As you enter your “golden years,” perhaps you imagine yourself traveling, visiting grandchildren, or pursuing a favorite hobby. These are great aspirations to plan for, but unfortunately, none of us can predict the future, so it’s also wise to prepare for other scenarios, including the cost of long-term care.
According to a 2019 report from the U.S. Department of Health and Human Services and The Urban Institute, “70 percent of adults who survive to age 65 develop severe LTSS [long-term services and supports] needs before they die, and 48 percent receive some paid LTSS over their lifetime.”
Long-term care (LTC) refers to a wide range of medical, rehabilitation, personal care, and social services, whether in a nursing home, assisted living facility, or at home, for those needing assistance due to an illness or disability. If you should need LTC at some point, your world could change significantly, affecting not only your quality of life but your finances as well.
For example, the national median cost of a semi-private room in a nursing home is $285 per day or $8,669 per month, which may be higher or lower in certain parts of the country and will continue to rise.
Who pays for the cost of long-term care?
Many people believe that Medicare covers the cost of long-term care. However, Medicare does not cover custodial or personal care, and coverage for skilled nursing home care is limited. By default, Medicaid funds LTC but generally requires recipients to substantially reduce their assets by “spending down” before becoming eligible for assistance.
Unless you plan ahead, the high cost of LTC could deplete a lifetime of hard-earned savings. For couples, this is especially challenging because one spouse may live for many years after their partner requires LTC.
Whether single or married, LTC planning now allows you to make appropriate choices for you and your family. Here are some important considerations about paying for long-term care.
1. Medicare does not cover all LTC costs.
Medicare covers some nursing home costs but only for skilled care, which is medically necessary for a limited period after a patient is released from a three-day stay in the hospital. Depending on the medical necessity, Medicare may also pay for skilled care at home for a limited period.
2. Medicaid covers LTC with strict eligibility requirements.
Medicaid is the primary payer of LTC services in the U.S. It also covers a limited amount of services offered at home and in the community for those who might otherwise require nursing home care. Without advance planning, you may be required to substantially reduce or nearly exhaust your financial resources before meeting Medicaid’s strict financial qualifications.
In addition to asset limits, there are also income limits to qualify for Medicaid coverage of long-term care. These income limits vary by state and can affect your eligibility.
3. Those ineligible for Medicaid generally use personal assets.
Unless you are covered by LTC insurance, you may have to rely on your personal funds before becoming eligible for Medicaid. With the rising costs of extended care, you could deplete your savings quickly with an LTC event, leaving few or no assets for your spouse and future generations.
4. LTC insurance can help pay for extended care.
You can use private LTC insurance to help cover the cost of long-term care. In this case, consider having a policy benefit period that is at least as long as Medicaid’s “look back” period (five years during which the transfer of assets can result in the disqualification for Medicaid) so that you may be able to protect your assets from being used to cover the cost of long-term care.
Covering all the bases
By planning today, you can help ensure that you have the financial resources for quality LTC while easing the caregiving burden on your family and loved ones. When you’re ready to embark on LTC planning, working with a professional is a great first step.
To build long-term care into your financial plan, reach out to an advisor using the form below.
Source: “Long-Term Care.” RSW Publishing. Distributed by FMeX. 2018. 10504.pdf (fmexcontent.s3.amazonaws.com)
Contributing Sources:
Genworth Financial, Inc. (2024, February 22). Cost of care survey. Cost of Long Term Care by State | Cost of Care Report | Genworth
Johnson, R. W. (2019). What is the lifetime risk of needing and receiving long-term services and supports? U.S. Department of Health and Human Services and The Urban Institute. What Is the Lifetime Risk of Needing and Receiving Long-Term Services and Supports? | ASPE (hhs.gov)