Medicaid

If Medicaid Covers Long-Term Care, Why Buy Insurance For It?

Written by Liz Froment

Published on January 20, 2022

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Key takeaways:

Millions of Americans will need some form of long-term care as they age.
Private long-term care insurance and Medicaid are two common ways to fund long-term care.
Long-term care partnership programs, which combine private insurance and Medicaid, are worth exploring.

Long-term care for seniors is often costly, even with insurance. And every funding option comes with its own tradeoffs.

Private long-term care (LTC) insurers offer many coverage options, letting you tailor benefits to your liking. This flexibility may come with a high price tag, though.

Medicaid’s long-term care coverage is more affordable. However, its specific qualifications can be tricky to navigate. Medicaid rules may require you to spend down most of your income and assets. For many, that may not be possible.

That's why it's critical to explore all your options before you need care. Estimating how much long-term care you’ll need and where you want to get it can help you map out your best path forward.

What is the purpose of LTC insurance?

As they age, millions of Americans need help with "activities of daily living" (ADLs) such as bathing, feeding, and dressing themselves. People having difficulty with ADLs need extra nursing care and support.

The cost of this day-to-day care adds up. People who need long-term care will spend an average of $140,000 in out-of-pocket costs during their lifetime, according to one expert’s Congressional testimony. This calculator may help you compare long-term care costs in your area.

Care setting	Median monthly cost
Adult day care	$1,600
Assisted living	$4,300
In-home care services	$4,600
Nursing home (semi-private room)	$7,800
Nursing home (private room)	$8,800

Source: Genworth Financial; 2020 data

Private LTC insurance helps cover long-term medical needs. You pay a monthly or annual premium for your policy. The exact details of your coverage will depend on the policy you choose. Factors that will affect your premium include:

Age
Gender
Marital status
Health condition
Insurance carrier

Typically, a policy will pay out a specific dollar amount per day for a set period of care. Plans may pay for:

In-home care
Adult day care
Assisted-nursing facilities
Home caregivers
Housekeepers
Therapists
Private nurses
Respite care

Who qualifies for Medicaid and LTC insurance?

Medicaid is a federal program that assists with healthcare costs. The federal government sets minimum coverage guidelines; the states administer the plans. The federal government also determines the requirements to qualify for Medicaid long-term care. Applicants must:

Be a U.S. citizen (or certain qualified type of noncitizen)
Be 65 or older
Have a permanent disability or blindness
Meet income and asset thresholds

To meet Medicaid’s minimum income and asset thresholds, you may need to spend down your income and assets before applying for the program. Also, you may be able to combine Medicaid with Medicare, a situation called dual eligibility.

When you apply for LTC insurance, your options will depend on your current health. If you already have a serious medical condition, insurers may deny you coverage or charge you a higher premium.

To claim your LTC insurance benefits, you must be 65 or older. You must also be cognitively impaired or have a documented medical condition that requires care. Most LTC policies will pay claims for people who need help with two or more ADLs.

What are the advantages of Medicaid over LTC insurance?

If you meet eligibility requirements, Medicaid will pay for long-term services and support (LTSS), such as help with ADLs. The program allows self-directed care, and Medicaid will pay your spouse, child, or other loved one to be your caregiver.

By contrast, LTC policies with the most coverage tend to be very expensive, and the cost of premiums is increasing. Over time, you may end up paying more for less coverage.

Another advantage of Medicaid: It may provide benefits sooner. For example, if you need nursing-home care, Medicaid usually covers you from day 1. LTC policies may impose a waiting period (an “elimination period”) of up to 90 days before covering costs.

Finally, if you meet state requirements, Medicaid will pay your costs as long as you need care. Your lifetime LTC coverage would be capped at a given dollar amount.

What are the advantages of LTC insurance over Medicaid?

Private LTC insurance can provide flexibility in care and coverage, in part because you can keep your income and assets. LTC insurance provides more options for residential facilities, in-home care, and qualifying medical expenses. These might include a private room in a nursing home or full-service in-home care from a live-in caregiver or visiting nurse.

LTC insurance offers some potential tax benefits, too. For instance, you may be able to take a tax deduction for your LTC insurance premiums.

Medicaid coverage depends on your state’s rules and options. Generally, its benefits are limited to:

Medical bills
Visits to doctor’s offices
Some vaccinations
Prescription drugs
Durable medical equipment (DME)
Home modifications

With Medicaid, your choices are constrained. For instance, not all nursing homes accept Medicaid, so there may only be one nursing home available in the area. If you’re not comfortable with the quality of care in that facility, you have no others nearby to choose from.

Does LTC insurance provide more or less coverage than Medicaid?

There is no simple way to know whether LTC insurance is better than your Medicaid options. Factors include the state where you live, the type of LTC insurance you can afford, and your ability to spend down your assets and income.

It’s worth noting that changes in Medicaid may be on the horizon. Through the American Rescue Plan Act of 2021 (ARP), qualifying states received an additional $12.7 billion to improve Medicaid’s home and community-based services.

At present, though, private LTC insurance usually provides more coverage than Medicaid. Compare your LTC insurance benefits to Medicaid’s offerings in your state, and consider how much you’re willing to pay for the private policy’s added benefits. Bear in mind that your LTC coverage runs out when your claims equal the dollar amount of your policy benefit.

What are the disadvantages of Medicaid and private LTC insurance?

No long-term care plan is perfect, of course. For these two options, here are the key disadvantages to keep in mind:

	Potential disadvantages
Concerns	Medicaid	LTC insurance
How to pay for it	To qualify, you may need to spend down your income and assets. This could be very difficult.	For a more affordable rate, you may have to sign up early. You could be paying premiums for many years.
Having enough benefits to get by	Government funding for Medicaid may fluctuate, depending on state and national politics.	You could exhaust your benefits if you receive care for an extended period.
Constraints	Coverage choice is limited; your benefits are only those that the state provides.	No refunds if you don’t use your benefits — though, with some policies, the unused benefit passes to your spouse.
Start date	You may end up on a waiting list for programs such as assisted living or in-home care.	You may need to wait 90 days or more to be covered. During that time, you’d have to pay your costs out of pocket.

Can you build a hybrid plan that uses Medicaid and LTC insurance?

Many states offer LTC insurance partnership programs with Medicaid. If there’s one in your state, you can buy an LTC policy and use all of its benefits, then apply for Medicaid without having to spend down to your state's asset limit level. In that way, such policies protect your assets (up to the value of the LTC benefit) from the Medicaid Estate Recovery Program so you can pass those on to your heirs.

For example, if you have $150,000 in LTC benefits, you can protect an equal amount ($150,000) from the Medicaid asset limit in your state. Otherwise, you would need to spend down almost all of those assets to qualify for Medicaid.

The bottom line

Long-term care is something many Americans will need, but figuring out how to pay for it and which path may work best for you can be tricky. LTC insurance and Medicaid’s long-term care benefit both have advantages and disadvantages. To determine which is better for your needs, go over your options with an eldercare attorney, financial advisor, or Medicaid planning professional.

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Written by:

Liz Froment

Liz Froment is a freelance writer who focuses on personal finance and how it impacts spending and saving in retirement. She began her career in corporate finance and worked in fund accounting, financial compliance, and as a hedge fund analyst.

Edited by:

Caren Weiner, MSIS

Caren Weiner, MSIS, started as a journalist in 1986. She worked for Money magazine and co-wrote its “Guide to the 1986 Tax Reform Act.” From the start, she immersed herself in data on mutual fund total returns and marginal tax rates.

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References

American Association for Long-Term Care Insurance. (n.d.). Long-term care insurance tax-deductibility rules - LTC tax rules

American Association for Long-Term Care Insurance. (2019). Information for consumers who are facing an increase in premiums for their long-term care insurance.

GoodRx Health has strict sourcing policies and relies on primary sources such as medical organizations, governmental agencies, academic institutions, and peer-reviewed scientific journals. Learn more about how we ensure our content is accurate, thorough, and unbiased by reading our editorial guidelines.