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What Medicare does not pay for: the long-term care gap
Most people assume Medicare will cover them if they need care for a long time. For the most part it will not, and the time to find that out is before you need it.
I started in this business helping people work their way through Medicare, and one misunderstanding came up more than any other. People believed that if they ever needed care for a long stretch, at home or in a facility, Medicare would pay for it. It is a reasonable thing to assume. It is also wrong, and it is one of the more expensive things to be wrong about.
How likely it is
The federal government's own estimate, published by the Administration for Community Living, is that someone turning sixty-five today has almost a 70 percent chance of needing some type of long-term care services and supports in their remaining years.
That number deserves to be read carefully, because it is often quoted in a way that frightens people more than it should. It does not mean seven in ten people will spend years in a nursing home. The same source reports that most care is received at home, and a good share of it is unpaid care from a spouse or a grown child. On average, a person uses about three years of care in total, roughly two of them at home and one in a facility. About 37 percent of people use care in a facility at some point.
| Type of care | Share who use it | Average length |
|---|---|---|
| Unpaid care at home only | 59% | 1 year |
| Paid care at home | 42% | Less than 1 year |
| Nursing facility | 35% | 1 year |
| Assisted living | 13% | Less than 1 year |
| Any long-term care | 69% | 3 years |
The averages hide a wide spread. About a third of today's sixty-five-year-olds may never need long-term care at all, while roughly 20 percent will need it for longer than five years. Women need care longer on average than men, 3.7 years against 2.2, largely because they live longer and are more often the surviving spouse.
You are not planning for the average. You are planning for the possibility that you are in the one-in-five group, because that is the outcome a household cannot absorb.
What Medicare actually covers
Medicare is health insurance. It pays for doctors, hospitals and treatment intended to make you better. Long-term care is mostly something different: help with the ordinary activities of daily life, such as bathing, dressing, eating, and moving about, for someone who can no longer manage them alone. Medicare calls that custodial care, and when custodial care is the only care you need, Medicare does not pay for it.
What Medicare does cover is narrower than people expect. After a qualifying inpatient hospital stay, it can pay for skilled care in a nursing facility for a limited time, up to one hundred days in a benefit period, and only while you need skilled nursing or therapy. The first twenty days are covered in full. From day twenty-one a daily coinsurance applies, and after day one hundred you pay everything. It can also cover part-time skilled home health care in specific circumstances. Neither is designed for the person who needs help every day for three years.
A Medicare Supplement policy does not change this. It helps with Medicare's cost-sharing, so it only pays where Medicare pays. Some Medicare Advantage plans offer limited extras, but not extended custodial care.
Who pays, then
In practice there are four sources, and most families end up using more than one.
Family
The most common arrangement by far, and the one nobody budgets for. It costs the caregiver time, income and often their own health. It is a real plan only if the person you are counting on has agreed to it and is able to do it.
Your own savings
Paying as you go is a legitimate choice if the assets are large enough that several years of care would not leave a surviving spouse short. The risk is that care for the first spouse is paid for out of money the second spouse was going to live on.
Medicaid
Medicaid does pay for long-term care, and it is the largest single payer of nursing home care in the country. But it is a program for people with limited income and assets. Qualifying generally means spending down most of what you own first, the rules differ from state to state, and your choice of where you receive care may be narrower. It is a safety net, not a strategy, and anyone considering planning around it should speak with an elder law attorney.
Insurance
This is the part I work on, so weigh what I say accordingly. There are broadly three kinds.
Traditional long-term care insurance pays a daily or monthly benefit when you need care. It is the most direct coverage per premium dollar. The drawbacks are real: premiums are not guaranteed and have risen substantially on many older policies, you must qualify medically, and if you never need care the premiums are simply gone.
Life insurance with a long-term care benefit lets you draw on the death benefit while you are living if you need care. If you never do, your heirs receive the death benefit. These usually cost more up front and are often funded with a single payment or a fixed number of payments.
Annuities with long-term care benefits can increase the amount available if care is needed, and some are easier to qualify for medically. They carry the same costs and surrender terms as any annuity, which I have written about separately.
None of these is right for everyone. Someone with modest assets may be better served by not buying coverage at all, and someone with substantial assets may reasonably choose to self-insure. Insurance tends to fit the household in between: enough to protect, not enough to absorb several years of care without harming the surviving spouse.
When to look at it
Earlier than feels necessary. Coverage has to be applied for while you are healthy enough to qualify, and both the cost and the chance of being declined rise with age. For most people the sensible window is somewhere in their fifties to mid-sixties. Waiting until there is a diagnosis usually means the insurance options are no longer available.
Ask these before buying any long-term care coverage
- What exactly triggers the benefit, and who decides that I qualify?
- How long must I wait after qualifying before benefits begin?
- Does it pay for care at home, including care from a family member, or only in a facility?
- Is the premium guaranteed, and if not, what has this company's history of increases been?
- Does the benefit grow with inflation, and what does that cost?
- What happens to the money if I never need care?
The short version
- Almost 70 percent of people turning sixty-five will need some long-term care. Most of it happens at home, and about one in five will need it for more than five years.
- Medicare covers short-term skilled care after a hospital stay. It does not cover extended custodial care.
- The realistic payers are family, your own savings, Medicaid after you have spent down, and insurance.
- Insurance has to be arranged while you are healthy. That is the main reason to look at it early.
- For a married couple, the question is less about the cost of care than about what is left for the spouse who survives.
Likelihood and duration figures are from the Administration for Community Living at acl.gov. Current Medicare coverage rules and cost-sharing amounts are at medicare.gov.
This article is general education and is not tax, legal, or investment advice, nor a recommendation to buy any product. Statistics are federal estimates and describe averages across a population, not any individual. Medicare and Medicaid rules change and Medicaid rules vary by state. Long-term care benefits are subject to eligibility, underwriting, exclusions and limitations, and product availability and features vary by carrier and state. Securewell Financial is not connected with or endorsed by the federal Medicare program.
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