3,076 per month
• Assisted Living – $4,722 per month
• Memory Care – $6,082 per month

To these costs, we need to add some additional expenses for a senior living in a seniors housing community for social and entertainment activities, transportation and non-housing living expenses.   I have estimated these at half the estimated cost of someone living at home based on data from the “A Place for Mom.com” website, at a total of $475 per month.  I assume half the cost of a senior living at home for someone living in seniors housing because many of these services are provided in a typical seniors housing facility and are included in the monthly rate. I add another $183 per month for a senior living in a seniors housing community for utilities, cable television, wifi and phone and renters insurance. Adding a combined $658 per month for things like phone, cable TV, some outside meals, transportation and other living expenses to the monthly fee for seniors housing communities brings the total monthly cost for living in senior housing rounded to the nearest $100 to:

• Independent Living – $3,700 per month
• Assisted Living – $5,400 per month
• Memory Care – $6,700 per month

AT HOME LIVING AND HOME OPERATING COSTS

When the total monthly cost for senior housing and care at the above settings are compared to the out-of-pocket costs for a senior living in a $150,000 home without a mortgage they certainly appear formidable.     A Place for Mom estimates the monthly out-of-pocket cost for a average senior living at home (in a home we assume is worth about $150,000) without a mortgage to be approximately $2,400, broken down as follows.

It is this $2,400 figure (or something lower because the senior in question has curtailed her social, entertainment and transportation expenses) that most seniors and their families compare to the $3,700 to $6,700 monthly cost of facility-based senior housing and care.   Therefore, seniors and their families generally see facility-based care as 50% to 275% more expensive than having a senior live at home.

But the above comparison ignores the value of the house in which a senior is living and ignores the cost of caregiving and the socialization benefits that a senior would receive if she were living in a seniors housing facility.   Let’s deal with each of these separately.

ESTIMATED HOUSING COSTS FOR $150,000 HOME

To account for the value of the home itself, I estimate implied rent (essentially an estimate of the amount you could earn from renting the house) using a 7% cap rate on the assumed $150,000 value of the home, at $875 per month ($150,000 x .07 / 12), which seems very modest for many U.S. housing markets.

When you combine the above monthly costs for home maintenance, taxes and operation and living expenses of $2,400 per month with the implied rent, we get an estimated monthly housing and living cost for a senior living in a $150,000 home of $3,275 (approximately $2,400 for living and home operational expenses, plus $875 in implied rent).

From the above analysis you can see that the cost of living expenses, home maintenance and operation and implied rent/housing costs for a senior living on one’s own $150,000 home, calculated in what I believe is a conservative fashion, is nearly 90% of the average cost of a senior living in an independent living facility.   And in the independent living facility the senior is getting much more interaction with other people, much more socialization and mental stimulation than most seniors get when living at home alone.

ESTIMATED HOUSING COSTS FOR $500,000 CONDOMINIUM

Doing the same math for a senior living in a $500,000 condominium yields estimated monthly living and home operating expenses of $4,449 broken down as follows:

The implied rent calculation for a $500,000 condo is $2,917 per month ($500,000 x 7% / 12). Combining monthly living and home operating expenses with the implied rent for a $500,000 condo indicates a total monthly cost of living at home, including implied rent, without care at approximately $7,400.

When the above figure is compared to the cost of seniors housing, you can see that the estimated monthly cost of a senior living in a $500,000 condo is almost twice the cost of independent living and 36% higher than the cost of assisted living. You can argue that comparing the cost of a $500,000 condo with the average cost of seniors housing is an unfair comparison because these facilities would cost more in an expensive real estate market. But I believe the calculation on a $500,000 condo is fair for the Baltimore market, where I Iive, and I believe it is fair to say that when a true apples-to-apples comparison of housing, home operation and living costs for senior is made to the cost of living in a seniors housing facility, the difference is smaller than most seniors and families realize before even taking into account the cost of care.

HOME CARE COSTS

From the above analysis, we see that the cost of a senior remaining at home is less than the cost of any type of seniors housing community, even independent living, for a senior in a modest $150,000 home.   However, as soon as any degree of paid home healthcare is provided the cost advantages of living at home disappear.

According to A Place For Mom and other surveys conducted by insurance companies offering long term care insurance, the cost of in-home care ranges from $14 – $24 per hour.   Certainly at the lower end of this range we are talking about a companion or an aid, not a trained nursing. If you assume only four hours of care per day and only five days per week with family providing care on weekend, the monthly cost of this much home healthcare would range from $1,120 ($14 x 4 hours x 5 days x 4 weeks) to $1,920 per month ($24 x 4 hours x 5 days x 4 weeks).   If we use the average of these two figures, the monthly cost for four hours of home healthcare five days a week is $1,520.

When you add the cost of four hours of home care during the week to the cost of housing noted above, the monthly cost of housing plus a modest level of home health would be approximately:

No cost is assumed for family care on weekends.

As the chart at the beginning of this post indicates, as soon as a modest level of home care, in this case four hours per day five days a week, is added to the cost of a home, home operation and living expenses, the cost of living at home with home care, even for a modestly priced home, easily exceeds the cost of independent living and is nearly 90% of the cost of an assisted living facility.

TAX CONSIDERATIONS

In general terms, healthcare costs exceeding 7.5% of income of a senior’s income are deductible. This includes long term care costs if the senior is chronically ill and is is being cared for pursuant to a plan of care prescribed by a licensed health care practitioner.

If a family member younger than age 65 is paying for care, healthcare costs exceeding 10% of the income of the family member paying for care are deductible.   This can apply to home care prescribed by a licensed health care practitioner but not a senior’s housing costs while living at home.

In a seniors housing facility the cost of healthcare provided in assisted living or a memory care facility that exceeds 7.5% of income may be deductible if required by a senior’s medical condition and it is possible that the full cost of facility-based care including housing component may be deductible if living in such a facility is considered essential for medical reasons.   See IRS Publication 502 https://www.irs.gov/publications/p502/ar02.html for more information and consult with an accounting professional for more complete information.

AVAILABILITY OF GOVERNMENT ASSISTANCE

While many people believe it does, Medicare does not pay for long-term custodial care at home or in a seniors housing facility.   It may pay for short-term home health, therapy or nursing care at-home or in a facility if is prescribed by a physician in response to a particular medical need.

Medicaid will pay for long-term custodial care in skilled nursing facility but only after all other resources are exhausted.   Some states have waiver programs that allow Medicaid to be used for assisted living and memory care or at-home community-based care, but as is the case with nursing home care, Medicaid will pay only after all other resources are exhausted. In addition, the last proposed Republican repeal and replace of the Affordable Care Act included significant cuts to Medicaid that could potentially reduce the availability of Medicaid funds for long term care for seniors.

Veteran’s benefits include increased Veteran’s Aids and Attendance Pensions payment for care in a seniors housing or long term care facility under certain circumstances and seniors who qualify for Veteran’s benefits should investigate this option.