The Care Bill Nobody Budgets For: Planning for Long-Term Care · Lesson 1 of 4
What Long-Term Care Is and Who Pays: Medicare, Medicaid, You
What counts as long-term care and who pays for it decides how much of a retirement plan it can consume. Learn what Medicare covers, where Medicaid starts, and how to price the gap with your local costs.
In this lesson you will learn to
- Define long-term care using the activities of daily living and cognitive impairment
- Say what Medicare's skilled nursing benefit covers and what it leaves out
- Price a stretch of care from a local monthly cost
Most long-term care is unglamorous. Someone helps you out of bed, into the shower, into clothes, to the table and to the toilet, day after day, often for years. Very little of it is medical, and that single fact explains most of who pays for it.
What counts as long-term care
Long-term care is help with the activities of daily living, or supervision because of cognitive impairment such as dementia. The activities of daily living are:
- bathing
- dressing
- eating
- toileting
- transferring, meaning moving between a bed, a chair and standing
- continence
The help can happen at home, at an adult day program, in an assisted living community or in a nursing facility. The need defines it. The place varies.
Planners and insurers call this custodial care. Skilled care is different. Wound care, injections and physical therapy need a nurse or a therapist. The line between custodial and skilled care decides almost every coverage question that follows, because Medicare pays for skilled care in limited circumstances and for a short time, while the custodial help that most people with a long illness or dementia actually need, month after month, falls outside what it covers.
What Medicare covers
Medicare’s facility benefit is for skilled nursing. It is narrow. First you need a qualifying inpatient hospital stay of at least three days. Observation time doesn’t count, even a night spent in a hospital bed. After that, Medicare covers skilled nursing facility care for up to 100 days in each benefit period.
| Days in the facility | What you pay |
|---|---|
| 1 to 20 | Nothing for covered care |
| 21 to 100 | A daily coinsurance, set each year |
| After 100 | All of it |
The coinsurance amount changes yearly. Medicare.gov publishes it. Coverage can also end well before day 100, the moment the facility decides you no longer need daily skilled care, and from that day the bill for the same bed and the same help is yours.
Custodial care is excluded. Five years of help with bathing and dressing at home, with no skilled need, draws nothing from Medicare.
Home care follows the same logic. Medicare’s home health benefit pays for part-time skilled nursing and therapy when you are homebound and a doctor orders it. An aide who comes only to help with bathing or dressing, with no skilled service in the plan, is paid for some other way. Read any Medicare coverage claim with one question in mind: is the care skilled?
Where Medicaid comes in
Medicaid does pay for long-term care. It is means-tested. It steps in after income and savings fall below limits that each state writes within federal bounds. For a family with savings, that often means paying privately until the savings run down, then applying. Medicaid and the five-year look-back covers how that works and what can be protected.
Pricing the risk
Costs vary widely by region and by level of care. Hourly home care, assisted living and a nursing home room are very different bills. Use a local figure. Call a few providers near you and ask for their rates.
Then do the arithmetic.
That’s before any inflation in care costs, and it’s for one person. A couple carries a separate risk for each spouse.
Who pays when Medicare doesn’t
With Medicare out and Medicaid only at the end, savings, insurance and family are what remain to pay the bill, and savings usually come first: the portfolio, a home that can be sold, income that keeps arriving. Insurance comes next, either a traditional long-term care policy or a hybrid of life insurance and care coverage. Family comes last, and it rarely shows up in a budget, because an adult child who cuts back work to care for a parent pays in lost wages, lost retirement savings and their own health, none of which arrives as an invoice.
A retirement plan that ignores this line item is incomplete. The guide to how much you need to retire and the course on building a withdrawal plan show where a care reserve fits in the wider plan.
Insurance is the most direct way to move the risk off your own balance sheet, and the next lesson explains how long-term care insurance works, from the daily benefit to the waiting period.
Check your understanding
Lesson quiz
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Show the answer
B: Days 21 to 100. The first 20 covered days carry no coinsurance; from day 21 through day 100 you owe a daily amount that Medicare resets each year.
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Show the answer
C: $216,000. A year is $9,000 x 12 = $108,000, so two years are $108,000 x 2 = $216,000.
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Show the answer
A: Nothing for the long-term custodial care. Medicare does not cover long-term custodial care; its facility benefit is for skilled care after a qualifying hospital stay.
Questions traders ask next
Does Medicare Advantage cover long-term care?
Medicare Advantage plans must cover what Original Medicare covers, which includes the limited skilled nursing benefit and excludes long-term custodial care. Some plans add small extra benefits, and the rules vary by plan, so read the plan's evidence of coverage before counting on anything beyond skilled care.
How do I find out what long-term care costs where I live?
Call local home care agencies, assisted living communities and nursing homes and ask for their daily or monthly rates, and what raises them. Prices swing a lot from one area to the next and between home care and a facility, so a local quote is a better planning figure than any national number.