Long-Term Care Insurance vs. Self-Insuring: What Each Option Actually Requires

Long-term care is one of the most expensive and least insured retirement risks. Most Americans assume Medicare or their health insurance will cover it. In practice, neither is designed to do so comprehensively.

What Is Long-Term Care?

Long-term care refers to assistance with Activities of Daily Living (ADLs): bathing, dressing, eating, toileting, continence, and transferring. It also includes supervision for individuals with cognitive impairment such as Alzheimer's disease. Care may be delivered at home, in an assisted living community, or in a skilled nursing facility.

What Does Care Cost Today?

The 2024 Cost of Care Survey, conducted by Genworth Financial and CareScout and released March 4, 2025, surveyed more than 140,000 providers nationwide. National median annual costs for 2024:

Cost increases across all care types are outpacing general inflation, driven by labor costs and rising occupancy rates at assisted living communities.

What Medicare Covers — and What It Does Not

Medicare provides skilled nursing facility (SNF) coverage only under narrow conditions: following a qualifying hospital stay of at least three consecutive days, for care requiring skilled personnel. Coverage ends after 100 days. Medicare does not cover custodial care — help with bathing, dressing, and meals — which is the majority of long-term care.

Self-Insuring: What It Actually Requires

At current median costs, one year in a semi-private nursing home runs approximately $111,325. Two years exceeds $222,000; three years exceeds $333,000. Self-insuring places the full financial risk of a prolonged care need on personal assets, which must be liquid and preserved specifically against this risk.

Traditional Long-Term Care Insurance

Traditional LTCI pays a defined daily or monthly benefit when the policyholder meets a benefit trigger — typically inability to perform two of six ADLs, or cognitive impairment. Key policy features:

• §Daily or monthly benefit amount
• §Elimination period — the days of qualifying care paid out-of-pocket before benefits begin (commonly 90 days)
• §Benefit period — maximum duration (commonly 2–5 years)
• §Inflation protection — optional feature that increases the benefit over time

Applicants must qualify through medical underwriting. Premiums on traditional policies are not guaranteed level — insurers may apply to state regulators for rate increases.

Hybrid (Life/LTC) Policies

Hybrid policies combine permanent life insurance with a long-term care rider. If qualifying care is needed, the death benefit is accelerated to pay for care. If the long-term care benefit is never used, a death benefit passes to beneficiaries.

Medicaid and the Spend-Down Rules

Medicaid covers long-term care for individuals who meet income and asset eligibility requirements. The five-year look-back rule reviews financial transactions in the 60 months prior to application. Asset transfers for less than fair market value can result in a penalty period of Medicaid ineligibility.

Certain assets are exempt, including the primary residence (subject to equity limits and estate recovery rules) and assets protected under spousal impoverishment provisions.

The Genworth 2024 Cost of Care data is searchable by state at CareScout.com/cost-of-care.

Educational purposes only. Not financial, tax, or legal advice.