What's the most expensive part of retirement expenses? The vacations you take in retirement? The dozens of prescription drugs you must pay for? The costs you'll incur visiting grandchildren all the time?
Good guesses, but you probably already know that long-term care tallies up as the most expensive retirement expense when you can no longer take care of your basic needs.
What is long-term care? Long-term care includes a range of services and support for your overall care, which doesn't involve medical care. Most long-term care involves basic personal tasks, like bathing and dressing, as well as essential day-to-day personal care needs.
So, that begs the question: Does Medicare cover long-term care expenses? Unfortunately, no — but there are other options to explore.
The median yearly cost of a private room in a nursing home in the United States in 2020 was $105,850. Naturally, the cost of long-term care depends on where you live. The daily rate for private nursing home care ranged from $189 per day in Missouri to $1,196 per day in Alaska.
Unfortunately, the cost of long-term care continues to increase due to labor shortages, equipment cost increases, regulatory changes, employee wage pressures, and demand for services.
First of all, let's take a look at quick Medicare details.
Medicare is the federal health insurance program for people 65 and older, certain younger people with disabilities, and those with end-stage renal disease (defined as permanent kidney failure that requires dialysis or a transplant, sometimes called ESRD).
To summarize quickly, Medicare has three different parts: Medicare Part A, Part B, and Part D, which refers to the following and covers these specific services:
- Medicare Part A (hospital insurance): Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.
- Medicare Part B (medical insurance): Part B covers certain doctor's services, outpatient care, medical supplies, and preventive services.
- Medicare Part D (prescription drug coverage): Medicare Part D helps cover the cost of prescription drugs (which includes recommended shots or vaccines).
You might zoom in on the details of Part A in the above description and think that it looks like it includes long-term care. However, inpatient care in a skilled nursing facility does not involve custodial care or long-term care. You can define most nursing home care as custodial care.
Medicare also won't cover:
- Dental care
- Eye exams
- Cosmetic surgery
- Hearing aids
- Routine foot care
Long-term care insurance helps cover the cost of a nursing home, assisted living facility, or home health aide if you become unable to care for yourself.
What might happen if you don't have long-term care insurance? The staggering costs of long-term care can quickly eliminate your long-term savings or retirement savings over the years.
Long-term care insurance, in comparison, can cost a lot less than trying to pay for long-term care out of pocket. The cost of long-term care insurance for a couple, both aged 55, who decide to purchase new long-term care insurance will cost as little as $3,000 or as much as $6,300 in 2020, according to the American Association for Long-Term Care Insurance.
A few quick notes before you decide to purchase long-term care insurance:
- Consider the amount of coverage you want. Policies usually cap the amount paid out during your lifetime. Check with your insurer to get an idea of how much it will cover before you sign on the dotted line.
- You get coverage as long as you pay your premiums. Long-term care insurance will provide for you as long as you pay the premiums each month.
- Long-term care insurance pays out benefits either as an expense-incurred policy or an indemnity policy. Expense-incurred policies reimburse you for incurred expenses up to the maximum benefit amount. Indemnity policies pay a set dollar amount regardless of the cost of the service you receive.
- You will have to go through an elimination period, also known as a waiting period. This waiting period refers to the amount of time between when you require benefits and when you make your first payment. The shorter the waiting period, the more your policies will cost.
Learn More: How Much Does Long-Term Care Insurance Cost?
Finally, you should make a personal decision to assess your chances of needing long-term care insurance. Take a look at these percentages, based on the American Association of Retired Persons (AARP):
- 52% of people age 65 will need some type of long-term care services during their lifetimes.
- 8% of people ages 65-74 needed long-term care services in 2018.
- 17% of people ages 75-84 needed long-term care services in 2018.
You also want to consider your age now before you start buying long-term care insurance typically isn’t necessary at a young age.
During 2018, 25 percent of new claims were initiated by policyholders between the ages of 81 and 85, 27.2 percent were between ages 86 and 90 and 17.5 percent were age 98 or older, according to the American Association for Long-Term Care Insurance.
In addition, carefully consider the right time to buy long-term care insurance. You don’t want to wait too long to buy long-term care coverage because the longer you wait, the more expensive the policy will be. You may also face a denial of coverage if you wait till you're a lot older before you buy long-term care insurance.
A good rule of thumb: Buy long-term care insurance in your 50s because you're nearing retirement and you're still earning money. It'll likely also cost less when you're 50.
Let's pivot back to Medicare for a second. Despite the fact that it doesn't cover long-term care, you still want to make sure you apply at the right time. Don't wait until the day you turn 65. Apply during the initial enrollment period of three months before your 65th birthday — the enrollment period ends four months after your 65th birthday.
Melissa Brock is the founder of College Money Tips and a full-time freelance writer and editor. She loves helping families navigate their finances and the college search process. Check out her FREE essential timeline and checklist for the college search!
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