Long-term care in late life can cost a pretty penny, but you can mitigate out-of-pocket costs.

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Since nearly 10,000 people turn 65 in the US every year, according to Census Bureau data from 2019, chances are you have a beloved senior in your life. Or maybe you're in your golden years yourself. About one in three seniors crossing that milestone now will need nursing home care at some point in their lives, according to a Kaiser Family Foundation (KFF) analysis. Yet, the average annual cost of nursing home care is much higher than most seniors' income.

Here's a look at what families often pay out of pocket, which services cover long-term care, and how to plan.

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Nursing home cost and affordability

Between 2004 and 2020, long-term care costs have surged. A Cost of Care Survey by Genworth shows a 62% increase in the price of a private room in a nursing home and a 79% increase in the cost of care in an assisted living facility. Collectively, Americans now pay more than $60 billion in long-term care costs, according to the Congressional Research Service (CRS). 

Fees vary by region and facility. But on average, a person now turning 65 in the US will incur $138,000 for future long-term care services. And they, or their loved ones, will pay about half of that cost out of pocket, according to the Office of the Assistant Secretary for Planning and Evaluation (ASPE). But about one in six people will pay more than $100,000 out of pocket. Many will incur costs above this if medical care is also needed, though health insurance policies may offer some relief. However, most long-term care benefits only cover help with daily living tasks, such as eating and bathing.

For 2018, the median income of households headed by someone 65 and older was about $64,000, according to a report by the Administration for Community Living. And in 2017, more than 7 million seniors 65 and older had incomes below the Supplemental Poverty Measure, according to KFF. So nursing home care can be unaffordable for many people and their families.

Does Medicare or Medicaid pay for nursing home care?

Medicare typically does not cover long-term care in a nursing home. However, basic Medicare does cover some medically necessary short-term care in a skilled nursing home facility for an illness or injury. 

Medicaid does provide coverage for eligible individuals in homes that are licensed as Medicaid Nursing Facilities. In 2017, Medicaid covered about 6 in 10 nursing home residents, according to KFF. And in 2019, Medicaid paid a collective $192 billion in long-term care costs, reports the (CRS). For nursing home coverage, individuals must undergo a review that demonstrates the need for care, and they must meet low-income requirements. The American Council on Aging lists income thresholds for seniors by state.

Those who don't meet the income requirement for Medicaid have the option to "spend down" income and assets. Medicaid typically does not count a person's home as an asset when determining income eligibility. But Medicaid estate recovery programs allow states to then sell the home to recoup costs after a person's death. So consult an elder law or Medicaid lawyer to help you determine options. You may wish to transfer assets or set up a trust in advance of applying for Medicaid coverage if you wish for property to be passed to a loved one.

Other coverage options for nursing home costs

The Veterans Health Administration paid for roughly a quarter of long-term care services in 2019, totaling nearly $7 billion, according to the CRS. Beneficiaries must be signed up for VA Health, have a need for care, and meet other requirements. You can find out if you qualify or learn more by calling the VA hotline: 877-222-8387.

Planning for nursing home care 

If possible, long-term care planning should start early, well before retirement age. You can purchase private long-term care insurance to help pay for a potential nursing home stay down the road. Premiums are often lower the earlier the policy begins. 

Plus, purchasing a long-term care plan has some benefits beyond the actual coverage. If you itemize on your taxes, you can deduct all or a portion of your premiums as a medical expense if they meet the threshold. Such deductions can help reduce your tax burden. Additionally, some states have what's called a partnership program that links qualified long-term private policies with Medicaid. If you purchase a partnership policy under such a program, then you might qualify for Medicaid benefits without having to spend down as much of your assets when your long-term care policy benefits run out.

And remember: Nursing home care may not be the only option for you or your loved one who needs assistance. The National Institute on Aging lists resources for aging in place and other money-saving alternatives.