Need long-term care but never planned for it? Here's a loophole

One of the biggest wildcards in retirement is what health care will cost, but many Americans still don’t plan for it.

Nearly 8 in 10 (78%) of Americans say they’re concerned about the impact of rising healthcare costs on their retirement, according to a D.A. Davidson survey of more than 1,000 adults in February. Six in 10 Americans also said they know a retiree who’s struggled with healthcare costs. Yet, fewer than half (48%) have factored these increasing costs into retirement planning, the survey said.

Since tomorrow is never promised, many Americans who put off planning could face a health care emergency that derails their travel, leisure and other retirement plans, advisers said.

“Healthcare is one of the most significant, and yet still underestimated, expenses that most retirees will face,” said Andrew Crowell, financial advisor and vice chairman of Wealth Management at D.A. Davidson, in a release. “Healthcare inflation typically runs at least twice the rate of overall inflation, yet many people experience denial over the fact that this could impact their retirement strategy one day.”

How much does health care cost in retirement?

A couple retiring at age 65 in 2025 spent on average $345,000, up nearly 41% from $245,000 in 2015, on health care throughout their retirement, according to Fidelity.

If an elderly person requires long-term support and services either at home or in a nursing home, costs skyrocket. The U.S. Department of Health and Human Services estimates that a person turning 65 today has a 70% chance of requiring long-term care services, or help with daily living activities, at some point in their golden years. 

The least expensive option is adult day care services, with the national median cost at $95 daily, or $24,700 annually based on five days per week, according to the 2025 Genworth/CareScout Cost of Care Survey. If someone requires more care in a nursing home, median costs can reach $114,975 annually for a semi-private room or $129,575 annually for a single room, it said. With inflation, these costs will likely continue climbing, too, it noted.

Can people use Medicaid?

Many Americans who don’t have enough money to pay turn to Medicaid, which may cover long-term care that isn’t covered by Medicare.

However, Medicaid has income and asset limits to qualify. For 2026, Medicaid generally limits individuals to $2,000 in countable assets and, for long-term care, roughly $2,901 monthly in income though that amount varies by state. The asset limit applies to bank accounts, stocks, and secondary property, but primary homes, vehicles, and personal items are usually exempt. Counted income includes Social Security benefits, pension payments, IRA payments, property income, alimony, dividends, salary and wages.

Medicaid also has a lookback period of about 5 years, meaning if you gave any money say, to pay for a grandchild’s education, to pay for someone’s debt or rent, to charity or sold something for less than market value during those years, you could be disqualified. You may also be penalized, unable to apply for Medicaid for a certain period.

Is there an option for people who didn’t plan?

Americans may consider a Medicaid annuity, experts said.

 “It depends on the extent of the wealth people have,” said Steven Conners, founder and president of Conners Wealth Management. “Middle class people can use this. Lower-income people already qualify for Medicaid, but if you’re middle class, doing ok but don’t have a lot of savings or long-term care insurance, it’s a way to get around the lookback and qualify quickly for Medicaid.”

How does a Medicaid annuity work?

If your spouse suddenly needs long-term care, you can buy a Medicaid annuity with excess savings. By depleting savings with the lump sum payment, you immediately qualify your spouse for Medicaid assistance and secure a steady monthly income for yourself to live.

“It’s the escape route,” Conners said, but there are rules. For example, Medicaid must be named the beneficiary of the annuity so that’s money that can’t be passed down to heirs, and monthly payments must start immediately, he said. The annuity also is irrevocable, or cannot be changed, canceled, or cashed out.

“Also, the policy must be paid out to completion of the term,” said Kelsey Simasko, attorney at Simasko Law. “If the nursing home spouse passes away, the surviving spouse cannot cash out the policy. If it is purchased with IRA money, the policy owner has to pay taxes on the annuity payment.”

Since the annuity is intended for crisis planning and to be spent down, not investment growth, the interest rate is low, such as 1%, she said.

Do advisers recommend Medicaid annuities?

If the situation is right, “I would recommend them to people absolutely, yes,” Conners said. “It’s within the confines of the law so it’s not shady at all. Cost for long-term care is so expensive. So, if you’re going to a nursing home and never took long-term care insurance, instead of spending down assets, your spouse can live.”

Simasko said “these products can be the difference between being Medicaid eligible and having to pay privately. When it is appropriate, these can be a great tool, so long as the family is made aware of its unique features.

“Do not purchase these products without speaking with an experienced Medicaid attorney,” she warned. “These are not the policies you want to purchase before you are positive that someone needs Medicaid long-term care.”

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.