Does insurance cover assisted living? Here's what experts say

April 2, 2021

Planning for potential future care for yourself or an aging loved one can be overwhelming. One of the reasons why: the financial uncertainty and confusion around medical policies. If living alone or at home is no longer an option, will insurance cover an assisted living facility?

Assisted living is right for older adults who are independent but would benefit from having their housing combined with other social and medical resources. Residents typically stay in their own rooms while the facility provides a safe environment for daily activities and communal space for meals as well as a well-rounded staff that includes doctors, nurses and social workers. 

All of this can come at a steep cost: According to the latest Genworth Cost of Care Survey, the national median cost to live in an assisted living facility in 2020 was $4,300 per month or $51,600 per year. The exact cost of assisted living varies by state but is high no matter where you live. 

Assisted living expenses a policy will — and will not — pay for

Wondering which assisted living costs an insurance policy will pay for? The answer: “It truly depends what types of insurance policies or riders you have in place,” explains Louis Colaizzo, senior vice president of Erie Family Life.

Many people often assume that health insurance or Medicare will cover long-term care, including assisted living facilities — but that is not the case, adds Brad Baune, a wealth management advisor at Northwestern Mutual. “Traditional health insurance does not cover assisted living expenses, though there are some options for additional support,” he says. “If you are unprepared it may limit the type of care you can receive and how quickly you can receive it.”

Private long-term care insurance may provide some benefits for long-term care residents but coverage varies depending on the company and policy. 

Travis Price, a Medicare and final expense insurance agent, advises that before researching your policy further as far as assisted living or nursing home benefits, it’s important to understand two types of care. Custodial care is when providers assist with the activities of daily living (such as eating, drinking, dressing and bathing). This is what you'll typically see at an assisted living facility as well as a nursing home. Then there's skilled care, which inpatient rehabilitation or nursing care like intense physical or occupational therapy, wound care or other specialized therapies.  

The key difference: Skilled care must be given by a licensed medical professional, like a registered nurse, respiratory therapist, physical therapist or speech pathologist, etc. “A person could initially go into skilled nursing care for rehab, for example, a stroke patient; but ultimately need ongoing long-term personal care that requires a nursing home due to lack of progress or improvement,” he says.

Different types of insurance

Barnes Stephenson, managing director of Oak Hill Assisted Living Community in Angier, North Carolina, says that in his experience, the biggest misconception he sees is people thinking that neither Medicare or Medicaid cover non-medical services such as assisted living. 

“In most states, the state Medicaid program will cover a small portion of some costs of assisted living for its eligible residents,” he says. “Veterans and their spouses may qualify for a monetary monthly benefit under the VA Aid and Attendance Benefit that can also be used for assisted living.”

But depending on the insurer, you or your loved one might have different benefits. A brief overview: 

Medicaid

This federal plan provides nursing home or custodial benefits for lower-income individuals who qualify. “There are many Medicaid programs that can be used toward costs related to medical needs and treatment of a resident at an assisted living facility,” says Baune. “However, Medicaid will not fund living expenses or monthly fees to live in the facility, so these payments are specific to certain services rather than a lump sum towards the monthly fee.”

Unlike nursing homes, assisted living facilities typically are not all-inclusive and instead have additional costs depending on services. 

Medicare

This federal plan provides medical benefits to individuals 65 and older or for individuals that qualify for disability benefits if under age 65.

Medicare does not cover long-term custodial care, such as assisted living facilities or nursing homes. “It can cover a skilled nursing facility after a qualifying hospitalization,” says Price. “Skilled nursing care would fall under Part A if you have an inpatient hospitalization for at least three days and the doctor notes that it’s medically necessary.” 

That said, here’s what to know about Medicare Parts A, B and D. 

Medicare part A can be thought of as “hospital insurance,” and it provides benefits for in-patient hospital care, skilled nursing facility care, hospice care and certain home health care services.  

Medicare part B can be thought of as “medical insurance” as it provides medical benefits for out-patient care  including physician fees, outpatient hospital services, durable medical equipment and some preventive services. Other examples include physical/occupational/speech therapies and an annual flu vaccine shot.

“With Medicare Parts A and B, you’re required to pay deductibles and coinsurance for Medicare-provided services,” she says.  However, there are Medicare Supplement plans designed to help pay for costs like deductibles, copayments, and coinsurance that you’d typically pay out of your own pocket. 

Medicare part D provides benefits for medications and prescription drugs. Medicare part C rolls Medicare parts A/B/D into one plan. 

“It provides similar benefits to traditional Medicare parts A/B/D and may even provide a benefit that traditional Medicare parts A/B don’t cover,” says Barnes. “Pay close attention to Medicare part C monthly premiums versus cost of actual care because these plans often have a very low premium but can cause significant out-of-pocket expenses if a person needs to use Medicare part C benefits.”

Private medical insurance 

These types of plans usually provide benefits for services allowed or covered by Medicare but not paid in full by Medicare. 

An example of this, according to Barnes: A Medicare part A skilled nursing coinsurance of $185.00 per day or the 20% of therapy charges under Medicare part B. However, private insurance coverage varies tremendously depending on the insurance company plan, he says. It also generally does not pay for long-term care benefits.

Long-term care insurance 

These policies can provide benefits for services and items not covered by Medicare or medical insurance and cover some of the costs of assisted living.  “Long-term care includes care provided by nursing homes, assisted living, adult day care, hospice, skilled nurses or home health aides,” says Baune. “Having a plan in place can give you freedom to stay at home or be cared for at a quality assisted living facility.” 

Although exact benefits are policy-dependent, with different policies providing different coverages, most policies have a limit to the amount of benefits a person receives, explains Stephenson. 

“In my experience, the insurance company verifies its policyholder is receiving services at an accredited assisted living facility, confirms the dates of service, and reimburses the facility directly,” he says. “Often a resident’s LTC policy pays a portion of the monthly cost, and the resident pays the remaining balance.”

Colaizzo also notes that for many, an LTC rider is a more appealing option than a stand-alone LTC policy, because it may be expensive and require more extensive underwriting.  “With a Long-Term Care (LTC) Accelerated Death Benefit Rider from Erie, you’ll have the flexibility to use your money for what you need,” he says.

Here’s an example of how long-term care insurance (LTC) could work depending on your policy, according to Colaizzo: 

  • You can choose a monthly benefits distribution of 2%, 4% or 8% of the death benefit of the life insurance policy. 

  • You can collect (as long as you meet eligibility criteria as outlined in the policy) up to the value of the residual death benefit. (There may be a minimum payable for any month.)

  • The LTC benefits are distributed directly to you and can be used for anything you deem appropriate, including adult day care services, assisted living care, home health care and other forms of care.

  • The acceleration percentage does not change with payment of benefits, unless you request a change when you have a claim.                                                                                               

Long-term care insurance tips

If you’re considering  purchasing long-term care insurance for yourself or a loved one, here are some must-knows to consider while shopping.

A variety of individual factors affect how much you’ll pay. The premium is usually based on combination of individual factors including a person’s age, sex and health conditions at the time of application and benefits. The length of elimination period can also vary, typically 30, 60 or 90 days. “Women pay more than men, older people pay more than those who are younger,” says Price. “Furthermore, LTC plans can and often do increase in premium as you age.”

Think about investigating hybrid term life insurance plans with LTC riders. These policies work pretty much the same as an LTC insurance plan, except the “pool” of money is the policy’s face amount , explains Price. “The policy pays around 1-4% of the face amount every month in the event you have to go into long-term care after the elimination period, up to the face amount.”

However, Colaizzo adds that for some assisted living fees to be eligible for coverage from a long-term care rider, the person typically is someone who requires hands-on daily care from a nurse or health aide for extended periods of time. “The benefits are triggered when a licensed health professional certifies that you are unable to complete at least two Activities of Daily Living (ADLs) independently,” he says. if an older adult is unable to perform at least two of the six Activities for Daily Living (ADLs). These include: 

  • Eating.

  • Bathing.

  • Getting dressed.

  • Walking.

  • Reliving bodily fluids.

  • Maintaining bladder continence.

“The coverage for an LTC rider is provided through an acceleration of death benefits on a life insurance policy,” he adds. That means the payments that you receive to cover long-term medical expenses are subtracted from the amount that will be paid to beneficiaries through the life insurance policy after your death.”

See if your state offers partnership plans. These are certain incentives from Medicaid for someone to get long-term care insurance, according to Price. 

“These states allow you to keep assets that you'd usually have to spend to get under the $2,000 in assets to qualify for Medicaid,” he says. “It's usually one dollar for every dollar that the LTC plan pays out that you get to keep and still qualify.” 

The bottom line: Unfortunately, there isn’t a simple, universal answer for whether insurance  policies will cover the cost of assisted living if you or a loved one decides to move forward with this type of living facility. But hopefully having a better understanding of the nuances surrounding this simple question with a complicated answer will help make for a smoother transition.

Tips and stories from parents and caregivers who’ve been there.

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