Long-Term Care Planning Without Long-Term Care Insurance

The traditional long-term-care insurance market has collapsed over the past 20 years — premium spikes, carrier exits, declining applicant approval rates. For most retirees today, "buying LTC insurance" is not a real option. The planning question is what to do instead.

The scale of the risk

Per the U.S. Department of Health and Human Services' Administration on Aging, about 70% of Americans turning 65 will require some form of long-term services and supports during their remaining lifetime. About one in seven will need care for more than five years. The average cost of a private nursing-home room in 2024 was about $116,000/year (Genworth Cost of Care Survey); home health aide services averaged about $77,000/year.

Medicare does not cover sustained custodial care. Medicaid covers nursing-home care only after the recipient spends down to ~$2,000 in countable assets (state-specific). The gap between $2,000 and a typical pre-LTC retiree balance is the planning problem.

Self-funding

For a household with sufficient assets — typically $1.5M+ outside the primary residence — the math of self-funding often beats insurance. A 65-year-old couple buying a quality LTC policy today might pay $6,000/year combined; over 25 years that is $150,000 of premium without inflation. Invested at 6% real return, the same $6,000/year grows to about $320,000 by age 90 — enough to fund roughly 3 years of nursing care at today's rates.

Self-funding is a reasonable answer when (a) the household has enough liquid assets, (b) the surviving spouse can absorb a multi-year care episode without impoverishment, and (c) the household has the discipline to keep the dedicated reserve invested rather than spent.

Hybrid life/LTC policies

"Asset-based" or "linked-benefit" policies combine a permanent life insurance death benefit with an LTC rider that accelerates the death benefit (and sometimes extends it) for care. Common structures:

• Single lump-sum premium (e.g., $100,000) buying a death benefit (e.g., $200,000) and an LTC pool (e.g., $400,000 over 6 years).
• If you need LTC, the policy pays out for care; what you don't use passes to heirs tax-free as life insurance.
• Premiums are not deductible (unlike traditional LTCi premiums, which can be deducted up to age-based caps under IRC §213(d)(10)).

The trade: you pay a large premium and lock up the capital, but in exchange you eliminate the "use it or lose it" feature of traditional LTCi. For households with surplus capital they would otherwise leave to heirs, the math often works.

HSA stockpile

An HSA funded and invested aggressively from age 40 onward becomes a meaningful LTC reserve by age 80. A couple contributing the family maximum from 40 to 65 ($8,550/year, growing modestly) and never spending it could accumulate $400,000+ of tax-free medical-expense funds by 80. LTC services are HSA-qualified expenses under §213(d). Combined with the post-65 "stealth IRA" treatment, the HSA is one of the cleanest LTC pre-funding vehicles available.

Medicaid planning, what still works

The Deficit Reduction Act of 2005 imposed a 5-year lookback on asset transfers for Medicaid eligibility — most simple "gift the assets to the kids" strategies are now ineffective. What still works in 2025:

• Irrevocable Medicaid Asset Protection Trust (MAPT). Transferring assets at least 5 years before applying for Medicaid removes them from the asset count. Works if the planning happens far enough in advance.
• Spousal asset protection. Federal law (the Medicare Catastrophic Coverage Act of 1988, codified at 42 U.S.C. §1396r-5) protects a "community spouse" from impoverishment — minimum monthly maintenance allowance and a community-spouse resource allowance (about $157,920 in 2025) are exempt.
• The primary residence equity cap. Most states exempt up to ~$730,000 of home equity from the Medicaid asset count, as long as the applicant or spouse intends to return home.
• The annuity strategy. Converting countable assets into an actuarially sound Medicaid-compliant annuity payable to the community spouse can preserve significant resources. State-specific and aggressive — get a qualified elder-law attorney.

Common mistakes

• Buying inadequate coverage to save premium. A $100/day daily benefit purchased 20 years ago buys very little nursing-home care today. Inflation-adjusted policies cost much more but the bare bone alternative often fails when needed.
• Waiting too long to plan Medicaid. The 5-year lookback means transfers within 5 years of application count against eligibility. Plan in your 60s, not your 80s.
• Assuming Medicare covers nursing care. Medicare covers up to 100 days of skilled care after a hospitalization. It does not cover custodial care, which is what most long-term residents need.
• Forgetting the tax deduction. Medical expenses (including LTC) above 7.5% of AGI are itemized deductible under §213. For high-AGI retirees the threshold is high, but for those depleting assets it can become meaningful.

Sources

• Internal Revenue Code §7702B, qualified long-term care insurance (Cornell LII): law.cornell.edu/uscode/text/26/7702B
• Internal Revenue Code §213(d), medical expense deduction definition: law.cornell.edu/uscode/text/26/213
• Administration on Aging, "How Much Care Will You Need?": acl.gov/ltc/basic-needs
• 42 U.S.C. §1396p, Medicaid transfer-of-assets and lookback rules: law.cornell.edu/uscode/text/42/1396p
• Genworth, "Cost of Care Survey" (annual): genworth.com cost of care
• Medicare.gov, "Long-Term Care": medicare.gov/coverage/long-term-care

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