Long-Term Care: Planning for the Unexpected

Here's an uncomfortable truth: 70% of people over 65 will need some form of long-term care. Medicare doesn't cover it. Medicaid only kicks in after you've spent down most of your assets. Long-term care can cost $100,000 or more per year. Without a plan, this single expense can devastate a lifetime of careful saving.

What Is Long-Term Care?

Long-term care (LTC) refers to assistance with daily living activities when you can no longer perform them independently. This includes:

• Activities of Daily Living (ADLs): Bathing, dressing, eating, toileting, transferring (moving from bed to chair), continence
• Instrumental Activities: Managing medications, cooking, housework, finances, transportation

LTC can be provided at home, in assisted living facilities, or in nursing homes. The setting affects both quality of life and cost.

The Cost Reality

Long-term care costs vary dramatically by location and type of care. National averages for 2025:

In high-cost states like California, New York, and Massachusetts, these figures can be 50-100% higher.

The average nursing home stay is 2.5 years, but many people need care for much longer. A five-year nursing home stay could cost $500,000 or more.

What Medicare and Medicaid Cover

Medicare covers very limited LTC, only skilled nursing care following a hospitalization, and only for up to 100 days. It does not cover custodial care (help with daily activities), which is what most people need long-term.

Medicaid does cover nursing home care, but only after you've spent down your assets to poverty level (typically under $2,000 for an individual). Medicaid planning can protect some assets, particularly for the healthy spouse, but it's complex and has look-back periods for asset transfers.

The gap between Medicare's limitations and Medicaid's poverty requirements is where most families struggle.

Long-Term Care Insurance

Traditional LTC insurance pays a daily or monthly benefit when you can't perform a specified number of ADLs or have cognitive impairment.

Pros

• Protects assets from LTC costs
• Provides choice in care settings
• Can include inflation protection
• May include home care benefits

Cons

• Expensive, premiums can be $3,500-$9,000+/year per person
• Premiums can increase over time (many policyholders have faced significant hikes)
• Use it or lose it, if you never need care, you've paid for nothing
• Complex policies with elimination periods, benefit limits, inflation riders
• Underwriting may deny coverage for pre-existing conditions

Best Candidates for Traditional LTC Insurance

• Ages 55-65 (before health issues make it unavailable or expensive)
• Assets of $300,000-$2,000,000 (enough to protect, not enough to easily self-insure)
• Good health (to qualify for coverage)

Hybrid Policies: A Modern Alternative

Hybrid policies combine life insurance or annuities with LTC benefits. They address the "use it or lose it" concern of traditional LTC insurance.

Life Insurance + LTC

These policies let you access the death benefit early to pay for long-term care. If you never need care, your beneficiaries receive the full death benefit. Some policies offer additional LTC benefits beyond the death benefit.

Annuity + LTC

Similar concept: an annuity that provides enhanced payouts if you need long-term care. If you don't need care, you have an annuity for retirement income or to leave to heirs.

Trade-offs: Hybrid policies typically require larger upfront premiums ($50,000-$150,000 is common) and may provide less LTC coverage per dollar than traditional policies. But they guarantee you or your heirs get something back.

Self-Insuring

Some people choose to self-insure, essentially setting aside assets specifically for potential LTC needs rather than paying insurance premiums.

When self-insuring makes sense:

• Very high net worth ($3M+). You can afford care without insurance
• Very low net worth. You'd qualify for Medicaid anyway
• Poor health that makes insurance unavailable
• Strong preference against insurance products

Other Strategies

Health Savings Accounts (HSAs): If you have a high-deductible health plan, maximize HSA contributions. HSA funds can pay LTC insurance premiums (within limits) and LTC expenses tax-free.

Home modifications: Aging in place is often preferred and less expensive than facilities. Consider modifications, grab bars, stair lifts, accessible bathrooms. That could allow home care.

Family care: Many families provide informal care, but this has its own costs, caregiver burnout, lost income, family stress. Be realistic about what family can and should provide.

Continuing care retirement communities (CCRCs): These facilities offer a continuum from independent living through nursing care. Large upfront fees but guaranteed care as needs increase.

When to Plan

The ideal time to purchase LTC insurance is your mid-50s to early 60s. Earlier means lower premiums but more years of paying them. Later means higher premiums and potential health-related denials.

At minimum, start the conversation in your 50s:

• Understand your family health history (especially dementia)
• Model potential LTC scenarios in your retirement projections
• Research insurance options and costs
• Discuss preferences and plans with family

Making the Decision

There's no universally right answer. Consider:

1. What's your asset level? Very high or very low may not need insurance.
2. What's your health? Can you even qualify for coverage?
3. What's your family history? Higher risk may justify insurance.
4. What are your preferences? Home care vs. facility, burden on family.
5. What can you afford? Premiums shouldn't strain your budget.
6. What's your risk tolerance? Can you stomach the possibility of large LTC costs?