Long-Term Care: Costs, Insurance and Medicaid

Long-term care is help with the basic activities of daily life, such as bathing, dressing, eating and moving around, or supervision because of dementia. It is the largest cost in retirement that most health insurance, and Medicare, does not pay for. This chapter sets out how likely you are to need it, what it costs, who pays for it, and the ways to plan for it: paying from savings, traditional or hybrid insurance, and Medicaid as the public backstop.

How likely, and for how long

The federal government's long-term care planning site (run by the HHS Administration for Community Living) estimates that someone turning 65 has almost a 70% chance of needing some long-term care in their remaining years. The average need is about three years, longer for women (3.7 years) than for men (2.2 years). About a third of people may never need any, while about one in five will need care for more than five years.

That spread is the planning problem. The average is manageable for many households; the long tail is not. A plan built only for the average leaves the five-year case uncovered, and a plan built for the worst case may tie up money that most people never use.

Most care is not delivered in a nursing home. The same source estimates that about 65% of people who need care receive it at home, often for around two years, and much of it is unpaid help from a spouse or children. Paid care at home, assisted living and nursing homes are the stages that cost money.

What care costs

National median costs from the CareScout (formerly Genworth) Cost of Care Survey, fielded in 2025:

• Care at home from a non-medical caregiver: about $35 an hour, which comes to $80,080 a year at 44 hours a week.
• An assisted living community: about $74,400 a year.
• A nursing home, semi-private room: about $114,975 a year.
• A nursing home, private room: about $129,575 a year.

These are medians. Costs differ widely between states and cities, and round-the-clock care at home can cost more than a nursing home. Care costs have historically risen faster than general inflation, so a figure for care twenty years from now will be higher in today's dollars than these. The long-term care cost calculator applies the medians to the type of care and number of years you want to plan for.

Who pays: not Medicare

Medicare does not pay for long-term custodial care. It covers skilled nursing facility care only after a qualifying hospital stay of at least three days as an inpatient, only while you need daily skilled care, and for at most 100 days in a benefit period, with a daily coinsurance from day 21. Home health care is covered only when you need skilled care and are homebound. Help with bathing and dressing alone is not covered at all. Medigap and most Medicare Advantage plans follow the same limits.

Medicaid does pay for long-term care, and it is the largest single payer of nursing home care in the US. But it is means-tested: you qualify only after your countable income and assets fall below your state's limits, which in practice means spending most savings first. Key rules, which vary by state:

• The five-year look-back. Medicaid reviews gifts and transfers made in the 60 months before you apply. Giving assets away in that period creates a period of ineligibility, roughly the amount given divided by the state's average monthly cost of care.
• Protection for a spouse at home. Federal rules let the spouse who is not in care keep the home, a share of the couple's assets and some income. The amounts are set each year and differ by state.
• Estate recovery. After death, states must try to recover what Medicaid paid for long-term care from the person's estate, which can include the home.

Medicaid planning, using trusts or other legal tools to qualify while protecting some assets, has to start years in advance and depends heavily on state law. It is a job for an elder law attorney.

Ways to plan

Paying from savings (self-funding). Households with substantial assets may decide to cover care from their portfolio and home equity. The question to test is not the average cost but the long case: could the household pay for several years of nursing home care, and still leave the healthy spouse enough to live on? Some people set aside a portion of the portfolio for this purpose, or count on the home as a reserve.

Traditional long-term care insurance. You pay premiums each year for a policy that pays a daily or monthly benefit once you need help with at least two activities of daily living or have a severe cognitive impairment. The terms that set the price and the value are the benefit amount, the benefit period (two, three, five years or longer), the waiting (elimination) period before benefits start, and inflation protection. Two cautions: premiums are not guaranteed and insurers have raised them sharply for whole groups of policyholders, and coverage gets harder to obtain with age and health conditions, so the window to buy is usually in your fifties or early sixties.

Hybrid policies. Life insurance or an annuity with a long-term care benefit attached. You usually pay a lump sum or a limited number of premiums, and if you never need care, the policy pays a death benefit to your heirs. Premiums are typically guaranteed and underwriting can be easier. The trade-offs are a large upfront payment, smaller care benefits per premium dollar than a traditional policy, and weaker inflation protection.

Partnership policies. In states with a Long-Term Care Partnership program, a qualifying policy lets you keep assets equal to the benefits it paid and still qualify for Medicaid later. This can make a modest policy more valuable than its benefit cap suggests.

Tax points. Premiums for a tax-qualified long-term care policy count as medical expenses up to a yearly limit that rises with age, and an HSA can pay them tax-free within the same limit.

A rough sorting helps. Households with modest assets will often rely on Medicaid if long care is needed, so expensive insurance may buy them little. Households with very large assets can often self-fund. The households in between, with enough to lose but not enough to absorb a five-year stay, are where insurance usually has the most to offer. Where you fall depends on your assets, income, health, family and state.

Beyond money

Plans for care are also plans for who decides. A durable power of attorney for finances and a health care proxy (or power of attorney for health care) let people you trust act if you cannot. Talking with family about where you would want to receive care, and who could help, avoids rushed decisions in a crisis. Many families also look at the home itself: whether it could be adapted for care, or whether a move earlier would be easier than a move later.