Long-Term Care

Former First Lady Rosalynn Carter said, “There are only four kinds of people in this world: those who have been caregivers; those who are currently caregivers, those who will be caregivers, and those who will need caregivers.”

Regardless of your state of health now, the odds are fairly high that you will need some form of assisted living some time in your life. Almost 70% of seniors age 65 or over will need long-term care services in their lives, according to a study by the U.S. Department of Health and Human Services. One-third of people age 65 and over will never need long-term care, but around 20% will need care for five years or longer.

This video explains the truth about retirement in your later years.

The average length of a stay in a long-term care facility is 3.2 years. At $3,000 up to $15,000 per month, long-term care facilities are expensive and becoming more so. So it’s no surprise that long-term care costs account for more than one-third of bankruptcies in the U.S. The national median cost of in-home care is $4,957 to $5,148 per month, while the median cost of an assisted living community is $4,500 per month.

How can you plan for long-term care costs? Here we present some options for funding long-term care for yourself or a loved one.

What is Long-Term Care?

The Administration for Community Living defines long-term care as “a range of services and supports you may need to meet your personal care needs … things like getting dressed, driving to appointments, or making meals.”

It may be hard to imagine now, but at some point, we all might need assistance with day-to-day tasks of living. An unforeseen injury, illness, or just the process of getting older may require you to pay thousands of dollars per month for help with bathing, getting dressed, and preparing meals.

How is Long-Term Care Different from Skilled Care?

There’s an important distinction between skilled careand long-term care. Skilled care means specialized therapy either in a nursing home (nursing home care) or at home (home health care). Examples of skilled care are physical therapy, occupational therapy, speech therapy, and wound care. It requires specialized training and skill to provide. Skilled care is considered a part of medical treatment and is covered for a limited time by Medicare and many health insurance plans.

Long-term care, also called custodial care, is assistance with activities of daily living, like getting out of bed, bathing and getting dressed, preparing meals, and eating. It also includes doing laundry, shopping, and transportation to and from appointments. Custodial care isn’t considered part of medical treatment and isn’t covered by Medicare and most health insurance.

What Other Long-Term Care Living Arrangements Are Available?

Retirement Communities

Retirement communities are typically for adults aged 50 and over. The benefit is that they offer community with other adults of similar age and ready access to services as needed. The same community may offer individual homes or apartments for independent adults, an assisted living facility for those who need some support with daily living tasks, and a nursing home for people who need more extensive assistance.

Residential Care Communities

These go by various names, including group homes, board and care homes, and personal care homes. They are typically small, private facilities with 20 or fewer residents who live independently but receive personal care and meals. Residents pay monthly rent and may also receive medical care and prescriptions.

Home and Community-Based Services

There are various services available to older adults who can remain in their homes, but require some assistance such as transportation to and from doctor appointments, home care like cooking or cleaning, and physical therapy.

Program of All-Inclusive Care for the Elderly (PACE) is a Medicare and Medicaid program that provides for people’s long-term care needs in their homes instead of an assisted living facility. Medicaid recipients don’t pay premiums for long-term care through PACE. Medicare recipients pay a monthly premium for long-term care and a premium for prescription medications.

Subsidized Senior Housing

For older adults with low or moderate incomes, there is senior housing available in some states that is funded by local and federal government programs. Residents live in individual units in an apartment complex and pay rent based on their income. The housing community may offer help with meals, housekeeping, and shopping.

To find out about housing and other resources for older adults, visit our Services [LINK] page.

 

Do Medicare and Medicaid Cover Long-Term Care?

Medicare, Medigap, and most health insurance plans do not cover long-term care. This is because long-term care is not considered a medical expense. This includes nursing home care; most nursing home care is custodial care and is not covered by original Medicare.

Medicare Part A does cover up to 100 days of skilled care at a skilled nursing facility or in your home, if skilled nursing care is determined to be medically necessary while you recover from an illness or injury that required hospitalization. During that time, Medicare will help out with all of the patient’s services, including custodial care.

For the first 20 days, Medicare will cover 100% of the approved costs. For each of the remaining days up to day 100, the patient must pay a daily co-payment. However, a Medigap plan may pay 50% to 10% of the co-payment, leaving the patient with little or no expense for those 100 days. Medigap may also subsidize payment beyond 100 days.

Medicare Advantage (Part C) may cover long-term care, depending on the plan. Medicare Advantage plans are sold by private insurance companies. There are many plan choices, with different costs and coverages. Also, some plans have provider networks and require patients to use long-term care providers who are in the network.

To learn more about Medicare Advantage plans:

• Refer to this e-book produced by the Centers for Medicare & Medicaid Services.
• See the coverage options page at Medicare.gov
• Consult your State Health Insurance Assistance Program

Medicaid does cover the cost of long-term care for seniors and others who meet their state’s Medicaid eligibility requirements and have a demonstrated need for long-term care. In fact, Medicaid is the primary payer for long-term care services in the U.S.

Medicaid has three programs for long-term care for seniors:

• Nursing Home Medicaid covers institutional care in a Medicaid-participating nursing home facility for all Medicaid recipients. It does not cover room and board, only the cost of long-term services and support.
• Medicaid Waivers, also called Home and Community Based Services (HCBS) Waivers, provide for care at home, including home health care and custodial care.
• Aged, Blind and Disabled Medicaid, also called ABD, provides long-term care services at home for eligible recipients.

Nursing Home Medicaid pays for services for all eligible recipients. However, HCBS Waivers have a limited number of enrollees; when the waiver program is full, the remaining eligible recipients are put on a waiting list to receive services. Also, in some states, HCBS Waivers are available only to certain groups of Medicaid-eligible recipients.

For more information about Medicaid and long-term care:

• Visit the American Council On Aging’s Medicaid long-term care page
• Visit the Medicaid Planning Assistance long-term care at home page

What Are Other Options for Paying For Long-Term Care?

Long-Term Care Insurance

Long-term care insurance is intended to cover long-term care services, including custodial care in your home, a nursing home, or a community facility. Typically, long-term care policies reimburse policyholders up to a daily maximum amount, such as $150, and up to a maximum service period, such as three years. There are a wide variety of plans available with different coverages and limits. Some things to consider when comparing long-term care plans are:

• Types of services that are covered and not covered
• Annual premium
• Daily maximum reimbursement
• Length of service period
• Waiting period
• Refund policy

The daily benefit can range from $50 to $500 depending on the policy. Many policies have an “elimination period,” which is a waiting period before coverage starts, such as 30 to 90 days. During this time, you must pay for long-term care services yourself.

Long-term care insurance providers can be strict about issuing policies. Those with preexisting health issues may be declined coverage.

A drawback of long-term care insurance is that you usually don’t get your premiums refunded if you don’t use the coverage. A few plans do allow your premiums to be fully or partially refunded, either to you or to your beneficiaries, but the premiums are much higher, as much as three times higher than a no-refund policy.

Another drawback of long-term care policies is that premiums are subject to increases. Average premiums have doubled since 1990 and have increased steeply in the past few years. One policyholder saw his premium increase by 200%. Premiums are going up because, as the population gets older, companies’ costs increase. Also, fewer people are canceling their policies than companies expected, so companies will potentially have to pay out more.

While some believe premiums on long-term care policies written today will not increase as fast as older policies, premium increases are still a concern.

Policyholders facing a premium increase must choose between paying the higher premium to keep their coverage; reducing their coverage or increasing the waiting period; or canceling their policy and trying to find a lower-cost plan elsewhere.

One benefit of long-term care insurance is the premiums might be deductible as a medical expense. However, the premiums must exceed 7.5% of your adjusted gross income, the deduction is limited based on your age, and the policy must meet regulations set by the National Association of Insurance Commissioners.

More than 100 companies offer long-term care insurance in the U.S., but most policies are purchased from 15 to 20 providers. If you’re working with a broker to choose a policy, be sure the broker can provide a choice of policies. Some brokers can only work with one company, and the policies they offer may not be the best for your needs.

If you have a health savings account, such as through your health insurance, you can usually use the funds in your HSA to pay long-term care insurance premiums.

For more information about long-term care insurance, visit the American Association for Long-Term Care Insurance website. Also see “A Shopper’s Guide to Long-Term Care Insurance” published by the National Association of Insurance Commissioners.

Group Long-Term Care Insurance

Some employers offer group long-term care insurance as a benefit to employees. This insurance can be more affordable than an individual policy but is not widely available.

Long-Term Care Annuities

A long-term care annuity is a deferred annuity that can be used for long-term care. Whereas LTC insurance providers can be strict about whom they’ll insure, long-term care annuity providers are much less stringent. Some will even issue policies to anyone, though if you have a health issue you’ll have a lower level of benefits. An advantage of a long-term care annuity is that long-term care benefits paid out by the policy are not taxable, whereas regular annuity payments are.

Hybrid Policies

Hybrid policies are life insurance policies that also offer the option of long-term care coverage. You can use your death benefit, which is the amount your beneficiaries receive upon your death, to pay for long-term care while you’re alive. If you don’t use the funds for long-term care, your beneficiaries receive the full benefit. Unlike traditional LTC insurance, the premium is set upfront and doesn’t change. But the premiums are two or three times higher than standard long-term care insurance because you’re paying for both the whole life policy and long-term care coverage.

Hybrid policies may be suitable if you don’t qualify for a traditional LTC insurance policy because of age or preexisting health conditions. If you already have a whole-life policy with a large cash value, you can roll over the policy to a hybrid plan.

The American Association for Long-Term Care Insurance website has more information about hybrid policies.

Veterans Benefits

If you’re a veteran of the U.S. Armed Forces, you may qualify for nursing home, assisted living, and home health care through the Department of Veterans Affairs. You’re eligible if:

• You’re signed up for VA health care, and
• The VA determines you need LTC services to help with your medical treatment and personal care, and
• The services are available in your area

Available services include nursing and medical care, skilled nursing, custodial care, and respite care for caregivers.

Visit the VA website for more information.

Medicaid

As mentioned earlier, Medicaid covers long-term care services for eligible recipients. But you must meet the income restrictions. Medicaid only covers nursing home care; in most states, home health care is only available in limited situations.

Medicaid provides coverage for as long as nursing home care is needed, and there’s no waiting period. However, your choice of nursing home may be limited because many facilities don’t accept Medicaid. If your facility stops accepting Medicaid or becomes too full, you might have to find another place to move to. Also, you might not be able to get a private room or have your spouse as your roommate, and the level of coverage isn’t as extensive as with most LTC insurance plans.

Rely on Family

Traditionally, care for older relatives was provided by children and other family members. In recent decades that has become less common in the U.S. Many older Americans are reluctant to become a burden on their children or other relatives, which is why they consider long-term care insurance or other options. But over 40 million Americans, or 17% of the U.S. adult population, provide unpaid care to an adult over the age of 50.

The Older Americans Act of 1965 provides funding to states to support older Americans living at home and their caregivers. It helps seniors live independently by supporting nutrition programs like Meals on Wheels, provides preventive health services and transportation assistance, and provides family caregivers with information, referrals, counseling, and respite care.

Self-Insuring

If you can’t or don’t want to purchase LTC insurance, use Medicaid, or rely on family, another option is to use your personal savings, including annuities and pensions, to fund long-term care services. You can also use health savings accounts to pay for long-term care or skilled nursing if a doctor certifies you need these services for at least 90 days.

But when planning for future long-term care, you’ll need to make sure you’ll be able to cover the costs while still providing for other living expenses for yourself and your spouse. In 2021, the median monthly cost of a private room in a nursing home was $9,034 and the cost of an assisted living facility was $4,500. You can see the current and projected future costs of long-term care in your local area at this website sponsored by Genworth, an insurance provider.

The big unknown, however, is how much care you will need. Your health, lifestyle, and heredity are major determinants of how much care you’ll need.

A 2017 study by Price Waterhouse Coopers found long-term care costs $172,000 on average over a person’s lifetime. For 25% of people, lifetime long-term care costs are less than $26,000, but for another 25% of people, lifetime LTC costs exceed $240,000. In seven percent of cases, costs exceed $500,000, and one percent of the time, LTC costs are close to $1 million.

As far as nursing home care, 60% of people never need it; of those who do, 18% stay less than one year, and 10% stay longer than three years. About 50% of nursing home residents are 85 years old or older, 35% are 75 to 84, and 15% are 65 to 74 years old.

Statistically, you can plan for a three-year stay in a semi-private nursing home room starting at age 85.

Going back to the Genworth website, the median cost of a semi-private room in a nursing home in 2023 is $8,390 per month or $100,680 per year. So the cost for three years is $302,040.

The website helps you estimate the future cost of nursing home care depending on your local area and assumes inflation rates of 1% to 5%. Based on your current age and the return you expect on your savings, you can estimate how much you should invest to plan for long-term care costs at age 85.

For example, the table below shows how much you might budget, assuming 3% inflation rate and 7% return on your investment.

Age	Cost for 3 years LTC at age 85 assuming 3% inflation	Estimated savings needed now for LTC at 85 assuming 7% return
60	$632,405	$116,520
65	$545,517	$140,972
70	$470,569	$170,556
75	$405,917	$206,348
80	$350,147	$249,368

 

This assumes the cost of care is equal to the national median. The website will show you the cost in your local area.

 

State-Sponsored Insurance

The shortage of appealing solutions for funding long-term care has prompted at least one state to begin providing LTC to its residents. Starting in July 2023, the State of Washington implemented its WA Cares Fund. Most workers pay a 0.58% payroll tax into the fund, and starting in 2026, participating residents who demonstrate a need for assistance with daily living can receive up to $36,500, adjusted annually for inflation. The amount is intended to cover one year of in-home care. The fund is expected to reduce the state’s spending on Medicaid. California, Minnesota, and several other states are looking at implementing similar programs.