5 essential caregiving terms to help you save money on services for your elderly parent

• According to a report from Health and Human Services, approximately 70% of individuals will need long-term care at some point in their lives.
• In the U.S., approximately 38 million family caregivers offer unpaid care worth around $600 billion annually, as reported by AARP.
• It is essential to verify your Medicare plan to determine if any long-term care services are covered.

An estimated 7 out of 10 individuals will need long-term care in their lifetime, resulting in a costly trend for people living longer and in poor health.

The median cost for a private room in a nursing home is more than $100,000 a year, while the median cost for a home health aide is $60,000 or more a year, according to a Genworth survey. In contrast, the median cost for an assisted living facility is $54,000.

Some residents and their families are unaware of their total costs until they receive their monthly bill, as stated by Sen. Bob Casey, D-Pa., during a hearing on costs and transparency in assisted living facilities.

He stated that the substantial costs and hidden fees make it nearly impossible for older adults and their families to accurately budget for long-term care.

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In the U.S., approximately 38 million family caregivers offer unpaid care worth around $600 billion annually, as stated in a 2021 AARP report. This estimate does not account for personal expenses related to caring for a loved one.

According to AARP's family and caregiving expert Amy Goyer, the average family caregiver spends approximately 26% of their income on caregiving activities, which nationally averages out to about $7,000. However, this spending can vary greatly depending on the location and the level of care provided.

Understanding key terms related to aging services can help you anticipate and plan for the financial needs of an elderly parent or relative.

Here are five essential terms you should know:

Activities of daily living

Various services are provided in long-term care to cater to a person's health or personal care requirements when they are unable to perform daily activities independently and require assistance. These activities include bathing, dressing, eating, taking medications, using the bathroom, and transferring from standing to a chair or bed.

Continuous care retirement communities

When it comes to long-term care for the elderly, there are numerous options beyond "aging in place" at home or moving to a nursing home.

According to Abbe Udochi, founder and CEO of Concierge Healthcare Consulting, not everyone will be eligible for nursing home care, and not everyone needs it. Nursing home care is similar to living in a hospital, where individuals with serious functional and cognitive issues can be found.

Continuous care retirement communities offer a range of options and can serve as an alternative to living in a single facility or group of facilities. According to AARP's Goyer, the goal is to have all levels of care available on the same campus, allowing individuals to easily transition between them as needed.

1. Older adults can reside in a house, condo, or apartment and receive various services, including two to three meals daily, housekeeping, and/or laundry services.
2. If additional care is required, individuals may transition to "assisted living," which offers varying levels of support with activities of daily living such as bathing, dressing, and eating. The cost increases as more assistance is needed.
3. Skilled nursing care is the highest level of care for those who are chronically ill or disabled and can no longer care for themselves. This type of care could be provided in a particular unit or nursing home within the community. Some communities also offer memory care units or facilities for residents with dementia or Alzheimer's disease, providing more secure and specialized care.

The cost of care within communities can vary greatly depending on the type of care and location.

Some retirement communities offer a monthly rental option, while others require residents to pay a substantial entrance fee, averaging over $442,000, and refund a portion when they leave, in addition to monthly fees.

According to the National Investment Center, the average monthly rent for independent living is approximately $3,900, while assisted living costs around $6,700, and memory care costs about $8,400.

Medicare and Medicaid

Many people mistakenly assume that Medicare will cover long-term care services and facilities for those aged 65 and older with federal health insurance, but this is not the case.

Medicare's coverage for long-term care is limited, and it's crucial to verify your plan to determine if any services are included. Some Medicare Advantage plans may offer specialized care, such as skilled nursing, respite, and hospice care.

Most long-term care services are covered by Medicaid, yet it's only accessible to those with low incomes and minimal savings.

Long-term care insurance

Long-term care insurance covers a range of services, including at-home care, assisted living, memory care, skilled nursing care, and hospice.

Long-term care insurance policies cover care when you can't do two of six daily living activities without help, such as bathing or showering, dressing, getting in and out of bed or a chair, walking, using the toilet, and eating, according to Ivory Johnson, founder of Delancey Wealth Management in Washington, D.C.

Long-term care insurance may have annual premiums that increase over time or may be included as a rider to a life insurance policy. However, the latter has a death benefit if you never need long-term care, premiums that cannot be increased, and is more expensive, according to Johnson, a member of the CNBC FA Council.

In 2021, the average annual premiums for long-term care insurance policies with a 3% growth rate varied from $2,220 for a single man aged 55 to $5,265 for a single woman aged 65, assuming both had some health issues. Couples paid less per person.

It's worth examining the long-term care insurance that your employer may provide as a workplace benefit to assist with caregiving for an elderly spouse, parent, or relative.

Respite care

Respite care can ease some of the emotional, physical, and financial strain that family caregivers may experience while spending 20 to 40 hours or more per week caring for their loved ones.

According to Goyer, a break from caregiving is essential for caregivers and simply means taking a pause from their responsibilities.

Seeking caregiving assistance from friends and family may be the initial step, but it may not always be feasible due to their own obligations. Alternative options for respite care include enrolling your loved one in an adult day care center, hiring professional caregivers to provide assistance at home, or temporarily moving them to an assisted care residence.

Respite care may be covered by some long-term care insurance plans, but there may be other low-cost or free options available. Check your loved one's Medicare plan. Military veterans may receive resources from the Department of Veteran Affairs to cover the cost of respite care.

The Eldercare Locator from the U.S. Administration on Aging can connect you with a nearby Area Agency on Aging that offers in-home respite care support, including sitter services and meal preparation. Additionally, the ARCH National Respite Network can assist you in locating local respite providers.

The coverage for respite care can differ based on your Medicare, Medicaid, or health insurance plan. Inquire with your provider and your employer, as some companies may provide paid time off for employees to offer respite care or senior caregiving.

You can contribute up to $5,000 annually to a dependent care flexible spending account through payroll deductions, which can be used for respite care and other elder care expenses, as long as you claim the qualifying family member as a dependent on your tax return.

Employers can provide senior caregiving support by assisting employees with Medicare and Medicaid, exploring in-home and out-of-home care options, and connecting them to caregiving resources.

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— CNBC’s Stephanie Dhue contributed to this report.