Medicare covers a lot. It doesn’t cover long-term care — the gap most families don’t find until a parent needs help.
If you’ve watched a loved one navigate a nursing home stay, you may have discovered something most people learn too late: Medicare doesn’t cover long-term custodial care. The help most people picture when they think about aging — ongoing assistance with bathing, dressing, eating, and managing daily life — falls outside what Medicare pays for. That distinction, between skilled care and custodial care, is the line most families don’t see until they’re standing on the wrong side of it.
In fact, about 70% of people turning age 65 will need help with everyday activities like getting dressed and making meals at some point in their lives.3 For families who have built meaningful wealth, the question isn’t whether you can afford care. It’s how the cost of care can reshape a financial plan.
At Mercer Advisors, we have insurance specialists who offer guidance as part of our comprehensive wealth management approach — fulfilling our promise to be a family office for all families.
What Medicare covers
Medicare Part A covers short-term, skilled rehabilitation in a nursing facility for up to 100 days following a qualifying hospital stay, such as physical therapy after a hip replacement. Medicare covers the full cost for the first 20 days of a skilled nursing stay; from day 21 through day 100, members pay a daily coinsurance amount while Medicare covers the rest. After 100 days, Medicare coverage ends. Medicare covers many important medical services, but planning separately for custodial care is essential. This can help give you ongoing support for everyday activities that can become more challenging over time because of aging, evolving needs, or health changes.
Medicare does cover some home healthcare following a hospital or skilled nursing facility stay, including part-time skilled nursing services, wound care, IV medication setup, and physical therapy. However, home healthcare under Medicare is temporary. Complete details are available in the government’s Medicare & Home Health Care booklet.
The cost of the gap
Private nursing home care now averages approximately $129,575 per year nationally for a private room, according to a 2025 survey.4 Long-term care needs vary widely: About 20% of people will require long-term care for more than five years, with women needing it longer on average than men (3.7 years versus 2.2 years).5
A two- to three-year care need for one partner doesn’t just consume assets — it can reshape the income picture, the investment strategy, the balance sheet, and the legacy plan for whoever remains. The risk isn’t destitution. It’s the quiet redistribution of a financial plan.
Self-funding vs. insurance: The question for established wealth
For families with substantial assets, self-funding is an option. The math is straightforward: If you have enough funds set aside, it may be possible to manage the cost of care without insurance. But self-funding has a hidden cost that depends on where the money lives.
If most of your wealth sits in pretax retirement accounts, every dollar withdrawn to pay for care requires a grossed-up taxable distribution. A $130,000 care bill funded from an IRA might require withdrawing $190,000 or more, depending on your tax bracket and state. That tax drag can make self-funding meaningfully more expensive than the invoice suggests.6
Funding care from a taxable brokerage account avoids that challenge. However, it means liquidating investments that might otherwise compound and grow. The opportunity cost is real.
Hybrid policies: The middle ground
Hybrid policies, which combine life insurance or an annuity with long-term care benefits, have become the most common structure in the market today.7 They offer some key advantages over traditional coverage: If you never need care, the policy still pays a death benefit to your heirs. That answers the question that keeps many people from buying traditional long-term care insurance: “What if I never use it?”
A hybrid policy funded with a single premium from a taxable account can address the most relevant risks without the premium instability that has affected traditional policies over the last decade. Premiums are typically locked by contract, which can help mitigate the risk of future increases that some traditional policyholders have experienced.
A tax-efficient way to fund a hybrid policy is also available. You can often repurpose existing life insurance or annuity value into a hybrid through a tax-free 1035 exchange, turning a legacy asset into care protection without triggering a taxable event.
The timing problem
This is a decision that gets harder the longer you wait, not easier. According to the American Association for Long-Term Care Insurance, insurers deny traditional long-term care coverage for nearly half of applicants in their 70s — compared to about 14% in their 50s.8 Health qualifications tighten with age, and premiums rise sharply, so the sooner you consider your options, the better. Long-term care isn’t 100% rooted in life stages. It’s about family history, a permanent disability, or an unforeseen illness.
The practical implication: If long-term care insurance is going to be part of your plan, the window to secure it at a reasonable cost closes earlier than most people assume.
Beyond insurance: The documents that matter
Long-term care isn’t only a financial question. It’s a legal and logistical one. In a care situation, the hardest moments often aren’t the medical ones — they’re the emotional and logistical ones: who has authority, who knows the plan, and who can act without conflict or delay.
An advance healthcare directive that lives in a filing cabinet doesn’t help anyone making decisions at 2 a.m. in an emergency room. The documents that matter — durable power of attorney, healthcare proxy, living will, and HIPAA authorizations — need to be current, accessible, and known to the people who may need them. Download our Family Records Workbook to help organize and securely store the information your family may need in an emergency.
How long-term care fits your broader plan
Long-term care isn’t a separate topic from your financial plan. It sits at the center of it — connected to retirement income, estate planning, survivor income, generational giving, and your timeline for legacy goals. Coordinating across these areas is where comprehensive planning adds the most value.
On the insurance side, a hybrid policy can protect your portfolio from a catastrophic care event while preserving a death benefit for your heirs. On the estate planning side, updated documents help ensure that care decisions can be made without court intervention or family conflict. On the investment side, setting aside a dedicated reserve — or letting a policy handle the tail risk — keeps your portfolio invested for growth rather than liquidated for care. And on the tax side, funding a policy through a 1035 exchange or from the appropriate account can reduce the tax cost of preparing for care. With proactive planning, the overall financial plan stands the best chance for success today and tomorrow.
Your next step
If you haven’t looked at how a long-term care event would affect your plan, now is the time. The cost of waiting isn’t just higher premiums — it’s the potential difficulty in securing coverage. A conversation with your wealth advisor can help you weigh self-funding against insurance, coordinate the decision with your estate and tax planning, and help ensure the people who may act on your behalf know the plan.
Ready to learn more?
FAQs
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Medicare covers short-term skilled nursing facility care for up to 100 days following a qualifying hospital stay, but it doesn’t cover ongoing custodial care — the help with daily activities like bathing, dressing, and eating that most nursing home residents need. Custodial care is what most people mean by long-term care, and it falls outside Medicare entirely.
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Skilled care is medical care provided by licensed professionals, such as physical therapy after surgery or wound care. Custodial care is nonmedical assistance with daily activities like bathing, dressing, and eating. Medicare covers short-term skilled care but doesn’t cover custodial care, which is what most long-term care involves.
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The right choice depends on your assets, where they’re held, and your risk tolerance. Self-funding from a taxable account avoids premium costs but ties up capital and creates opportunity cost. Funding care from a pretax retirement account adds tax drag. A hybrid policy can protect your portfolio from a catastrophic care event while preserving a death benefit if you never need care.
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For families with established wealth, long-term care insurance is less about affordability and more about protecting a financial plan built for two. A multiyear care event for one partner can reshape retirement income, investment strategy, and legacy plans. Insurance — particularly a hybrid policy — can transfer that risk while preserving assets for the surviving partner and heirs.
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Mercer Advisors offers complimentary consultations to help you assess how a care event would affect your plan. A wealth advisor can review your estate, tax, and investment strategies to help you weigh self-funding against insurance options and coordinate long-term care planning with your full financial picture.
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Traditional long-term care insurance pays only if you need care; if you never use it, the premiums are nonrecoverable. Hybrid policies combine life insurance or an annuity with long-term care benefits, so if you never need care, the policy still pays a death benefit to your heirs. Traditional policies have historically faced rate increases, while hybrid policies typically have locked premiums.
1 “How Much Care Will You Need?” U.S. Department of Health & Human Services, Feb. 18, 2020.
2 “Calculate the Cost of Long-Term Care Near You.” CareScout®, 2025.
3 “How Much Care Will You Need?” U.S. Department of Health & Human Services, Feb. 18, 2020.
4 “Calculate the Cost of Long-Term Care Near You.” CareScout®, 2025.
5 “How Much Care Will You Need?” U.S. Department of Health & Human Services, Feb. 18, 2020.
6 “A Private Nursing-Home Room Ran a National Median Near $130,000 in 2025, and Medicare Won’t Cover That Custodial Care.” The Financial Wire, August 2026.
7 “Is a Long-Term Care ‘Hybrid’ Policy Right for You?” Morningstar, Aug. 25, 2025.
8 “2024 Long-Term Care Insurance Facts – Prices – Data – Statistics – 2024 Reports.” American Association for Long-Term Care Insurance, 2024.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy.
For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
Mercer Advisors is not a law firm and does not provide legal advice to clients. All Estate planning document preparation and other legal advice are provided through select third parties, with which Mercer Advisors has a contractual relationship. Tax preparation and filing services are provided by Mercer Advisors Tax Services, LLC. Clients will sign a separate agreement when engaging Mercer Advisors Tax Services that defines the services provided and any additional fees that may apply. Insurance products are provided by Mercer Advisors Insurance Services, LLC (MAIS), which places individual life, disability, long term care coverage, and property and casualty coverage through select insurance companies. Trustee services are offered through select third parties with which a client would sign an additional agreement, and additional fees may apply.
