An older adult couple smiles as they look at information on a tablet.
Paying for in-home care can be costly. Knowing your options to pay for home care can help you or your loved one remain at home for as long as possible.

There are many ways to pay for home care. A person who needs home care can utilize their savings, Social Security benefits, pensions, or other retirement income. If personal funds won’t cover all the costs or are not options, other external sources can help cover the cost of home care.

Insurance

Using insurance like Medicare, Medicaid, long-term care insurance policies, and life insurance policies can help pay for home care. Depending on the home care you need and the policy or policies you have will determine what specific home care services are covered.

Does Medicare cover home care costs? 

Medicare is a national insurance program that provides health insurance for certain populations of people; one group is adults aged 65 and over. This health insurance program covers certain medical costs. Medicare does not typically cover the costs of home care services that are not medical.

Typically, Medicare does not cover the cost of custodial care, which is another name for personal care. This is because personal care services are not considered medical. In certain circumstances, certain non-medical services may be covered for a specified amount of time if the policyholder meets certain criteria. For example, a person’s doctor may say that certain non-medical services, like helping the person bathe and get dressed, are medically necessary. 

To learn if Medicare covers the services a person needs, you can review the parts of the Medicare plan or read Medicare’s information on what Medicare covers and what’s not covered by Part A & Part B.

Does Medicaid cover home care costs?

Medicaid is a national health insurance program for individuals who meet low-income and asset requirements. It is run jointly by the federal government and individual states. The federal government sets some standards, then allows states to decide the services they provide. Even though each state’s rules about Medicaid and home care, most states have at least one Medicaid program to support older adults who need home care.

Each state has multiple Medicaid plans, and all plans have different programs for home care they cover. Some of the common ways that states’ Medicaid programs may pay for home care include Regular Medicaid’s Personal Care Services or Personal Attendant Services and Medicaid waivers.

Contact the appropriate state Medicaid office to determine which services and care are covered.

Does long-term care insurance cover home care costs?

Long-term care insurance is a type of insurance policy designed to help pay for personal care or custodial care support services.

Long-term care insurance policies may vary in what they do and do not cover. Typically, the policy covers services a person may need, but not necessarily where they live. A person who has long-term care insurance may live at home and use long-term care insurance to pay for services that help them with personal care or homemaker tasks.

It’s important to consult with the insurance provider of the person who needs services to learn which types of care the insurance policy covers and for how long those services are covered.

Does life insurance cover home care costs?

Some life insurance policies can help cover home care costs. Depending on the level of care the adult needs as well as their ability and desire to live independently, these services can be provided in the home.

Some typical life insurance products people use to help pay for home care costs include combination products, accelerated death benefits, life settlements, and viatical settlements. Each of these types of products works in different ways, depending on the policy.

  • Combination products: Some insurance providers offer plans that combine life insurance with long-term care insurance.
  • Accelerated death benefits (ADB): Some life insurance policies have accelerated death benefits. This feature of a policy allows the policyholder to take an advance on the death benefit of the policy. The dollar amount that the policyholder uses while they are still living is deducted from the benefit paid out to beneficiaries after death. A person may be able to use the ADB feature depending on the rules of their policy. Needing long-term care may be one of these qualifying reasons. The amount the policyholder can use for in-home care is typically capped at a percentage of the policy’s face value.
  • Life settlements: Life settlement plans allow the policyholder to sell the policy for its value at the time, and the policyholder can use the funds as they need to. There are age restrictions for using a life settlement (typically ages 74 years or older for women, 70 years or older for men), and the money may also be taxed. It’s important to note that when a policyholder sells the policy to the settlement company, the company assumed responsibility for paying monthly premiums. It also receives the death benefit upon the policyholder’s death — not the previously named beneficiary.
  • Viatical settlements: Viatical settlement plans are similar to life settlement plans because they allow the policyholder to sell the policy for its value. These plans are different from life settlement plans because different rules apply to them. For example, these plans require that the policyholder has a terminal illness and less than a two-year life expectancy, typically. If the policyholder is approved, the settlement is based on a percentage of the death benefit and the life expectancy.  

Each life insurance policy may cover different services and in different settings, so it’s important to speak with your insurance representative to determine which costs your policy can cover.

Veterans benefits

Older adult U.S. military veterans who meet certain criteria can utilize various benefits to help with home care costs. Below are a few benefits that can help with senior living expenses:

  • Aid and Attendance benefit: Eligible individuals who apply and are approved receive the Aid and Attendance benefit, which are monthly payments that can help pay for care. This benefit can help cover a variety of long-term senior care including in-home care, memory care, adult day care, nursing home care, and assisted living.
  • Homebound Allowance: Eligible individuals who apply with proof that they have a medical need for assistance or supervision due to a disability and are approved can receive money to help pay for the cost of home care.

Other financial products

There are other financial options for paying for home care. Many factors help determine which type of loan is most appropriate: whether the person plans to stay in their home, the type of care the person needs, the person’s financial situation, and the cost of care. 

Homeowners can obtain home equity loans, home equity lines of credit (HELOC), and other personal loans to help pay for home care.

Is home care tax deductible?

The IRS allows some deductions for unreimbursed long-term care expenses. There are rules, limits, and criteria that must be met.

If applicable, some costs that may be tax deductible:

  • A portion of long-term care insurance premium.
  • Unreimbursed medically necessary long-term care. 

IRS Publication 502 Medical and Dental Expenses indicates the full list of qualifying expenses. A person can claim these and other qualifying expenses only if they itemize their deductions.  

Some of the criteria that determine memory care is tax-deductible include

  • A licensed health care provider determines the person receiving care is chronically ill.
  • Total expenses exceed 7.5% of the person’s adjusted gross income.

It is helpful to know that an adult child can deduct expenses they pay for if they claim the parent as a dependent. Consult with an accountant to determine what expenses can be tax-deductible.