Seniors are living longer than they did in the past, and if you reach advanced age, there’s a good chance you’ll need long-term care. The U.S. Health and Human Services Department estimates that 69% of people turning 65 today will need long-term care at some point. But the cost is exorbitant, and it’s not covered by Medicare or most other types of health insurance.
How much does long-term care insurance cost?
The costs of long-term care insurance can vary widely based on where you live, the level of care you need, and whether you receive care at home or a facility. But insurance company Genworth estimates the following median annual costs for long-term care in 2023:
- $75,504 to hire a home health aide to provide services 44 hours per week, 52 weeks per year.
- $24,700 for adult day healthcare five days a week, 52 weeks per year.
- $64,200 for an assisted living center.
- $104,025 for a semi-private room at a skilled nursing facility.
Consider that someone who needs long-term care uses these services for three years on average, and you can see how these expenses can quickly deplete a nest egg.
Many seniors turn to Medicaid, a needs-based public health insurance program for people that’s funded by both the federal government and state governments. But since it’s needs-based, you can only qualify if you have a low income and limited assets.
In many states, you’re only eligible if you have less than $2,000 in assets. That goes up to $3,000 if you’re married and both spouses are applying. Some assets, like a primary home, generally aren’t counted. When only one spouse is applying, the non-applicant spouse is allowed to keep what’s known as a Community Resource Spouse Allowance. The amount varies by state, but according to Nolo, it’s generally no more than $154,140.
And no, you can’t skirt the rules by transferring your assets to someone else (including a trust). Medicaid has something called a five-year lookback period for long-term care in most states. Essentially, if you’ve made major gifts or transferred assets for less than fair market value within five years of applying, Medicaid could determine that you’re ineligible for benefits.
Paying for long-term care
Long-term care is an extraordinarily complex topic. If you’re planning for needs that hopefully won’t arise for many years, you’ll want to consult with a financial planner and estate attorney.
Here are some options to discuss:
Long-term care insurance
Long-term care insurance helps pay for things like skilled nursing homes or at-home care, but the costs can be prohibitively high. Deciding when to buy can get tricky, too.
If you buy early while you’re still in relatively good health, your premiums will be lower — but you’ll also pay more during your lifetime. Wait too long, though, and you may be priced out of coverage or rejected altogether.
Many financial advisors recommend buying a policy between the ages of 60 and 65. Another option is hybrid life insurance which covers long-term care. Check out the best life insurance companies to see what options are available.
Health savings account (HSA)
An HSA is an account that lets you save and invest for healthcare needs pre-tax. Your withdrawals are also tax free if you use them for qualifying medical expenses. You can use HSA money to pay for long-term services, though only the medical component of your care will qualify for tax-free withdrawals.
Reverse mortgage
A reverse mortgage allows you to tap your home equity to receive income from a lender that you can put toward any purpose, including long-term care. The balance doesn’t become due until you die, sell your home, or it hasn’t been your primary residence for more than 12 months. If you’re married, your spouse can usually stay in the home if you die or move into a long-term care facility as long as they’re listed as a co-borrower.
Plan for long-term care
If you, your spouse, or a loved one has immediate long-term care needs, speaking with an experienced elder care attorney is a must. Long-term care is a reality for a growing number of Americans, so the sooner you start planning, the better.
