Medicaid vs. Long-Term Care Insurance: An Overview
The most commonly utilized and misunderstood aspects of Medicaid are its long-term care benefits. Medicaid is not synonymous with long-term care insurance, but many who plan to rely on it are unaware of this.
As a result, they find themselves without the care they really need or desire. Before you "plan" to have Medicaid cover your long-term care needs, it is important to understand its coverage and how it differs from long-term care insurance.
- Medicaid is a state-run program offering low-cost or free custodial and medical services to those with low incomes who qualify.
- Long-term care insurance is private insurance available to anyone who can pay for it.
- Medicaid is for individuals and families living on a limited income, and many seniors use it to pay for long-term care in nursing homes.
- Long-term care insurance offers more flexibility and options than Medicaid.
Medicaid is a multi-part program designed to provide a variety of medical and custodial services to those who cannot afford it. Medicaid long-term care is a great benefit for those who don't have much savings or retirement income and need services beyond what their families can provide.
Some individuals, however, deliberately decide not to buy long-term care insurance and rely on Medicaid instead. There is an entire legal specialty focused on helping older Americans bankrupt themselves to qualify for Medicaid benefits.
Unfortunately, many people find out too late that Medicaid does not offer what they desire—the kinds of choices, benefits, and coverage options provided by long-term care insurance.
Because Medicaid rules vary by state, it may be best to speak directly to a regional office to obtain the correct set of guidelines for your home state. You can find a link to connect you via the Medicaid website.
Medicaid Benefits and Requirements
Unlike Medicare, which is largely a federal program, Medicaid is primarily state run, resulting in varying degrees and types of long-term care coverage. Generally speaking, for qualifying people, Medicaid covers custodial care in a nursing home in all states. Custodial care is for when you can't perform some or all of the activities of daily living (ADL) without assistance:
- Getting dressed
Medicaid generally requires you to be unable to perform at least two of these six ADLs independently—much like long-term care insurance policies. If you qualify for Medicaid by meeting the ADL requirement and your state's income and asset requirements, you can probably use Medicaid to pay the entire cost of care in a nursing home.
Medicaid evolved during what was called the war on poverty in the 1960s as a program for the truly poor—the indigent population surviving on less than about 125% of the official poverty level.
Long-Term Care Insurance
Long-term care insurance usually covers all or part of nursing-home care, home-healthcare, and personal or adult daycare for individuals age 65 or older or with a chronic condition that needs constant care. It is private insurance available to anyone who can afford to pay for it and offers more flexibility and options than Medicaid. And because you pay for it there are no income and asset limits.
Medicaid does have a few benefits not offered by most long-term insurance plans. The following chart summarizes some of the key differences between these two ways of funding long-term care needs.
|Coverage/Benefit||Medicaid||Long-Term Care Insurance|
|Nursing home stays||Usually||Usually|
|Coverage from the first day in a nursing home||Usually||Many policies have waiting periods|
|Coverage for as long as needed in a nursing home||Usually||Rarely: too expensive|
|Coverage in any nursing home||Many places do not accept Medicaid||Usually|
|Coverage for in-home care||Not in many states||Available option|
|Coverage for adult daycare||Rarely||Available option|
|Coverage for assisted living facilities||Not in most states||Available option|
|Coverage for respite care||Rarely||Available option|
|Access to all services at a nursing home||Often no access to private or spousal rooms, shopping trips, and personal-care items (family must pay for these things)||Usually access to private or spousal rooms, trips, personal care, and whatever else the policy benefit covers|
|Ability to stay in one place||You can be moved if a facility stops accepting Medicaid patients or becomes too full||Yes, as long as the facility is open. Plus, you can change facilities at will|
Nursing Home Stays
Both long-term care insurance and Medicaid provide nursing-home coverage. Some long-term care policies cover other types of care in addition to—or in lieu of—nursing home care. In many states, nursing home stays (for non-skilled custodial care) are all that Medicaid covers.
This means if you are covered by Medicaid, staying at your own home is not always an option, even though care given at home is less expensive, and often what you really need and want. Compared to this inflexibility of Medicaid, long-term care insurance can be a great advantage.
Not all nursing homes accept Medicaid patients. If the facility doesn't take certain types of state or federal funding, it might not have to take Medicaid patients. So your facility of choice may not be available to you. Medicaid also doesn't cover the fun things in life: trips to museums, shopping centers, or other non-medical forms of care. It may not cover a private room or allow you to have your spouse as a roommate. There may even be a special "Medicaid wing" or floor in the facility.
Medicaid does pay for your stay in a facility for as long as you need the care. Long-term care insurance, on the other hand, does only if you choose a benefit level high enough to cover a lifetime of costs. Medicaid also covers your costs from day one, while long-term care insurance does so only at a very high cost, imposing an elimination period.
While some nursing homes won’t accept Medicaid patients outright, the law forbids them from throwing you out if you become dependent on Medicaid once you are in their care.
Aside from nursing home care, in-home care is one of the preferred ways to receive long-term care. Much of the care people need is custodial in nature and can be given in a home setting.
If you and your spouse, like most people, would prefer to stay in your home for as long as possible, long-term care insurance is the way to go. Why? Because it allows you to choose this type of care.
Also, if you own a home, think twice before using Medicaid for receiving any form of care. If you receive care and your spouse remains in your home, depending on your state's rules, your heirs may be forced to reimburse the costs of your care from the sale of your home when the "community spouse"—the one who stayed in the home—dies.
Assisted Living and Continuing Care Facilities
Sometimes, before you need nursing home care, you need more assistance than you can get at home, or maybe you just want to live in a retirement-oriented facility.
If you need some level of help, assisted living facilities can provide a room or apartment and offer certain levels of assistance (for a price, of course). You can get housekeeping help, meal preparation, and much more.
Continuing care takes assisted living a step further in both directions. You can generally get an independent living apartment, in which the main benefits are food, housekeeping and the knowledge that help is nearby if needed. The facility will also have an assisted living section that offers more help with ADLs, and finally an on-site nursing home. There may also be a memory unit for those with Alzheimer's or other types of dementia. This means that no matter what happens to you, you don't have to leave the facility—though you may have to move to a different wing of it.
This is a much easier transition than having to find a nursing home and move out of assisted living if you need more care than is offered where you are. It can also be useful to couples where one spouse needs more care than the other one. Again, if assisted living or continuing care facilities appeal to you, long-term care insurance is what you'll need.
Often, an older person's family chooses to provide much of the needed care, but cannot be home in the daytime due to work obligations. Adult daycare can solve this problem. This community-based care is often provided by churches and community centers.
The premise is simple: Drop off the person off in the morning and pick them up in the late afternoon or early evening. Adult daycare can also offer a respite to caregivers who need time for themselves when caring full-time for a family member.
Long-term care policies offer the option to cover this care, while Medicaid does not in most states.
The Bottom Line
Think long and hard before counting on Medicaid for long-term care. As always, hasty decisions—especially when they relate to something as important as your health—can come back to bite you. You just might not get what you had expected.
Medicaid.gov. "Eligibility." Accessed August 10, 2020.
U.S. Department of Health and Human Services. "Long-Term Care Services." Accessed August 11, 2020.
Haven Life. “What is Long-Term Care Insurance, What Does It Cover, and Is It Right for You?” Accessed August 11, 2020.
Medicaid.gov. “Estate Recovery.” Accessed August 11, 2020.