Planning for Long-Term Care: Costs, Coverage and Options

Long-term care is one of the biggest financial risks people face in later life, and one many families don’t plan for until they’re in the middle of a crisis. The costs of long-term care can be substantial, potentially depleting savings built over a lifetime. Understanding what long-term care is, what it costs, what’s covered and how to pay for it can help you and your family prepare.

What long-term care is

Long-term care includes help with everyday activities when someone can’t perform them independently because of age, chronic illness, cognitive impairment such as dementia, or disability. These activities, often called activities of daily living, include bathing, dressing, eating, using the toilet, moving from a bed to a chair and continence. Long-term care can also include help with tasks like cooking, cleaning, managing medications and transportation.

Long-term care can happen in many settings. In-home care involves caregivers who help with daily activities at home. Adult day care provides supervised care during the day, often giving family caregivers a break. Assisted living facilities provide housing, meals and help with daily activities for people who need some assistance but not intensive medical care. Nursing homes provide round-the-clock care, including skilled nursing for people with significant medical needs. Memory care provides specialized care for people with dementia.

Many people will need some form of long-term care during their lives. The length and intensity of care vary widely, from a few months to several years.

The costs of long-term care

Long-term care can be expensive, and costs vary significantly by type of care and location. Nursing home care is typically the most expensive option, often costing tens of thousands of dollars or more per year. Assisted living and in-home care also involve substantial costs, especially when care is needed many hours a day. Costs have generally risen faster than overall inflation over time.

The federal government’s LongTermCare.gov website and industry cost surveys provide information about typical costs in different areas.

What Medicare covers, and doesn’t

Many people are surprised to learn that Medicare generally doesn’t pay for long-term custodial care, which is help with daily activities like bathing and dressing. Custodial care makes up most long-term care.

Medicare may cover limited skilled nursing facility care after a qualifying hospital stay, for a limited number of days and under specific conditions, such as needing daily skilled nursing or rehabilitation. Medicare may also cover some home health care, such as part-time skilled nursing or therapy, if you meet certain conditions, such as being homebound. Medicare also covers hospice care for people with terminal illnesses.

But for ongoing help with daily living activities, Medicare generally won’t pay. Many people are surprised by this gap.

Medicaid

Medicaid, a program run jointly by states and the federal government, is a major payer of long-term care, especially nursing home care. However, Medicaid has strict income and asset limits, and eligibility rules vary by state. Many people pay for care out of pocket until their assets are depleted, then qualify for Medicaid.

Medicaid has a look-back period, typically five years, during which asset transfers, such as gifts to family members, may result in a penalty period of ineligibility. This rule prevents people from giving away assets to qualify for Medicaid.

Some states offer programs that help people receive care at home or in community settings through Medicaid waivers. Rules for protecting a spouse who isn’t receiving care, known as spousal impoverishment protections, allow the healthy spouse to keep certain income and assets.

An elder law attorney can explain your state’s Medicaid rules and planning options.

Ways to pay for long-term care

Personal savings and investments are how many people pay for long-term care, at least initially. Building savings with long-term care in mind can provide flexibility and choice.

Long-term care insurance pays for care up to policy limits, typically covering a daily or monthly benefit amount for a set period. Policies can cover in-home care, assisted living and nursing homes. Premiums depend on your age, health and the coverage you choose, and some policyholders have experienced significant premium increases over time. Policies typically have an elimination period before benefits begin.

Hybrid life insurance or annuity policies with long-term care benefits combine life insurance or an annuity with long-term care coverage. If you need long-term care, you can use the policy’s benefits; if you don’t, your heirs receive a death benefit. Hybrid policies often have more stable premiums than traditional long-term care insurance, though they may require larger upfront payments.

Home equity can help pay for care, such as by selling a home when moving to assisted living. For some people, a reverse mortgage may provide funds to pay for in-home care, though reverse mortgages have costs and risks and require careful consideration.

Family caregiving is how many people receive care, with spouses, adult children and other relatives providing help. Family caregiving has its own financial and emotional costs, such as reduced work hours, lost income and stress. Some programs provide support for family caregivers.

Veterans may qualify for long-term care benefits through the Department of Veterans Affairs.

Plan early

Long-term care insurance is generally cheaper and easier to qualify for when you’re younger and healthier, often in your 50s or early 60s. Health conditions can make coverage more expensive or unavailable.

Talking with family about preferences and finances early can prevent stress later. Discuss where you’d want to receive care, how it might be paid for and who would help coordinate care. Having legal documents in place, such as powers of attorney and health care directives, ensures someone can make decisions if you can’t.

Learn more

The federal government’s LongTermCare.gov site has information on care options, costs and planning. Your local Area Agency on Aging can connect you with resources in your community. A financial planner or elder law attorney can help you create a plan that fits your situation.