Long-Term Care

A majority of people aged 65 and older will need long-term care services at some point in their lives. Relatives may be able to assist, but this isn’t always feasible. Professional help may be necessary.

The annual national median cost for a private nursing home room was $108,405, according to the 2022 Genworth Cost of Care Survey. It also found the median cost for assisted living facility care was $54,000 per year.

Figuring out how to pay for these services is challenging for many aging Americans and their families. Most insurance plans, including Medicare, do not provide coverage for long-term care.

Most long-term care isn’t medical care. It’s assistance with daily activities such as bathing, dressing, using the toilet, eating and moving around. It can also include things such as adult day care, transportation and meal delivery.

Long-term care helps you maintain your quality of life for as long as possible. You may need these services on a regular or intermittent basis for weeks, months or years.

Nearly 70 percent of older Americans will need some type of long-term care for an average of three years, according to the U.S. Department of Health and Human Services.

Long-term care takes many forms. Each offers unique advantages, depending on your lifestyle and specific situation. Deciding where to receive care starts with exploring your options.

In-home care allows you to age in place by providing health, personal and support services in the comfort of your home. Family, friends and neighbors often provide in-home care, but sometimes professional assistance is needed. A visiting nurse, volunteer, therapist, or home health aide can assist with these tasks. This can also include homemaker services, which help older adults with household tasks such as cooking, cleaning and running errands.

Nursing homes are an option for people who don’t require hospitalization but who can’t live alone at home. Some skilled nursing facilities are set up like hospitals with extensive rehabilitation services and special care units for people with severe memory problems. These places offer residents 24-hour, on-site nursing, room and board, supervision, medication and therapies. Care can range from physical therapy twice a week to daily help with mobility and regular tasks.

An assisted living facility is intended for seniors who need some help but don’t require the same level of medical care a nursing home provides. Assisted living complexes range in size, but residents often live in their own apartments or units and share common areas. Personal care and other assistance are available as needed.

Adult day care is a group program that offers socialization, planned activities and meals for those who need help with activities of daily life. Adult day care generally takes place at a public facility in the community and provides a reprieve for caregivers who may work or tend to other daytime obligations.

Age plays a major role in determining a person’s need for long-term care. By 2030, all baby boomers will be at least 65 years old, according to the U.S. Census Bureau. That means more older Americans than ever before will likely require some type of long-term care.

Pre-existing conditions and chronic illnesses are other factors that contribute to a person’s need for services.

According to the Alzheimer’s Association, Alzheimer’s disease is the sixth leading cause of death in the United States — and the only leading cause that cannot be cured, prevented or slowed.

A 2017 study in the Journal of the American Geriatrics Society estimated the mean discounted lifetime cost of care for a person with dementia at $321,780. Families shouldered 70 percent of that cost, or $225,140, according to research.

Expenses trend higher, in part, because those with Alzheimer’s and other dementias require more skilled nursing facility stays and home health care visits per year than other older people.

Your sex and current living arrangements also impact your need for long-term care. If you live alone, you’re more likely to require paid care than someone who lives with a spouse or family member.

Women are also more likely to need long-term care because they live an average of five years longer than their male counterparts.

Long-term care may be your costliest health care expense in retirement.

The hourly cost for a home health aide was $27, according to the 2022 Genworth Cost of Care Survey. The survey reported that from 2004 to 2021, the cost of home health aide services rose from $42,168 per year to $61,776 — a 45% increase.

A private nursing home room’s cost increased 66% and assisted living facility costs increased 87.5% in the same time.

The company’s annual Cost of Care Survey uses data drawn from thousands of interviews with nursing homes, adult day cares, home care providers and assisted living facilities across the United States.

According to 2022 survey results, nursing homes are the most expensive long-term care option — $$108,405 for a private room and $94,900 for a semi-private room.

Adult day care trended least expensive — averaging $20,280 annually for five days of care per week.

Many factors influence cost, including where you live, your insurance, length of stay and use of special services, such as speech or physical therapy.

Cost also widely fluctuates from state to state. For example, a semi-private nursing home room in Connecticut is one of the most expensive in the country at an average of $151,476 a year. By contrast, nursing homes in Oklahoma and Texas cost roughly $56,400 a year.

Covering these costs is challenging for many Americans planning for retirement.

Medicare, the federal health insurance program for people aged 65 and older, pays 100 percent of nursing home costs for only 20 days. This is often for post-hospitalization rehabilitation care. After 20 days, patients must contribute a copay. Medicare does not cover any nursing home expenses after 100 days.

The U.S. Department of Veterans Affairs does not pay for room and board at assisted living facilities or adult family homes, but according to its website, the VA will provide nursing home or community nursing home care for those who qualify. Eligibility hinges on your service-connected status, level of disability and income. The VA can also provide adult day care, respite care and skilled home health care.

Medicaid, the federal health insurance program for the impoverished, pays for long-term care but is often seen as coverage of last resort. Eligibility requirements vary widely by state, but nearly all include strict asset limits. This forces many older people to spend nearly everything they have in order to qualify for the program.

If you own your home, you may be able to leverage it to pay for long-term care through a reverse mortgage or traditional home equity loan. You may also choose to rent the property out or put it up for sale.

A reverse mortgage is a loan taken against your home’s equity. After the borrower has vacated the home, the home is sold to pay the loan.

You must be at least 62 years old to qualify for a reverse mortgage. You can receive this money in monthly payments, through a variable line of credit or in a lump sum. Unlike a traditional mortgage, you do not need to provide an income or credit history to get the loan.

Money from a reverse mortgage can pay for in-home care or finance repairs to make your house safer and more accessible. However, a reverse mortgage is not free money and often comes with above-average closing costs and interest rates. Your loan balance increases as your home equity decreases. The cost of a reverse mortgage depends on the type of loan and lender you choose.

A reverse mortgage won’t affect your Medicare benefits, but it may impact Medicaid and Social Security income eligibility.

Typically, reverse mortgage payments aren’t counted toward your income if you spend the money the same month you receive it. The unspent balance from a lump-sum reverse mortgage loan, or the accumulation of these payments, may exceed asset limits for Medicaid and Social Security Income.

Reverse mortgages are complex products that are typically more expensive than other home loans. Do your homework by comparing options, terms, and fees from multiple lenders. Learn as much as possible before speaking to a counselor or lender.

Spending tens of thousands of dollars a year on long-term care can quickly deplete savings and other resources. Insurance is a way to safeguard against this significant financial drain.

Private long-term care insurance is cheaper when you’re younger and healthier. Sixty is the average age of policy purchasers, but AARP recommends shopping around sooner rather than later. That’s because premiums can increase drastically over time and worsening health problems may disqualify you from better coverage.

Deciding how much insurance to buy may feel like a balancing act. While you can almost always decrease coverage, it is much more difficult to increase it later, especially if your health declines. On the other hand, purchasing too much insurance can be an unnecessary financial burden, especially if your family can assist with some daily living tasks, or at least help you pay for them.

For $165,000 in long-term care insurance benefits, the yearly premium for a 55-year-old single man in 2023 started around $900, according to the American Association for Long-Term Care Insurance. Yearly cost for a woman was $1,500.

When deciding how much insurance to buy, consider your future needs. Assisted living, for example, is cheaper than a nursing home. Speak with an insurance agent or broker to explore ways to customize coverage at a price you can afford.

If you don’t use it, you lose it. This is often the biggest complaint about traditional long-term care insurance. Paying into a policy you may never use doesn’t sit well with some potential policy buyers.

A popular option addresses this concern by combining life and long-term care insurance. These products, known as hybrid or combination policies, pay long-term care costs when you are alive but become life insurance money for your heirs after you pass away.

The long-term care benefit amount is usually expressed as a percentage of the life insurance benefit. Hybrids usually cost more than traditional standalone products but often include additional benefits, such as protection against future premium increases.

Some hybrid polices also ensure that original death benefits are paid to your loved ones even if long-term care proceeds are fully tapped.

Hybrid and combination policies are now more popular than traditional long-term care insurance plans. In 2018, the number of combination policies sold totaled 404,000 — significantly higher than the 15,000 combination policies sold in 2007, according to Limra, an industry research and consulting firm.

The COVID-19 pandemic led to steep declines in combination policies, but the market seemed to be stabilizing by 2023, according to the firm.

An accelerated death benefit is another way life insurance can cover long-term care costs. This feature allows you to receive a portion of your life insurance when you’re alive if you are terminally or chronically ill. Sometimes insurance companies can add this option to your policy for little or no cost.

The accelerated death benefit can be used to pay for different services, including home care, skilled nursing care, assisted living and hospice. Money used for long-term care is subtracted from the amount paid out by your life insurance company to beneficiaries after you die.

Even if your current insurance plan doesn’t include this option, it can sometimes be added as a rider or an additional feature tacked on to a life insurance policy.

Life insurance isn’t the only way to offset long-term care costs. Certain annuities also make it easier to fund future expenses. An annuity is a contract issued by an insurance company that converts your premiums into a guaranteed fixed income stream.

Alternatively, you can buy a deferred annuity with payouts scheduled to begin later and earmarked for long-term care. Withdrawing the money later means larger payments, which will cover more of your long-term care expenses.

Among your annuity options is a qualified longevity annuity contract (QLAC), which is a deferred annuity held inside a tax-preferred retirement savings plan. QLACs lower your obligation to withdraw legally mandated sums from retirement accounts at age 70½. These withdrawals are known as required minimum distributions, or RMDs.

Under the law, 25 percent of savings up to $125,000 can be invested in a QLAC, and those funds are exempt from RMD requirements. These annuity payments can be deferred until the age of 85.

An annuity that starts to payout when the annuitant is at such an advanced age can be helpful should long-term care be necessary.

Some annuities also offer a long-term care rider, which offers the benefit of higher annuity payouts should the need for long-term care arise. Money from this rider can be withdrawn tax-free to finance care. If you are older or have a pre-existing condition, you may find it easier to obtain an annuity rider than to buy a life insurance policy.

These riders can sometimes double or triple your payment amounts for a specified period of time. For example, a $100,000 annuity would pay out $200,000 or $300,000 worth of long-term care benefits.

To access these benefits, you must prove that you require assistance with several activities of daily living, such as bathing, dressing, eating, moving from room to room, or going to the bathroom. This is also standard for traditional long-term care policies.

Annuities feature two major advantages over traditional long-term care insurance. You can purchase them with a single lump sum to avoid skyrocketing monthly premium payments. They also solve the use-it-or-lose-it dilemma associated with traditional policies because money isn’t earmarked exclusively for long-term care.

Even people who already own an annuity can still enjoy these hybrid benefits. The Pension Protection Act of 2006 lets people exchange traditional life insurance and annuity products for hybrid long-term care policies. Doing so can allow you to secure funding for future needs while avoiding tax issues. Annuities may come with other tax implications, so it is important to discuss these details with your annuity issuer.