Introduction
Many adult children wonder if they can be compensated for the countless hours that they spend caregiving for their aging parents. This is especially true with those family members who are caring for a loved one with Alzheimer’s or another form of dementia. The short answer to this question is yes, it is possible. Unfortunately, the short answer is insufficient, as the subject is complex. Many variables impact whether a loved one who requires care is eligible for such assistance, and what many people fail to ask, is if they, themselves as caregivers, are eligible.
The article that follows comprehensively explores the many different options and programs that can be used to pay family members as caregivers. However, this in-depth exploration makes for heavy reading and many of the programs won’t be relevant to the reader based on varying eligibility criteria, such as veteran’s status, income, or state of residence. An alternative approach is to use our Paid Caregiver Program Locator. This interactive tool asks a series of questions and provides the reader with a list of programs that are relevant to their family’s situation.
Medicaid Options
Of all the programs that pay family members as caregivers, Medicaid is the most common source of payment. Medicaid has eligibility requirements that apply to the program participant and it has rules that dictate who is allowed to provide them with care. While Medicaid is historically thought of as paying for nursing home care, modern Medicaid programs offer assistance options outside of nursing homes, in the beneficiary’s home or primary place of residence. We have identified four types of Medicaid programs / options that allow family members to be paid as caregivers. The bad news is that not all four are available in every state, but the good news is at least one of the four is available in every state.
HCBS Waivers and 1915(c) Waivers
The first and most common Medicaid option is Medicaid Waivers. These are often called HCBS Waivers, short for Home and Community Based Services, or 1915(c) Waivers or occasionally Section 1115 Waivers. Waivers allow states to pay for care and support services for individuals residing outside of nursing homes. Commonly, they pay for personal care (assistance with activities of daily living, such as eating, dressing, and mobility) and chore services provided for elderly or disabled persons who live in their homes or the homes of family members.
Most states’ Medicaid Waivers have an option called “Consumer Direction.” Consumer direction allows the beneficiary (the ”consumer” or the “care recipient”) to direct or choose from whom they receive care services. With this option, the care recipient can choose to receive care from a family member, such as an adult child, and Medicaid will compensate the adult child for providing care for the elderly parent. In most cases, the adult child / caregiver is paid the Medicaid approved hourly rate for home care, which is specific to their state.
It is important to note that the phrase “consumer direction” is not used in all states. However, the concept of consumer direction is available in all states. A variety of other terms or phrases are employed to describe this same concept. Depending on one’s state, alternative language may include Participant Directed Services, Self-Directed Care, Cash and Counseling, Choice Programs, and Self-Administered Services.
Waivers are offered as an alternative to nursing home care. Waiver names, eligibility requirements, and benefits are different in each state. While nursing home Medicaid is an entitlement, Waivers are not entitlements. They are enrollment capped, meaning there is a select number of people who can be enrolled in the program, and waiting lists are fairly common. A complete list of Waivers that allow family members to be paid as caregivers is available here.
Medicaid Personal Care Services
State Medicaid programs often cover personal care under their regular Medicaid program, sometimes referred to as their “Medicaid State Plan.” Unlike Waivers, regular Medicaid is an entitlement program; if an applicant meets the eligibility requirements, then they can receive benefits. Waiting lists do not exist. Please note that some states elect to offer personal care services in the home and community through their state plan via an option called Community First Choice (CFC).
Similar to how Waivers offer consumer direction of services, State Plan Personal Care often allows the beneficiary to choose their care provider. Family members, including adult children can be chosen to provide care for their mothers and fathers. Again, like Waivers, the adult children caregivers are paid the Medicaid approved hourly rate for their efforts. During the initial enrollment process, the elderly individual is assessed, and it is determined how many hours per week they require care services. A list of state Medicaid programs that offer the choice of provider in their personal care benefit is available here. Readers should be aware of the various names these programs use, which include Personal Assistance Services (PAS), Personal Care Assistance (PCA), Attendare Care, and Personal Attendants. Sometimes, states don’t make a point to distinguish this option as a separate program, they just call it the personal care benefit under their regular Medicaid program.
Medicaid Caregiver Exemption
The Caregiver Exemption is also referred to as the Child Caregiver Exception. This option does not directly pay the adult child for their caregiving efforts on an hourly basis, but instead compensates them indirectly. To better understand this option, some background information on Medicaid eligibility is required. Eligibility for elderly persons is based largely on their income and their assets. One’s home, provided it is lived in by the Medicaid participant, is considered an exempt asset. However, if one moves from their home (into a nursing home, for example), then their home is no longer considered an exempt asset (unless their spouse lives there or the Medicaid recipient expresses an intent to return home). When the elderly person passes away, their state may try to take the home or some of the home’s value as reimbursement for the elderly person’s care. This is known as Medicaid Estate Recovery.
The Caregiver Exemption allows the adult child who provides care for their elderly parent in their parent’s home to inherit the home, instead of the state taking the home under Estate Recovery rules. There are additional requirements. The adult child must live in the home with their parent and provide care for at least two years. The level of care they provide must prevent their parent from being placed in a nursing home and they must have the medical documentation to validate this fact.
How much the adult child receives in compensation depends on the value of the home and their parent’s equity in the home.
The Caregiver Exemption is complicated. Therefore, it is strongly advised that families plan in advance for this option to avoid both Medicaid and family conflicts. One can read more about the Caregiver Exemption here or connect with a Medicaid planning expert to discuss if, and how this option, would work for your family.
Adult Foster Care
In a limited number of states, Medicaid allows the adult children to become adult foster care providers for their aging parent(s). In this situation, the aging parent moves into their adult child’s home. The caregiver / child is responsible for providing personal care, assistance with the activities of daily living, meals, transportation to medical appointments, and other supports. Medicaid will continue to fund the elderly parent’s medical care, prescriptions, etc. In return, the adult children are compensated by Medicaid for their care services, but not for room and board. Medicaid, by law, cannot pay for room and board.
However, many states offer supplemental financial assistance from state funds to Medicaid beneficiaries who live in an adult foster home situation. This additional financial assistance is intended for room and board expenses. To summarize, the adult children caregivers will be compensated from two sources, Medicaid and the state’s supplemental program. The amount that the caregiving child will be compensated is dependent on the level of care required by their aging parent and, of course, their state of residence. State Medicaid programs offering adult foster care.
Programs for Veterans
Veteran-Directed Care
The Veteran-Directed Care program, formerly known as Veteran-Directed Home and Community Based Services, is open to any veteran who is currently enrolled in the VA health care system whose care requirements are such that “nursing home level care” is required. Under Veteran-Directed Care, veterans are able to select from whom they receive personal care services, including family members, such as their adult children.
Adult children caregivers are paid an hourly rate. This rate is determined annually by the Veterans Health Administration and modified for regional differences in home care costs. It is difficult to accurately project what caregivers will receive, as each veteran is assessed for a different amount of home care assistance. That said, caregivers might expect to be compensated between $7.25 – $20.00 per hour for their efforts.
The program is run at the local level through participating VA Medical Centers. See a list of participating VAMCs here.
Veteran’s Aid & Attendance and Housebound Pensions
The veterans’ pensions, which are called the Aid & Attendance and Housebound benefits, are programs specifically designed for wartime veterans and their spouses. How they can be used to pay individuals to provide care for their aging parents is a little complicated. It is important to understand that the dollar amount of pension that a veteran or their spouse receives depends on their current, non-pension related income.
The second important factor is when calculating income, the Department of Veterans Affairs allows the beneficiary to deduct all care related expenses from their income. This can include the cost of personal care assistance provided by an individual or home care agency. Therefore, an aging parent can hire their adult child as a private caregiver. The adult child invoices their parent for their caregiving services, the parent deducts those invoices from their income, and the VA increases their pension check by the amount of the invoices. While confusing and seemingly roundabout, this approach is well documented, legal, and encouraged by many VA benefits experts.
Learn more about the Aid & Attendance and Housebound Pensions or connect with a VA Pension planning expert to determine if your family is eligible and to discuss if either of these approaches can work for you.
Other Options
State-Based, Non-Medicaid Programs
The concept of Consumer Direction (discussed under Medicaid) is not limited to Medicaid programs. Most states offer what are loosely categorized as nursing home diversion programs. These are state-funded programs that provide assistance to elderly individuals who live at home with the objective of preventing unnecessary placement of these persons in Medicaid-funded nursing homes. Some of these state programs allow for consumer direction of care services. Phrased another way, program participants are given the flexibility to choose their own caregivers. This allows participants to choose their adult children to provide them with care services and assistance instead of working with a state-chosen caregiver or home care agency. Caregivers are paid a rate comparable with the average hourly rate for home care in their geographic area.
Unfortunately, these programs are not available in every state. Further limiting this option is the fact that some programs allow for consumer direction but do not allow family members to be hired. Finally, many of these programs are means-tested (this means eligibility is based on the financial resources of the participant). See a list of state programs that allow consumer direction.
Life Insurance
Persons with life insurance policies may be able to use those policies to pay family members to provide care. As with many of the programs described in this article, the process is complicated. The policyholder, while living, engages in what is called a life settlement. A life settlement is the sale of one’s life insurance policy to a 3rd party while the policyholder is alive. The buyer pays the policyholder a lump sum amount, which can be anywhere from 5-80% of the policy’s death benefit amount. The third party takes over paying the monthly premiums, and when the policyholder passes, the third party collects the full amount of the death benefit. In taking this approach, the original policyholder receives a lump sum of cash from their policy while they are alive.
This money can be used directly to pay a family member, such as a son or daughter, to provide care. However, a better option exists called a Medicaid Life Settlement. This type of life settlement allows the policyholder to preserve the option to receive Medicaid in the future, should the proceeds from their life settlement run out. A more thorough investigation of this strategy and its pros & cons can be found here.
Long Term Care Insurance
Some elderly individuals that have long-term care insurance may use the benefits from that insurance to pay their children to provide them with care. Each policy is different and some policies may expressly prohibit family members from being compensated. However, such rules are relatively rare. More common is the long-term care insurance policy that requires care providers to be licensed. Fortunately, this should not prevent the family members of the policyholder from being paid to provide care. It does, however, create a minor logistical obstacle in that the son or daughter will have to obtain a business license as a care provider and register with their local authorities. While this process may sound daunting, it is in fact a fairly simple and quick process. The adult children who are now paid caregivers must declare their payment as income and pay taxes as they would with any other income.
Paid Family Leave Laws
The FAMILY Act, short for Family and Medical Insurance Leave (FAMILY), is less formally referred to as the Paid Family Leave Act. It is a bill that was first introduced to Congress in 2013. It was re-introduced in 2020, but it still has not passed as of March 2024. However, there are a limited number of states that have implemented their own, similar, state-wide family and medical insurance leave programs, including California, New Jersey, Rhode Island, New York), the District of Columbia, and Washington.
These programs allow working individuals to take time off from their jobs (or take non-consecutive days off) to care for their family member. Paid family leave laws are not limited to caring for aging parents; one can also care for their children or spouses. However, caring for aging parents is most relevant to this article. The caregiver continues to receive a percentage of their salary, and in some states they are legally protected from losing their jobs or their health insurance. In the states where this is not the case, the national Family and Medical Leave Act can sometimes be combined to protect one’s job .
Most laws will pay the adult children for periods of between 4 – 12 weeks, so this is not a permanent solution for most families. However, the paid leave does not have to be taken in one consecutive period. Instead, the caregiving child could take one day off each week for many months. Additionally, multiple siblings could take consecutive paid family leave if they live in the same state, which when combined, can make a large impact in helping an elderly parent.
State specific, paid family leave laws should not be confused with the national Family and Medical Leave Act (FMLA), which allows family members to take time off work to care for a loved one and protects their job and health insurance but does not offer compensation. More about the FMLA.
Tax Deductions and Credits
Tax deductions or tax credits do not pay the adult children directly as caregivers. However, they can considerably decrease the tax burden of those caring for their elderly parents. The net effect is the same, they have more money available to them as a result of their familial caregiving efforts. For persons whose parents are financially dependent on them, the medical and care expenses incurred by the aging parents can be deducted from their own income. Read about medical and care expense deductions here.
Another option is the Dependent Care Credit. For persons who must pay for care for their elderly parent so that they are able to continue working, this credit is highly relevant. Expenses such as home care or adult day care, in most instances, are fully deductible under this credit. Read more.
