The Retirement Myth Everyone Gets Wrong About Medicare

 Retirement articles commonly warn that Medicare doesn’t cover long-term care. That’s true, but only if you’re talking about one type of long-term care. In fact, Medicare spends over $100 billion each year on long-term services and supports (LTSS), more than households themselves pay out of pocket.

Daniel DeVise of USA Today explores a number of “retirement myths,” among them that “Medicare covers long-term care.” He writes:

Here’s another common misconception about long-term care: Medicare will pay for it. One 2025 survey by Nationwide found that 58% of U.S. adults wrongly believe Medicare covers long-term care. Some confusion is natural. The federal health insurance program for seniors does cover some short stays in nursing homes. But Medicare generally does not cover longer stays. The reason: Most long-term care is not considered medical care. “Imagine what you go to the hospital for,” Singer said. “That’s what Medicare covers.”

Well, sort of.

I should note that the “Medicare doesn’t cover long-term care” claim is hardly unique to DeVise’s story. It’s a common theme in retirement coverage.

The misunderstanding comes about because there are two types of long-term care. And the Medicare-doesn’t-cover-LTC claim applies to only one of them.

First, there’s long-term care that results simply from aging and declining ability to perform daily activities. Simply put, you’re getting old and you need extra help, either through physical or mental frailty. You might, in theory at least, live in a nursing home for several years. (In reality, I hate to say, this is rare.) Medicare doesn’t cover this. That’s where the “Medicare doesn’t cover LTC” claim is true.

Second, there’s care that’s needed because of a medical condition—rehabilitation after a fall, skilled nursing after hospitalization, home health following surgery, hospice, and so forth. These types of long-term aren’t due simply to aging, even if aging makes the need for care more pressing.

But Medicare does cover much of this second category of long-term care. And that second category is big enough to matter.

For instance, let’s say that a senior falls and breaks her hip. She spends three days or more days in the hospital, which isn’t uncommon at that age, but then needs extra help recovering. The typical daily cost of a skilled nursing facility is around $325. But Medicare will help: For the first 20 days of nursing home care, she’ll pay a deductible of $1,736, but nothing more. For the following 80 days, she’ll pay $217 per day.

One hundred days of helping cover nursing home care isn’t trivial, given that the median nursing home resident is there only around 5 months and two-thirds die within one year. Medicare won’t cover the entire expected stay, but in reality for many patients it does.

Or perhaps after leaving the hospital, this senior needs some medical help at home. Things like administering medicines, physical therapy or help with bathing or dressing. Medicare will help pay for those as well. She will pay nothing for the medical services, and 20% of the cost of any necessary medical equipment.

Or let’s say that the end is coming and, after a few days in the hospital, the doctors recommend hospice or palliative care. Medicare typically will pay for that as well.

These examples aren’t purely age-driven long-term care. But they’re also not uncommon.

In fact, Medicare pays more for these long-term services than households pay out of pocket for all long-term care.

The Congressional Research Service compiled payments by source for Long-Term Services and Supports in 2023. Eighteen percent of the $564 billion total was covered by Medicare. The $102 billion in long-term care covered by Medicare in 2023 exceeded the $81 billion in total out-of-pocket payments made by households, which themselves covered only 14% of total LTSS costs.

Even for nursing homes, what we typically think of as “long-term care,” Medicare funding isn’t trivial. In 2024, Medicare spent $47 billion on nursing homes—roughly three-fifths as much as Medicaid. When it comes to home health care services, Medicare paid $56 billion while Medicaid paid $38 billion.

Critics may object that Medicare covers only medically-necessary long-term services rather than simple age-related care. Sure. But medically-related long-term care is still long-term care, and it’s a large share of total spending.

My claim isn’t that Medicare pays for what we typically think of as long-term care, meaning extra help due solely to aging. It’s that a significant part of long-term care has a specific medical link and Medicare does help pay for this.

And, while this strays a bit from the central point, it’s worth providing some insight on how much seniors actually pay for long-term care.

Based on media reports, it’s easy to panic. For instance, CBS News notes that a one-year stay in a nursing home could cost over $100,000. Yikes!

By contrast, a report published by the Department of Health and Human Services projects that 91% of seniors will spend less than $100,000 on Long-Term Services and Supports, not per year, but over their entire retirements. About two-thirds of seniors will spend nothing out of pocket on LTSS. Medicare, Medicaid, insurance and other sources help explain why out-of-pocket long-term care costs tend to be modest.

To put things in different terms, based on NHEA health spending data and IRS data on the incomes of Americans age 65 and over, in 2023 seniors spent 2% of their total incomes out-of-pocket for nursing homes and home health care. In 1970, seniors spent 4% of their incomes for these categories.

In fact, the above statistic probably overstates the share of seniors’ incomes spent on nursing homes and home health care, as the NHEA data report those costs for all age groups, part of which would be for under-65s.

Exaggerated perceptions of long-term care costs often lead people to overestimate how much they need to save for retirement and panic when they haven’t reached their lofty goals. This may help explain why most working-age Americans think we face a “retirement crisis” while the vast majority of seniors say they’re living comfortably.

To be clear, if your only problem is taking care of day-to-day needs, then Medicare isn’t an option. It won’t pay for long-term care due to general declining capabilities. And it’s not going to pay for you to settle into a retirement community.

But if you end up in a nursing facility or requiring help at home, there’s a good chance the reason will be something other than simple aging. And in those cases, Medicare can cover much of the costs.

Now, I’m not arguing that retirement health costs aren’t a huge challenge. They are, but more for the state and federal governments than for seniors themselves. As the Congressional Research Service notes, retirees paid out-of-pocket only 14% of the total cost of Long-Term Services and Supports in 2023.

We do need to plan for the possibility of long-term care. But planning begins with understanding how much long-term care costs and who pays the bills. Contrary to one of retirement journalism’s favorite talking points, Medicare isn’t absent from long-term care financing—it is one of its largest funders.

Andrew Biggs is a senior fellow at the American Enterprise Institute

https://littleknownfacts.substack.com/p/the-retirement-myth-everyone-gets