It's estimated that 70% of seniors 65 and over will need some type of long-term care in their lifetime, and that includes nursing home stays. Now if you're eligible for Medicare, you might assume that if you wind up in a nursing home, your costs will mostly be covered. But actually, that's not true. Unfortunately, there are a lot of services traditional Medicare doesn't cover, and nursing home care is one of them. If you really want to protect yourself from this potentially colossal expense, then you'll need to consider investing in long-term care insurance.
What Medicare will cover
There's a difference between needing a nursing service to assist you with a medical issue or recovery versus needing constant custodial care. Under Medicare Part A, you're typically covered for care in a certified skilled nursing facility if that care is medically necessary. But that also assumes that your condition is expected to improve over time.
On the other hand, if your needs fall under the blanket of what's known as custodial care, you typically won't be eligible for coverage under Medicare. Custodial care refers to the things you need to do to function daily, like bathing and getting dressed. If that's really the only type of care you need, then Medicare generally won't pay for it. Rather, it'll be on you to cover the cost of a nursing home, where you'll get the assistance you need with all things related to daily living.
How much of an expense might you be looking at? Get ready, because it's a hefty one. According to Genworth Financial, the average nursing home stay will run you $225 per day, or $82,125 per year, and that assumes you're willing to bunk with a roommate. If you're not, then prepare to pay even more -- a private room costs $253 per day, or $92,345 per year, on average.
Fortunately, there is a way to defray the cost of an extended nursing home stay, and it's to buy long-term care insurance. And the sooner you apply, the more affordable that insurance will be.
When to apply for long-term care insurance
If long-term care insurance were free or inexpensive, more people would no doubt have it. Unfortunately, it isn't cheap. The average 60-year-old couple, for instance, pays a premium of roughly $3,400 per year. On the other hand, if you apply for a policy when you're relatively young, and when your health is relatively strong, you're more likely to not just get approved but snag a lifelong discount.
The American Association for Long-Term Care Insurance reports that more than half of applicants in their 50s qualify for health-based discounts on their premiums, but that number drops to 42% for applicants in their 60s and 24% for those in their 70s. The lesson here? If you're thinking of getting long-term care insurance, don't wait too long. Otherwise, be prepared to pay more.
Of course, even with insurance, you'll still see your fair share of costs if you end up needing to live in a nursing home for several years. However, the financial blow will be far less significant.
What about Medigap?
Medigap, also known as Medicare Supplement Insurance, is designed to cover some of the costs Medicare itself won't pay for. But if you're thinking of getting Medigap to help defray the cost of a nursing home, think again -- most plans don't cover nursing homes.
So what can you do to protect yourself from the whopping cost of a nursing home in the absence of long-term care insurance? Save as much as you can during your working years so that you have more income available in retirement. If you start saving early on in your career and end up retiring with a few million dollars, the idea of spending $82,000 to $92,000 on a nursing home for three or four years may not be quite as daunting.
No matter what plans you make to account for the cost of long-term care, don't make the mistake of assuming Medicare will pay for it. In fact, you should familiarize yourself with all of the services Medicare does and doesn't cover. This way, you'll know how to save appropriately and avoid surprises when you're older.
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