There is quite a bit of misunderstanding around financial planning for long term care. Some of that has to do with confusion over the differences between Medicare and Medicaid, and what those programs will actually cover when it come to long term care. There is also some confusion around what is meant by long term care.
Medicare is a federal program designed to cover the cost of health care for elderly Americans as well as those with disabilities. Medicaid is a joint state and federal health care program, but it provides health care benefits for people with low incomes. Eligibility for Medicaid varies from one state to another. Seniors can be covered by both Medicare and Medicaid if they meet the income and asset eligibility requirements for Medicaid in their state.
Long term care refers to assistance with activities of daily living in a person who is not in need of acute hospital care. If an elderly person becomes sick or injured and has to be hospitalized for treatment, Medicare will cover the hospital bills (although not in full, which is where a Medigap supplement comes in). But if a person is in need of assistance with things like eating, bathing, dressing, and getting into or out of bed (as opposed to acute medical treatment), there is no benefit from Medicare to pay for this custodial care.
Medicaid does provide some benefits for long term care coverage, but there are significant restrictions on eligibility and where benefits can be provided. Eligibility for nursing home care funded by Medicaid in Colorado requires that a person have very little in the way of assets, and that all monthly income (with the exception of $50/month that can be retained for personal use) be turned over to the nursing home. Then Medicaid picks up the rest of the tab each month. In addition, the person must have a need for nursing home care, which means that remaining at home and having someone come in to help with activities of daily living is not an option if Colorado Medicaid is paying for the person’s long term care. Although we’re lucky to have Medicaid in place for people who need it, according to the Joint Budget Committee Staff, “For the most part, the Colorado Medicaid program is a “bare bones” program, providing mainly the federally required services for federally required populations.”