Long-term care — the assistance with daily living activities that extended illness, disability, or cognitive decline requires — is the financial risk that most American families plan for least adequately and face most commonly. The statistics are stark: approximately 70 percent of people who reach age 65 will need some form of long-term care during their remaining years. The cost of that care is substantial — home health aides averaging $25 to $30 per hour, assisted living facilities averaging $50,000 to $70,000 per year, nursing home private rooms averaging $95,000 to $110,000 per year in 2024. And standard health insurance, Medicare, and most Medicare Supplement plans cover essentially none of it, leaving families to self-fund from savings or qualify for Medicaid by spending down to the required asset threshold.
What Medicare Does and Does Not Cover
The most widespread misconception about long-term care is that Medicare covers nursing home and home health care as a matter of course. Medicare covers skilled nursing facility care only following a qualifying hospital stay of at least three days, only for conditions related to the hospital stay, and only up to a maximum of 100 days — with copayments beginning on day 21 that exceed $200 per day. After 100 days, Medicare coverage ends entirely regardless of ongoing need. Medicare home health coverage requires skilled care orders and is explicitly not intended for custodial care — the help with bathing, dressing, meal preparation, and mobility that constitutes most long-term care need. The gap between what people believe Medicare covers and what it actually covers is one of the most consequential financial misconceptions in retirement planning.
The Medicaid Option and Its Requirements
Medicaid does cover long-term care — it is the largest payer of nursing home care in the United States — but only after the recipient has spent down their assets to the state’s required threshold (typically $2,000 for an individual in most states). The spend-down process, while legally sound, means that the assets accumulated over a lifetime of work and saving are consumed by care costs before Medicaid coverage begins. Some states allow a “spousal impoverishment” protection that preserves a portion of assets for the spouse remaining in the community, but the amounts preserved are modest in most states relative to what a full retirement would require. Medicaid facilities are also typically limited to those that accept Medicaid reimbursement, which may not include facilities of the quality or proximity that a privately funded plan would access.
Long-Term Care Insurance: The Shrinking Option
Traditional long-term care insurance — a standalone policy paying a daily benefit for qualifying care — has become more expensive and less available over the past two decades as insurers underestimated the cost and length of claims and exited the market or dramatically raised premiums. Policies purchased in the 2000s have seen premium increases of 50 to 100 percent or more as insurers recalibrated their pricing. New policies are still available but are significantly more expensive than older policies, typically require purchase at ages 55 to 65 before health underwriting becomes prohibitive, and are subject to continued premium increases over the holding period. The alternative to traditional LTC insurance — hybrid life insurance or annuity products with long-term care riders — provides some LTC benefit with a return of premium or death benefit if care is never needed, addressing the “use it or lose it” concern that makes traditional LTC insurance psychologically difficult to maintain through long periods without claims. These hybrid products have grown substantially as traditional LTC insurance has contracted, and their evaluation warrants specific professional guidance from an advisor knowledgeable in the category.