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Learn about the four primary concerns that define the financial planning process for retirees.financial planning guide


Paying for Long-Term Care


Long-term care can be expensive. The cost depends on the amount and type of care you need, as well as where you receive the care. According to Genworth Financial's "2009 Cost of Care Survey," the national average daily cost of care for a private room was $203.31 and for a semi-private room was $183.25 while the hourly rate for home health care ranged from $18.50 to $46.22, depending on the certification credentials of the provider. Based upon these averages, the cost of long term care services could range from $66,800 to well over $74,000 per year for a nursing home stay and from $38,500 to $96,100 for a home health care aide 5 days a week, 8 hours a day.

Where will you get the money you would need to pay for your long-term care? Most people rely on one or more of four sources.

Individual Personal Resources

Individuals and their families pay one-third of all nursing home costs out of their own pockets. Many use savings and/or investments intended for their retirement. Many people exhaust their life savings and end up on welfare after spending down their assets as required by Medicaid.

Medicare and Medicare Supplement Insurance

Medicare usually will not cover most nursing home stays. You will qualify if you require skilled care in a Medicare-approved facility following a minimum 3-day hospital stay. Also, the nursing home stay must begin within 14 days of the hospitalization. Should you qualify for Medicare benefits, the maximum benefit you will receive is as follows:

  • Days 1-20: full cost based upon Medicare approved amount.
  • Days 21-100: Medicare will pay the difference of your co-payment amount of $133.50 (as of 2009)

Medicare does not cover homemaker services. Medicare does not pay for home health aides to give you personal care unless you are homebound and are also getting skilled care such as nursing or therapy, and even then it is subject to restrictions.

Medicare supplement insurance is private insurance that helps pay for some of the gaps in Medicare coverage, such as hospital deductibles and excess physicians' charges above what Medicare approves. Medicare supplement policies do not cover long-term care costs. However, four Medicare supplement policies - Plans D, G, I, and J - do pay up to $1,600 per year for services to people recovering at home from an illness, injury, or surgery. The benefit will pay for short-term, at-home help with activities of daily living. You must qualify for Medicare-covered home health services before this Medicare supplement benefit is available.

Medicaid

According to a 2003 survey by the federal government, Medicaid pays for nearly half of all nursing home care.2 Medicaid also pays for some home and community-based services. To get Medicaid help, you must meet federal and state guidelines for income and assets. Many people start paying for nursing home care out of their own funds and "spend down" their financial recourses until they are eligible for Medicaid. Medicaid may then pay part or all of their nursing home costs. You may have to spend down or use up most of your assets on your health care before Medicaid is able to help. Some assets and income can be protected for a spouse who remains at home.

State laws differ about how much money and assets you can keep and be eligible for Medicaid. (Some assets, such as your home, may not count when deciding if you are eligible for Medicaid.) Contact your state Medicaid office, office on aging, or state department of social services to learn about the rules in your state. The insurance counseling program in your state may also have some Medicaid information.

Long-Term Care Insurance

Long-term care insurance is one other way you may pay for long-term care. This type of insurance will pay for some or all of your long-term care. Long-term care insurance is a relatively new type of insurance. It was introduced in the 1980s as nursing home insurance, but has changed a lot and now covers much more than nursing home care.

A federal law, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, gives some federal income tax advantages to people who buy certain long-term care insurance policies. These policies are called Tax-Qualified Long-Term Care Insurance Contracts, or Qualified Contracts. Your state may have taken action to offer additional tax advantages, so check with your state insurance department or insurance counseling program for information about tax-qualified policies. Contact your tax advisor to find out if the tax advantages make sense for you.