Most people plan for retirement income.
Almost no one plans for what happens to that income if they need long-term care.
That gap – between what retirees have saved and what care actually costs – is one of the largest unaddressed financial risks in America today. And it just became more expensive.
Long-term care costs have increased approximately 50 percent since 2020. A private nursing home room now averages over $100,000 per year. Assisted living communities average over $60,000. In-home care – what most people say they want – runs $30 to $40 per hour and compounds quickly with full-time needs.
At the same time, recent legislation has expanded the tax deduction for long-term care insurance premiums, creating a window to address this risk while reducing your current tax bill.
Here is what long-term care actually costs, what Medicare does and does not cover, and how the new deduction works.
What Long-Term Care Is – and Who Needs It
Long-term care refers to assistance with daily activities – bathing, dressing, eating, toileting, transferring (moving from a bed to a chair), and managing continence – that a person can no longer perform independently due to aging, illness, injury, or cognitive decline such as dementia or Alzheimer’s disease.
Long-term care is not hospital care. It is not short-term rehabilitation. It is extended support, often lasting years, that addresses functional limitations rather than acute medical conditions.
The statistics are significant. According to the U.S. Department of Health and Human Services, approximately 70 percent of Americans who turn 65 today will need some form of long-term care during their lifetime. The average duration of long-term care need is three years. For those with dementia or Parkinson’s disease, the duration is often five to eight years or more.
This is not a small-probability risk. For most Americans approaching retirement, it is an expected cost at an uncertain time.
What Medicare Does Not Cover – and Why This Surprises So Many People
Medicare is the federal health insurance program that covers Americans aged 65 and older. It covers hospital stays, doctor visits, preventive care, and short-term skilled nursing facility care following a qualifying hospital admission.
Medicare does not cover custodial care – the assistance with daily living activities that defines most long-term care needs. Medicare pays for a skilled nursing facility stay only if: (1) you have a qualifying hospital inpatient admission of at least three days, (2) you enter the skilled nursing facility within 30 days of that admission, and (3) you require skilled nursing or rehabilitation services, not simply custodial assistance. Even when all conditions are met, Medicare covers only the first 20 days at full cost and requires a significant daily co-payment from days 21 through 100. After day 100, Medicare coverage ends entirely.
For the average retiree who needs three years of custodial long-term care in an assisted living facility or at home, Medicare provides essentially nothing. The cost falls to the individual – or to Medicaid, the joint federal-state program for low-income individuals, which requires spending down assets to near-poverty levels before it will pay.
King Legacy Group works with clients to build long-term care funding strategies that protect accumulated assets and income – so neither Medicaid spend-down nor family financial disruption becomes the default.
The 50 Percent Cost Surge: What Is Driving It
Between 2020 and 2025, long-term care costs increased approximately 50 percent across all care categories. Several factors drove this surge:
Labor costs. Long-term care is a labor-intensive industry. Nursing assistants, home health aides, and licensed practical nurses all saw significant wage increases during and after the pandemic as workforce shortages created competition for qualified caregivers. Labor represents the largest single cost in any care setting.
Inflation across all inputs. Food, utilities, linens, medical supplies, and facility maintenance costs all increased at rates well above historical averages between 2021 and 2024. Long-term care facilities absorbed these costs and passed them forward through rate increases.
Demand outpacing supply. The leading edge of the Baby Boomer generation reached their mid-70s during this period, increasing the population with elevated long-term care probability at precisely the time supply constraints were reducing available beds and caregivers.
The result is that a retirement plan built around pre-2020 long-term care cost assumptions now carries a significant funding gap. A couple who planned in 2018 for potential nursing home costs of $250,000 per spouse – a reasonable number at the time – now faces a realistic cost of $375,000 or more per person for the same level of care.
The New Tax Break: What Recent Legislation Changed
The One Big Beautiful Bill Act – passed by the U.S. House of Representatives in May 2026 and currently moving through the Senate – includes expanded deductibility provisions for qualified long-term care insurance premiums.
Under prior law, long-term care insurance premiums were deductible as medical expenses only to the extent that total medical expenses exceeded 7.5 percent of adjusted gross income (which is your total income before most deductions). This threshold prevented most taxpayers from ever receiving a meaningful deduction.
The expanded provisions in the One Big Beautiful Bill Act move toward treating long-term care insurance premiums as an above-the-line deduction – meaning a deduction you can take regardless of whether you itemize, and regardless of the 7.5 percent threshold. For self-employed individuals, the enhancement is even more direct, moving long-term care premiums into the same favorable treatment as health insurance premiums.
The premium amounts eligible for the deduction are tied to age-based limits set by the IRS. In 2026, those limits range from approximately $480 per year for individuals under age 41 to approximately $6,020 per year for individuals age 71 and older. For a married couple in their mid-60s, the combined eligible premium deduction could represent $8,000 to $10,000 in above-the-line deductions annually.
Note: the final passage and specific parameters of the One Big Beautiful Bill Act remain subject to Senate action. The above-the-line expansion represents the House-passed version. Business owners and individuals should confirm final legislation with their tax advisor before structuring around it.
The Hybrid Solution: Long-Term Care Coverage With a Death Benefit
Traditional long-term care insurance – where you pay annual premiums and file a claim if you eventually need care – has become increasingly difficult to obtain and expensive to maintain. Many carriers have exited the standalone long-term care insurance market entirely. Those that remain have raised premiums substantially and tightened underwriting requirements.
The more common approach today is the hybrid long-term care strategy: a permanent life insurance policy with a long-term care rider, or a fixed annuity with a long-term care benefit.
Here is how the hybrid life insurance approach works: you fund a life insurance policy with a lump sum or multi-year premium. The policy provides a standard death benefit. It also includes a long-term care rider governed by Section 7702B of the Internal Revenue Code, which allows a portion of the death benefit to be accessed tax-free during your lifetime to pay for qualified long-term care expenses. If you never need long-term care, your beneficiaries receive the full death benefit. If you do need care, the long-term care benefit is drawn down first, and any remaining balance passes as a death benefit.
The key advantage: it is not a “use it or lose it” product. With standalone long-term care insurance, you may pay premiums for decades and never file a claim – and those premiums are simply spent. With a hybrid policy, the money either pays for your care or becomes a death benefit for your family.
Section 101(g) of the Internal Revenue Code provides that accelerated death benefits paid under a life insurance policy for a chronically ill individual – which is the technical definition of most long-term care claims – are excluded from gross income. This means long-term care benefits paid from a qualifying hybrid policy are received tax-free.
Case Study: The Couple Who Could Not Afford Not to Plan
Consider a married couple, both age 62, approaching retirement with $1.2 million in combined savings. They have been told they are in good financial shape. What no one showed them was their long-term care exposure.
A simple projection: if either partner requires three years of assisted living care at current average costs of $64,000 per year, the total out-of-pocket cost is $192,000. If both partners need care – a scenario that occurs in approximately 30 percent of married couples – the total reaches $384,000. That is nearly one-third of their total savings consumed by a single cost category they had not planned for.
Their advisor introduces a hybrid life insurance policy with a long-term care rider for each spouse. Total annual premiums: $12,400 combined. Under the expanded deductibility provisions, their adjusted gross income is reduced by the applicable above-the-line deduction. Each policy carries $350,000 in long-term care benefits, accelerated from a life insurance death benefit of $250,000.
Their assets are protected. Their retirement income plan remains intact. And the premium payment itself generates a tax benefit that partially offsets the cost.
Frequently Asked Questions
Does Medicaid pay for long-term care?
Yes, but only after you have spent down your assets to Medicaid eligibility thresholds – which vary by state but generally require reducing countable assets to $2,000 or less for a single individual, with certain protections for a surviving community spouse. Medicaid-funded care is available at Medicaid-certified facilities only, which limits choice of provider and geographic access.
When is the best age to purchase long-term care coverage?
The ideal window is ages 55 to 65. Premiums are significantly lower at younger ages because health is generally better and underwriting approvals are more accessible. Waiting until 70 or later results in substantially higher premiums – if the coverage is still available at all, as health conditions that develop between 60 and 70 can disqualify applicants entirely.
Can I use money from a Health Savings Account to pay long-term care premiums?
Yes. A Health Savings Account – a tax-advantaged account available to people enrolled in a high-deductible health plan – can be used to pay qualified long-term care insurance premiums up to the same IRS age-based limits that apply to the income tax deduction. This creates a double tax benefit: the Health Savings Account contribution reduces taxable income, and the withdrawal is tax-free when used for qualifying premiums.
What is the difference between “skilled nursing” and “custodial care”?
Skilled nursing requires the services of a licensed nurse or therapist – IV medication administration, wound care, physical therapy, and similar clinical services. Custodial care refers to assistance with daily living activities that does not require a medical license to provide. Medicare covers skilled nursing (under limited conditions). Long-term care insurance covers custodial care. Most people in long-term care facilities eventually transition from needing skilled nursing to needing custodial care – which is when Medicare coverage ends and long-term care coverage becomes essential.
What happens if I have a hybrid policy and never need long-term care?
If you hold a hybrid life insurance policy with a long-term care rider and never access the long-term care benefit, the full death benefit is paid to your named beneficiaries upon your death, generally income-tax-free. The policy functions as standard life insurance for its full term.
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King Legacy Group builds retirement plans that account for long-term care risk from the start – not as an afterthought. Protection strategies, tax-efficient funding, and the right policy structure are part of how we build a plan that holds up across your full retirement.
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