This program only covers a restricted amount of assistance at home for certain homebound seniors. Most state Medicaid programs target poor or low-income elders who need nursing home care, with little coverage for services in the home and community. Seniors who do not meet the requirements for long-term care under these programs must use a considerable portion of their resources to pay for long-term care, either out-of-pocket or through a private long-term-care-insurance policy (Stucki, 2004).
In addition to inadequate financing options, impaired seniors who want to live at home face stringent eligibility requirements when using government or insurance benefits for long-term care. This makes it hard for seniors to get help before they face an incapacitating and expensive disaster. "To receive services under the Medicaid Home and Community-Based Services (1915c) waiver program, impoverished elders must be so severely impaired that they would otherwise require nursing home care. Long-term-care-insurance policyholders typically must need help with two or more ADLs (including bathing, dressing, toileting, transferring or eating) to trigger their policy benefits" (Stucki, 2004).
Only a small amount of homeowners meet this level of impairment. In 2000, about ten percent of older households reported needing assistance performing one or more ADLs. "An additional 4% of these households only needed help with IADLs (such as using the telephone, preparing meals or taking medications). This leaves at risk is a large segment of the senior population whose impairments are not severe but who may have difficulty in continuing to live at home safely" (Stucki, 2004).
Reverse mortgages have the prospective to considerably increase the funds that are available to pay for long-term care at home. Almost half of older homeowners could be contenders for using a reverse mortgage to fund long-term care. This number, though, represents only the extensive potential of this financing alternative. Without strong inducements to surmount the reluctance of today's seniors to tapping home equity, the actual number of older homeowners who take out a loan is likely to be much smaller. Looking at different market it has been suggested that older homeowners differ significantly in terms of their age, marital status, and financial resources. Finding suitable ways to help this varied group of seniors use home equity for long-term care at home will be challenging. It is also probable that these groups will react differently to incentives for reverse mortgages. Alterative strategies to promoting this financing option will present considerably different policy implications in terms of costs, the immediacy of the results, and the scope and scale of the potential outcomes (Use Your Home to Stay at Home, 2005).
Reverse mortgages have the potential to significantly increase the affordability of long-term care insurance. By tapping home equity, homeowners can buy a policy without having to give up their current lifestyle. There are numerous options to increase the affordability of long-term care insurance using funds from a reverse mortgage. One strategy uses the profits of a reverse mortgage to pay for insurance premiums. Another advance would limit the amount of insurance purchased by elders by increasing the amount of long-term care self-funded through a reverse mortgage (Stucki, 2004).
There are more than a few benefits to this approach. Because the use of reverse mortgages is not directly associated to the purchase of long-term care insurance, homeowners would be able to purchase a policy before the age 62, when premiums are significantly less expensive. As people grow older, they are at bigger risk for being uninsurable due to a preexisting chronic health condition. In addition, seniors who needed little or no long-term care throughout their lifetime would be able to guard a higher amount of their assets (Stucki, 2004).
Bowen Bishop, T. & Shan, H. (2008). Reverse Mortgages: A Closer Look at HECM Loans.
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Use Your Home to Stay at Home. (2005). http://www.ncoa.org/news-ncoa-publications/publications/reversemortgagereportpublications.pdf