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Doesn't Medicare pay for long-term care?

Long-term Care Insurance
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In general, no. Medicare -- which covers some healthcare costs for retirees -- covers only "medically necessary" care. In some cases it will cover nursing home or home healthcare, but only after a three-day stay in the hospital, and only for services provided by "skilled medical professionals," such as registered nurses and physical therapists.

Medicaid -- which pays some healthcare costs for the impoverished, both young and old -- covers some "custodial care" for seniors, but only after your income and assets fall below certain levels. Medicaid is the more common source of public funds for long-term senior care.

Confused? Maybe the clearest way to consider long-term care is to break living expenses into two categories. The first category includes medical expenses such as doctor and hospital treatment and prescription drugs. The second covers more fundamental living expenses such as safe shelter, nutrition, and bathing.

Private and public insurance is available to cover both expense categories should you become seriously ill or disabled. The type of private insurance you buy, however, depends on whether you are of retirement age or not, as does the order of payment -- public, then private, or vice-versa.

In the table below, the major insurance options for the totally disabled, private and public, are broken out by category of expense and age. The first item in each block is usually exhausted first before moving on to the one below it. The last option is always Medicaid.

Total, Long-term Disability:
Making Ends Meet

- italicized sources are public funds
- bold sources are private insurance

Income and
Custodial Care
Under 551) Health Ins.
2) Savings
3) Medicare*
4) Medicaid
1) Social Security
2) Disability Ins.
3) Savings
4) Medicaid
55 to 65Same as Under 55Same as Under 55 Except Add Long-Term Care Insurance between Disability Ins. and Savings?
Over 65
& Retired
1) Medicare
2) Health Ins.
3) Medicaid
1) Social Security
2) Available Savings
3) Long-Term Care Ins.
4) Protected Savings
5) Medicaid

* Automatic enrollment after two years of Social Security disability payments, but not available before.

For example, if you become totally disabled and completely unable to work before age 65, Social Security will restore a portion of your income through disability benefits. If you want a greater portion of your income restored (or coverage for less catastrophic disabilities), you have to purchase private disability insurance.

If you are over age 65, Social Security and other retirement income from pensions, annuities, 401(k) plans, etc., will be your first line of defense. You hope that these will pay for long-term care, too. However if you have additional savings that you want protected for your heirs, long-term care insurance can buy you additional protection against spending down to Medicaid.

One more important point: Medicaid does allow you to keep some assets, typically your home and one car and a small savings account. If you are married, provisions are much more generous. A spouse without a separate income source may be able to keep as much as $2,000 per month in income and $80,000 in assets, depending on the state.