Long-Term Care Planning: Options and Costs
Why plan now?
Nearly seven in ten people who reach age 65 will need some form of long-term care in their remaining years (U.S. Department of Health & Human Services/Administration for Community Living). That probability, combined with rising care costs and limits on what Medicare covers, makes advance planning essential—not just for individuals but for families and small-business owners who may depend on that income.
In my practice working with clients over 15 years, early planning consistently creates better outcomes: lower out-of-pocket costs, more care choices, and fewer forced sales of assets. The goal is not to predict the future but to create flexible options that preserve dignity and financial stability.
Types of long-term care (what to expect)
- In-home care: Personal care and skilled nursing delivered at home. Ideal for those who want to remain in place but need help with activities of daily living (ADLs) such as bathing, dressing, or medication management.
- Adult day services: Supervised daytime programs that provide social activities, health services, and respite for family caregivers.
- Assisted living: Residential communities that offer help with ADLs, meals, and limited medical oversight—less intensive and generally less expensive than nursing homes.
- Nursing home (skilled nursing facility): 24/7 skilled and custodial care for people with serious medical needs or advanced functional impairment.
- Hospice and palliative care: Comfort-focused services for people with life-limiting illness; often covered differently depending on payer.
Each setting has different cost, quality, and social implications. Choosing care depends on clinical needs, personal preferences, caregiving availability, and budget.
Current cost picture (2024–2025 context)
Long-term care costs vary by region and level of service. National surveys and industry data show considerable increases over the last decade; use these figures as planning guides rather than exact guarantees. Typical national median monthly ranges observed in 2024–2025 surveys are:
- In-home care (home health aide): $4,000–$6,500
- Assisted living facility (one-bedroom): $4,000–$7,000
- Nursing home (semi-private room): $7,000–$10,000
- Nursing home (private room): $9,000–$13,000
These ranges reflect median and average findings reported by major industry surveys (e.g., Genworth Cost of Care Survey) and state-level variations reported by local agencies. Always check local cost estimates—prices in metropolitan areas can be materially higher than the national median. For help estimating local costs, see our guide: How to Estimate Long-Term Care Costs in Your Area (https://finhelp.io/glossary/how-to-estimate-long-term-care-costs-in-your-area/).
Sources: Genworth Cost of Care Survey (recent annual releases), U.S. Dept. of Health & Human Services (Administration for Community Living), and state Medicaid offices. See citations at the end of this article.
Who pays for long-term care?
- Self-funding: Personal savings, retirement accounts, and home equity. This is straightforward but can exhaust a saver’s nest egg quickly.
- Long-term care insurance (LTCI): Traditional LTCI pays a daily or monthly benefit for qualifying care. Premiums are age-rated and may rise; underwriting and premium affordability are key considerations.
- Hybrid products: Life insurance or annuities with long-term care riders combine death benefit or income with LTC coverage. These can reduce the risk that premium increases will outpace benefits and can provide some value if LTC isn’t needed. See our hybrid policy coverage overview: Preparing for Long-Term Care: Hybrid Insurance Strategies (https://finhelp.io/glossary/preparing-for-long-term-care-hybrid-insurance-strategies/).
- Public programs: Medicaid covers long-term nursing facility care and some home- and community-based services for people who meet income and asset tests. Medicare generally does not pay for long-term custodial care (it covers short, medically necessary skilled nursing or rehabilitation under specific conditions). Check CMS guidance and your state Medicaid program for rules and waivers.
- Veterans benefits: The VA offers Aid & Attendance and other benefits for eligible veterans and surviving spouses—worth exploring if you have military service.
Key funding decisions and trade-offs
- Timing: Buying traditional LTCI is most cost-effective in your late 50s to early 60s (before health issues make you uninsurable). Waiting increases premiums and the chance of disqualification due to health conditions. See our planning checklist: When to Start Long-Term Care Planning (https://finhelp.io/glossary/when-to-start-long-term-care-planning/).
- Coverage amount and inflation protection: Choose daily/monthly limits and an inflation rider if you’re buying traditional LTCI—otherwise benefits may not keep up with rising costs.
- Hybrid vs. traditional: Hybrid policies can be easier to qualify for and leave a death benefit if LTC isn’t used, but they typically require a larger upfront premium or lump-sum purchase. Traditional LTCI often provides higher payout potential for lower initial cost but carries premium‑increase risk.
- Medicaid planning: Medicaid eligibility rules include lookback periods and strict asset tests. Planning strategies (spend-down, marital planning, or trusts) must be started well before care is needed—improper transfers can disqualify applicants. If you’re considering Medicaid, consult an elder-law attorney or certified planner to avoid costly mistakes.
Tax treatment and retirement accounts
- LTC insurance premiums: Some portion of LTCI premiums may be deductible as medical expenses if you itemize; limits are age-based and revised annually (IRS Publication 502). For many taxpayers, the medical-expense deduction threshold (percentage of AGI) matters. Check current IRS guidance or consult a tax professional.
- LTC benefits: Benefits paid under a qualified LTC policy are generally tax-free up to IRS limits; non-qualified payments may have different rules. See IRS guidance on qualified long-term care contracts.
- HSAs: Distributions from Health Savings Accounts (HSAs) used to pay qualified long-term care services and premiums (subject to IRS rules) are typically tax-free—review IRS publications and our article Using HSAs to Pay Long-Term Care Expenses: Rules and Risks.
Authoritative tax references: IRS Publication 502 and IRS rules on qualified long-term care contracts (section references evolve; consult a tax advisor for current-year limits).
Practical planning steps (a checklist you can use today)
- Inventory: List your assets, income, insurance, and durable power of attorney and healthcare directives.
- Estimate local costs: Use public surveys and local provider calls; factor in inflation.
- Decide funding strategy: Self-fund, buy LTCI/hybrid, or adopt a mixed approach.
- Review tax and retirement implications with a CPA or tax advisor.
- Estate & Medicaid planning: If you may need Medicaid, speak with an elder-law attorney about timing and permissible strategies.
- Document care preferences: Advance directives, POLST forms, and written notes about preferred living arrangements make decisions easier for family members.
In my experience, a written, regularly reviewed plan—updated every 2–3 years or after major life changes—reduces family conflict and improves outcomes.
Common mistakes I see
- Relying on Medicare: Medicare usually covers short-term skilled care after a hospital stay, not long-term custodial care.
- Ignoring inflation: Buying a policy without inflation protection often leaves benefits inadequate in 10–20 years.
- Waiting too long to insure: Health changes can make LTC insurance unaffordable or unavailable.
- Overlooking veterans’ benefits and community-based programs that could reduce cost burdens.
How Medicaid works (briefly)
Medicaid is the primary payer for long-term nursing home care for those who meet financial and functional eligibility. Each state administers Medicaid with some federal rules—eligibility thresholds, the lookback period (examining asset transfers), and home- and community-based waiver programs differ by state. Work with an attorney or local Medicaid office; incorrect transfers or bad timing can delay benefits.
For an overview of Medicaid-specific planning, see our glossary: Medicaid Lookback and Long-Term Care Planning Explained (https://finhelp.io/glossary/medicaid-lookback-and-long-term-care-planning-explained/).
Decision framework: how I advise clients
- If you have substantial liquid assets and want control, build a self-funding plan with a reserve and flexible care budget.
- If you can afford premiums and want to protect assets from a catastrophic stay in a nursing home, evaluate traditional LTCI (look at financial strength of carrier, inflation protection, and elimination periods) or hybrid policies.
- If you are middle-income with limited liquid assets, explore Medicaid planning, veterans benefits, and community programs early—don’t wait until a crisis.
Each client’s solution differs; I always start with goals, then overlay costs, health trajectories, and legacy wishes.
Frequently asked practical questions
- At what age should I buy LTCI? Most people consider it in their late 50s to early 60s, before common health conditions emerge. However, personal health, family history, and affordability matter.
- Will long-term care wipe out my estate? Without planning, a long nursing home stay can erode savings. Proper mix of insurance, veterans benefits, and Medicaid-aware estate planning can protect a portion of assets.
- Can I use life insurance to pay for care? Yes—through riders or hybrid products—but evaluate total cost, liquidity needs, and surrender/loan provisions.
Resources and authoritative sources
- U.S. Department of Health & Human Services, Administration for Community Living (ACL) — long‑term care statistics and publications
- Genworth Cost of Care Survey (annual)—national and state-level cost data
- Centers for Medicare & Medicaid Services (CMS) — Medicaid rules and Medicare coverage details
- National Association of Insurance Commissioners (NAIC) — guidance on LTC insurance and consumer protections
- IRS Publication 502 and IRS rules on qualified long‑term care contracts — tax treatment of premiums and benefits
- Consumer Financial Protection Bureau (CFPB) — consumer guidance on paying for long-term care
Always review the primary source for current policy numbers; program rules and limits change annually.
Final thoughts and next steps
Long-term care planning is both financial and human: it protects your resources and preserves choice and dignity. Start with a clear inventory, estimate local costs, and test at least two funding strategies (self-fund and one insurance-based option). Update the plan as health and finances change.
If you want help building a plan, consult a fee-only financial planner, an elder-law attorney, and a tax professional. Professional coordination reduces the risk of costly errors and improves the chances you’ll get the care you want without unnecessary financial loss.
Disclaimer: This material is educational and not individualized financial, tax, or legal advice. Rules for Medicaid, tax treatment of LTC benefits and premiums, and insurance product features change; consult qualified advisors for your situation.
