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Adam Vega, CFP® profile image Adam Vega, CFP®

Long Term Care Financing

Edited by: Adam Vega, CFP® May 14th, 2023 Increased life expectancy is often celebrated due to advancements in modern medicine and healthier lifestyles, but this trend has also led to a corresponding rise in the cost of health and long-term care, which can be financially crippling for many families. With

Long Term Care Financing
An elderly woman and a child sitting on a sofa engaged in reading a book.

Edited by: Adam Vega, CFP®

May 14th, 2023

Increased life expectancy is often celebrated due to advancements in modern medicine and healthier lifestyles, but this trend has also led to a corresponding rise in the cost of health and long-term care, which can be financially crippling for many families.

With the costs of long-term care in 2021 outpacing the U.S. inflation rate by more than double (Acts Retirement-Life Communities), navigating long-term care financing can no longer be ignored. Families must be proactive in understanding the costs associated with various types of long-term care services, including self-insuring, government assistance programs such as Medicare and Medicaid, VA health benefits, PACE, and SHIP. Without proper planning, the financial well-being of elderly loved ones is at risk.

By utilizing the information and resources provided in this article, families can make informed decisions that address their unique needs and circumstances, ensuring that their elderly loved ones receive the appropriate care while also safeguarding their financial stability.

An older lady and a young child are seated on a couch, immersed in reading a book together.

The Importance of Financial Planning for Long Term Care

Planning for long-term care financing is essential for individuals and their families to ensure they can access the care they need as they age. Long-term care services can include a wide range of assistance, from home health care to nursing home care, and costs can vary significantly depending on the type and duration of care required. By planning ahead, individuals can better understand their options, evaluate costs, and make informed decisions about how to finance their care, reducing financial stress and enabling a higher quality of life (National Institute on Aging).

Failure to plan for long-term care financing can lead to significant financial burdens for individuals and their families, as well as limited access to the care they need. According to a study by the Commonwealth Fund, the United States has a patchwork system for financing long-term care, which can leave many individuals without adequate financial protection and support (The Commonwealth Fund). By proactively planning for long-term care financing, individuals can help ensure they have the resources necessary to access appropriate care when they need it.

Long-term care planning should include an assessment of an individual's current financial resources, anticipated future needs, and a thorough evaluation of the available financing options. By engaging in this process early, individuals can develop a comprehensive strategy for financing their long-term care, taking into account factors such as inflation, changes in health status, and the availability of government assistance programs (American Academy of Actuaries).

An elderly woman seated comfortably, engrosses in reading a book.

Long Term Care Costs by Service

The cost of long-term care services can vary widely depending on factors such as the type of care required, the location where care is provided, and the duration of care. For example, home health care services may be less expensive than nursing home care, but may still involve significant costs for equipment, supplies, and caregiver support. According to the National Institute on Aging, the average cost of a private room in a nursing home in the United States was over $100,000 per year in 2020 (National Institute on Aging).

In addition to the direct costs of care, individuals planning for long-term care financing should also consider indirect costs such as lost income, out-of-pocket expenses, and the potential need for additional support services, such as transportation or home modifications. These costs can add up quickly and create a significant financial burden for individuals and their families (The Commonwealth Fund).

When planning for long-term care financing, it is essential to understand the specific costs associated with different types of care and to evaluate these costs in the context of an individual's personal financial resources and anticipated needs. This information can help individuals make informed decisions about the most appropriate care options and develop a comprehensive plan for financing their care (CA Health Advocates).

A touching moment in a hospital as a family comes to visit an elderly lady.

Self Insuring

Self-insuring for long-term care involves setting aside personal funds to cover the costs of care. This can include savings, investments, and other assets that can be used to pay for long-term care services when needed. Self-insuring can be a viable option for individuals with significant financial resources, but may not be appropriate for everyone, as it can require substantial savings and careful financial planning (American Academy of Actuaries).

One advantage of self-insuring is the flexibility it provides in terms of choosing care providers and services. By using personal funds, individuals can select the type of care that best meets their needs and preferences, without being restricted by the limitations of government assistance programs or insurance policies (National Institute on Aging).

However, the downside of self-insuring is the potential for financial risk. The cost of long-term care can be unpredictable, and individuals may underestimate the amount of money needed to cover their care expenses. Additionally, relying solely on personal funds can place a significant financial burden on families, especially if the individual's care needs are extensive or long-lasting (CA Health Advocates).

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Government Assistance (Medicare and Medicaid)

Government assistance programs, such as Medicare and Medicaid, can help cover the costs of long-term care for eligible individuals. Medicare, the federal health insurance program for individuals aged 65 and older, provides limited coverage for long-term care services, such as skilled nursing facility care and home health care, under certain conditions. However, Medicare does not cover the cost of custodial care, which includes assistance with activities of daily living (National Institute on Aging).

Medicaid, a state and federal program that provides health coverage for low-income individuals, can cover a broader range of long-term care services, including nursing home care and home and community-based services. Eligibility for Medicaid is determined by income and asset limits, which can vary by state (Commonwealth Fund).

While government assistance programs can provide valuable financial support for long-term care, it is important to understand their limitations and eligibility requirements. Individuals should research their state's specific Medicaid rules and consider whether they may qualify for assistance, either now or in the future, as part of their long-term care financing plan (CA Health Advocates).

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Medicaid Eligibility: How to Qualify

Qualifying for Medicaid to help cover the costs of long-term care involves meeting specific income and asset requirements, which can vary by state. Generally, individuals must have limited financial resources and meet specific income limits to be eligible for Medicaid (National Institute on Aging).

In addition to income and asset requirements, other factors can impact Medicaid eligibility, such as an individual's age, disability status, and citizenship or immigration status. Each state has its own Medicaid program, with varying eligibility criteria and application processes. It is essential to research your state's specific rules and requirements to understand whether you may qualify for Medicaid assistance (Commonwealth Fund).

For individuals who may not currently qualify for Medicaid but anticipate needing long-term care in the future, planning strategies such as Medicaid-compliant annuities or spend-down strategies can help preserve assets while still meeting eligibility requirements. Consulting with a knowledgeable professional, such as an elder law attorney or financial planner, can help individuals navigate the complex Medicaid eligibility process and develop a plan for qualifying for assistance (CA Health Advocates).

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If you are on the verge of qualifying for Medicaid in your state, there are additional steps you can take to lower your assets and gain eligibility for government assistance. One common strategy Investopedia provides is paying for your aging parent’s care with their net worth until their assets are depleted. At this point, they have typically reached the threshold needed for Medicaid, and receive care through Medicaid insurance moving forward.

Another option that Investopedia offers is creating asset protection trusts such as irrevocable trusts. To do this, your aging parent would irrevocably give up control of their assets and place it under a trustee’s control. This means that the trust can only be altered by their beneficiary, and they will no longer own control over their assets. In this way, your aging parent is able to shelter their assets so they will not harm their Medicaid eligibility.

VA Health Benefits

Veterans and their families may be eligible for long-term care assistance through the Department of Veterans Affairs (VA). The VA offers a range of long-term care services, including nursing home care, home health care, and community-based care, for eligible veterans who require assistance with daily living tasks or have medical needs (National Institute on Aging).

Eligibility for VA health benefits is determined by factors such as the veteran's service history, disability status, income, and available resources. In some cases, VA health benefits may be available to the veteran's spouse or dependents, depending on the specific circumstances (Commonwealth Fund).

Veterans and their families should explore the available VA health benefits and services as part of their long-term care financing plan. The VA website provides detailed information on eligibility requirements, available services, and the application process for VA health benefits. Additionally, VA medical centers and regional offices can offer assistance and guidance in navigating the available resources and benefits (CA Health Advocates).

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Program of All-Inclusive Care for the Elderly (PACE)

The Program of All-Inclusive Care for the Elderly (PACE) is a federal program designed to help older adults remain in their communities while receiving comprehensive, coordinated care services. PACE provides a range of services, including medical care, long-term care, and social services, in a community-based setting, reducing the need for nursing home placement (National Institute on Aging).

To be eligible for PACE, individuals must be aged 55 or older, require a nursing home level of care, and live in an area served by a PACE organization. PACE is available to individuals who are eligible for Medicare, Medicaid, or both, as well as those who wish to pay privately for their care (Commonwealth Fund).

PACE can be a valuable resource for individuals and their families seeking long-term care financing options that promote independence and community integration. To determine whether PACE is an appropriate option for your long-term care needs, it is essential to research the program's eligibility requirements, services, and costs and to contact a local PACE organization for more information (CA Health Advocates).

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State Health Insurance Assistance Program (SHIP)

The State Health Insurance Assistance Program (SHIP) is a federally-funded program that provides free, unbiased counseling and assistance to Medicare beneficiaries and their families. SHIP counselors can help individuals navigate the complexities of Medicare, including long-term care financing options, and provide information on available resources and benefits (National Institute on Aging).

SHIP services can include help with understanding Medicare coverage, comparing Medicare Advantage plans and prescription drug plans, and identifying available financial assistance programs, such as Medicaid or the Medicare Savings Program. These services can be invaluable for individuals and their families as they plan for long-term care financing and seek to maximize their available resources (Commonwealth Fund).

To access SHIP services, individuals can contact their state's SHIP office, typically housed within the state's department of insurance or aging services. SHIP counselors can provide personalized assistance and guidance tailored to the individual's specific needs and circumstances, helping to ensure they make informed decisions about their long-term care financing options (CA Health Advocates).

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In conclusion, planning for long-term care financing is a crucial aspect of preparing for the future needs of elderly individuals and their families. Understanding the various options available for covering the costs of long-term care, such as self-insuring, government assistance programs like Medicare and Medicaid, VA health benefits, PACE, and SHIP, is essential for making informed decisions about care.

By engaging in open and honest conversations with loved ones about their long-term care needs and preferences, researching available services and their associated costs, and seeking professional guidance when needed, families can create a comprehensive long-term care financing plan that meets their unique needs and circumstances.

The process of planning for long-term care financing can be overwhelming, but with the right information, resources, and support, families can ensure that their elderly loved ones receive the care they need while maintaining their financial well-being. By being proactive and taking the time to explore all available options, families can gain peace of mind knowing they are prepared for the future and ready to face the challenges that may arise as their loved ones age.

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Adam Vega, CFP® profile image Adam Vega, CFP®
Adam Vega is the President of Avance Private Wealth Management. He has worked in the financial planning space for over thirteen years, offering planning and wealth management services to his clients.