The gap typically occurs after the patient's savings and other assets have been exhausted -- which can happen fairly quickly in high-cost states, where care often costs $12,000 a month -- but before he or she is approved for Medicaid, the government program that pays nursing-home bills for poor people. (Medicaid is a separate program from Medicare, which covers health expenses for people 65 and over. Medicare typically doesn't cover custodial costs, like those that make up most nursing-home care.)


Such gaps are growing more common as states make Medicaid tougher to get, elder-law attorneys said. The application process can involve reams of documents, and decisions by the states can take months -- sometimes more than a year -- which can lead to huge nursing-home debts.

Even when filial-responsibility laws aren't invoked, your parents' long-term care can still wreak havoc on your extended family's finances. One study found that people caring for their parents lose an average $304,000 each in wages, pensions and Social Security benefits, as I wrote in "The high cost of caring for parents."

When parents don't have the means to pay for their own care, their children often wind up reducing work hours or even quitting their jobs to help out. Caregivers may not be able to save adequately for their own retirements and long-term care, which means they may become a financial burden to their own kids.

So if your parents or in-laws are still alive, even if they're in good health now, you should consider taking the following steps:

  • Find out if your parents are prepared. Do your folks have long-term-care insurance or substantial savings to pay nursing home bills? If you don't know, asking can be tricky, but one way to start is by talking about your own efforts to prepare for the future. For example, everyone needs a will, a health care directive and a power of attorney for finances, said Gregory French, the elder-law academy's current president and an elder-law attorney in Cincinnati. The will expresses how you want your estate divided after your death, while the two other documents help others make decisions for you if you become incapacitated. Once you have your own documents in place, ask if your parents have this paperwork ready. If not, ask if they'd like help preparing it. "A discussion about long-term care fits very naturally into that.," French said. (For more on preparing for incapacity, read "3 must-have legal papers.")
  • Consider long-term-care insurance. If your parents are rich, they should be able to pay for long-term care directly, although the tab may reduce your inheritance. If they're poor, they'll likely wind up on Medicaid. Everybody in between should at least consider long-term-care insurance, elder-law attorneys said. "We have a lot of clients who pay or help pay for their parents' long-term-care insurance," said elder-law attorney Ronald Fatoullah of Great Neck, N.Y. A life insurance policy with a long-term-care rider is another option for families with the means to pay the premium, said Fatoullah, who serves on the elder-law academy's long-term-care task force. The problem with either type of insurance is that coverage isn't cheap, and health problems can prevent getting it at all. A couple, both aged 55, could expect to pay an average $2,350 a year for long-term-care insurance, according to American Association for Long-Term Care Insurance, with premiums and denial rates rising sharply with age.
  • Be careful about accepting gifts. Families often try to get around Medicaid rules, which require applicants to be essentially impoverished before they can get coverage, by transferring a parent's house into the children's names, for example, or making cash gifts. All that does is delay the parent's eligibility for Medicaid, perhaps forever, said Elizabeth Gray, who practices elder law in Fairfax, Va. Furthermore, nursing homes have been known to go after the recipients for an amount equal to the transfer. If your parent may end up on Medicaid, get advice from an elder-law attorney before accepting any transfers or gifts. If the money has already changed hands, keep it in cash rather than spending it, because one way to "erase" the Medicaid penalty for such transfers is to give the money back, Grodberg said.
  • Take charge of the Medicaid application. Your parent's nursing home may offer to help with the application for government assistance, but Hazen has seen cases where nursing homes not only filed inadequate applications but then failed to tell families the applications had been denied in time for them to file an appeal. Consider hiring an elder-law attorney or a geriatric-care manager to help guide you through the paperwork.
  • Get good advice. Don't rely on relatives, hearsay or random Internet searches when applying for Medicaid or dealing with nursing-home billing departments. This is complicated stuff, and one wrong move can have expensive consequences. Even if you're not able to pay for extensive, continuing legal advice, consider at least one session with an elder-law attorney familiar with your state's rules and regulations. "If someone gets good advice and follows through, they should be OK," Grodberg said. "It's the people who think they can do it on their own that are going to get hurt."

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.