Medicare provides health insurance for more than 55 million people who are 65 or older, or who are disabled. While many look forward to the day they'll become eligible for Medicare, once you actually qualify, it may come as a shock that there are serious coverage gaps in this government program. 

While there are many things Medicare doesn't cover, one of the most expensive and important services the program won't pay for is a service as many as 70% of people who reach the age of 65 will need: care in a nursing facility.

Whether Medicare covers this expensive service for you or not all comes down to one key thing: whether the care you need is custodial care. These two words -- custodial care -- could mean you're stuck paying thousands out-of-pocket every month for care you vitally need. 

Broken piggy bank with coins spilling out

Image source: Getty Images.

What is custodial care?

Custodial care is the term used by Medicare to describe routine assistance with basic activities of daily living. If age or disability makes it impossible for you to do tasks like showering, tending to your personal care needs, cooking, eating, or avoiding hazards in your home, you need custodial care. 

Many people who require either long-term care at home, or care in a nursing home, require only custodial care. The key defining feature of custodial care is that it can be provided by someone without any special medical training. If an unskilled home health aide could provide the care -- like moving you from a wheelchair to a bed, or helping you to make and consume food -- Medicare will pay nothing at all for your care.

Custodial care is distinguished from skilled nursing home care, which Medicare does provide limited coverage for. Skilled nursing care is defined as care provided by someone with medical training, such as a registered nurse, a physical therapist, or an audiologist. If you have had a qualifying hospital stay, Medicare will cover up to 20 days of skilled nursing care with no coinsurance costs, as well as an additional 80 days with coinsurance charges. 

Custodial care comes at a big cost

Although caregivers do not need specialized training to provide custodial care, the cost of this care, either at home or in an institutional setting, is still extremely high. For seniors who opt for a home health aide, average costs are $4,099 monthly according to the 2017 Genworth Cost of Care survey. For a semi-private room in a nursing home, care costs are $7,148 per month. And if you want a private room in a nursing home, you can expect to pay as much as $8,121 per month, on average.

Obviously, if you're paying out of pocket, you'll go through your life savings very quickly, and could lose everything you've worked for. 

What can you do?

Medicare will never cover custodial care, nor will Medicare Advantage, or Medigap plans. This means your only option is to try to find another source of coverage if you don't want to pay out of pocket.

One common option to cover long-term care costs is to purchase a long-term care insurance policy. Unfortunately, these policies can become prohibitively expensive as you get older, and you may be unable to afford premiums to maintain coverage. 

Many policies also have restrictions on when and how much coverage they provide. Your coverage may offer just $100 per day in payments for care, for example, or may limit the number of days for which you're covered. If you're going to shop for a policy, carefully read reviews and policy language for coverage limitations. 

Another option is to apply for Medicaid to provide coverage for nursing home care. Unfortunately, while Medicaid does cover custodial care, it's a means-tested program, and you typically cannot obtain coverage if you have assets valued at $2,000 or more. This means that you may need to spend a substantial part of your savings before you become eligible to receive benefits. 

You can, however, work with a Medicaid planning attorney to structure the ownership of your assets so your wealth doesn't count for purposes of determining Medicaid eligibility. Making a Medicaid plan can be complicated, and you'll need to ensure you don't jeopardize your coverage during the planning process, as you can make yourself temporarily ineligible for Medicaid by transferring assets within five years of the time you need the program to pay for your nursing home care.

Around 6 million seniors received Medicaid coverage in 2015, and 30% of Medicaid's budget goes toward paying for nursing home care. Creating a Medicaid plan could be one of the best options available to you if you want to ensure you'll be able to move to a nursing home, or get long-term care services while still preserving your wealth. 

Making plans for long-term care coverage

Ultimately, your best option for covering long-term care is going to depend upon your situation. The key is to make some type of plan, because if you don't, you could end up with your life savings going toward paying big nursing home bills instead of being passed on to loved ones. 

The sooner you get your plans in place, the more peace of mind you'll have in knowing your wealth will be safe, even if you end up among the majority of seniors 65 and over who need some type of nursing home care during the course of their lifetimes.

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