Who Pays for Care?
Many think that their insurance covers long-term care, when it probably doesn’t. Only 10 percent of people over age 65 have purchased insurance that will cover long-term care. Few employers provide long-term care insurance as a benefit, and job-based health insurance does not cover these costs. Yet in surveys, 25 percent of workers and more than one-third of retirees state that they have insurance that covers long-term care costs. This indicates that many people are probably counting on insurance coverage that they don’t have.
Most families are ill-prepared to fund long-term services for any extended period. The majority of workers have not put any money aside for retirement, and average reported total assets at retirement are less than $10,000. Among workers who have saved for retirement, almost half report total savings and investments of less than $25,000. That level of savings could be completely exhausted after only four months in a nursing home.
Some assume that Medicare will cover all long-term care services, but Medicare doesn’t pay for most of these services. It does pay for some medically necessary skilled home care and post-acute skilled nursing care for a limited period. It does not pay for less skilled care, such as home health aides to help with daily activities, community care, or long-term stays in nursing homes or other institutions. Because the services that Medicare covers are costly, the program still pays for about 22 percent of total long-term services costs. (See our Who Pays and What’s Covered section for more information.)
Medicaid, the joint state-federal insurance program for lower-income people, pays for 40 percent of all long-term services costs. As a result of the high costs of care, limited insurance coverage, and limited individual savings, many who need long-term services exhaust their assets and qualify for Medicaid. About one-third of nursing home residents who enter a facility as self-pay eventually deplete their personal finances and become eligible for Medicaid. Medicaid is the largest payer of long-term services and a vital safety net for millions who need care. Long-term services represent about one-third of total Medicaid spending, and costs to the program are increasing.
Medicaid programs do not have to cover community-based care. Each state manages its own Medicaid program following broad federal guidelines. Those guidelines require states to cover nursing home care, but not home- and community-based care. As a result, Medicaid payments are heavily tilted toward institutional care. Coverage of community-based care varies dramatically from state to state. In New Mexico and Vermont, for example, more than 70 percent of all Medicaid long-term services spending is for home- and community-based care. But in 11 states, it is less than 30 percent.
More than 20 percent of long-term service costs are paid out of pocket by individuals or their families. With limited coverage by Medicare, inconsistent coverage by Medicaid, and a low level of private long-term care insurance, individuals pay for 22 percent of the costs of long-term services directly.
