By Amy Ramirez-Leal
A loved one’s care can affect savings, income, and everyday household expenses. Understanding insurance coverage and planning for future care needs helps families manage the financial impact.
A loved one needs care, and suddenly the family budget has another major expense to absorb. According to AARP and the National Alliance for Caregiving’s 2025 report, nearly half of family caregivers experienced a negative financial impact from caregiving. Some used their savings, took on debt, or struggled to pay for basic needs.
Caregiving costs usually include much more than a caregiver’s hourly rate. Families may also need to account for lost income, transportation, medical supplies, and special accommodations to the home. Knowing what Medicare covers, what in-home care costs, and which financial resources are available can make it easier to prepare for the financial demands of long-term care.
How Should Families Budget for Caregiving Costs?
Before creating a care budget, it’s helpful to know what kind of support your loved one may need. First, estimate the type and frequency of care required, then account for recurring caregiving costs like:
- In-home assistance
- Transportation
- Medical supplies
Don’t forget to factor in one-time expenses, including home modifications and medical equipment.
A budget based only on immediate needs may leave you and your family unprepared for longer-term care. Make sure to leave room in the budget for changes in the level of support your loved one may need in the future.
How Do You Prepare Financially for Care?
While it’s not always possible to plan ahead, you can start preparing for future care by reviewing the resources available to help cover expenses. Understanding the legal and financial plans already in place for the person you may be caring for, including whether a living trust exists, is critical.
Focus on these key areas:
- Personal savings
- Insurance coverage
- Available benefits
- Existing estate plans
- Care preferences
- Financial responsibilities
How Much Will Medicare Pay for In-Home Care?
Medicare may cover eligible home health services at no cost to the patient if they meet the program’s requirements, but coverage has limits. Medicare does not pay for round-the-clock care or ongoing personal care when the person does not also need skilled services.
Covered expenses may include:
- Skilled nursing care
- Physical therapy
- Occupational therapy,
- Speech-language pathology
- Limited home health aide services
How Much Does a Professional Caregiver Cost?
Professional caregiver costs vary based on where you live, how many hours of care you need, the type of help involved, and the level of care required. Home care prices may be less per hour if you hire an independent caregiver, while an agency’s rates often cost more because they include:
- Scheduling
- Payroll
- Supervision
- Backup caregivers
Some families can fit a few hours of professional care each week in the household budget, while daily or around-the-clock assistance is a much larger expense. Compare rates and services to help you determine which option fits your loved one’s needs and your available resources.
How Can You Pay a Caregiver?
You may have several options for helping cover a loved one’s care, depending on their needs and financial situation. Eligibility rules vary, so check each potential source before assuming you will need to pay the full cost yourself.
Potential financial resources include:
- Medicaid
- Long-term care insurance
- Veterans benefits
- Employer benefits
- Community programs
Can Family Members Be Paid Caregivers?
Some Medicaid programs allow eligible relatives to receive payment for providing approved care through self-directed services. The person receiving care must qualify for and enroll in a program that offers this option. State-specific rules determine which relatives can be paid and what services qualify.
As a family caregiver, you may still face financial trade-offs if you’re the primary caregiver. Reduced work hours, missed income, and lower retirement contributions can affect your finances even when Medicaid or a similar, state-level program covers some of your caregiving expenses.
Frequently Asked Questions
Does Long-Term Care Insurance Cover Home Care?
Long-term care insurance may help pay for home care when the policyholder meets the requirements for benefits. Coverage varies by policy, so check the:
- Benefit triggers
- Waiting period
- Covered services
- Daily or monthly limits
Some policies cover assistance with daily activities, while others may provide benefits for skilled or supportive care at home. Check the policy’s coverage details and benefit limits before counting on long-term care insurance to cover a specific expense.
How Does Dementia Affect Caregiving Costs?
If your loved one has a diagnosis of dementia, they will likely have care needs that go beyond occasional help with household tasks. Caregiving and dementia usually involve expenses for supervision, medication management, help with bathing, dressing, and meals, as well as nighttime monitoring.
Care needs often increase as cognitive impairment progresses. You may eventually need adult day services or memory care, which adds another layer of expense. Even if your loved one doesn’t need advanced care today, it’s better to be prepared for the future increase in caregiving costs.
Are Caregiver Expenses Tax Deductible?
Some caregiving expenses may qualify for a medical expense deduction when you itemize your deductions, and the person receiving care meets the IRS requirements for a dependent. The IRS allows qualifying caregivers to include certain unreimbursed medical expenses they paid for a dependent, subject to applicable limits.
Not every expense associated with caregiving qualifies for a deduction. Check the IRS rules before claiming an expense, particularly if you pay for care, medical services, or other support for a parent or relative. You can (and should) consult with a tax professional who understands the rules for caregiver expenses.
Know Your Options Before You Need Them
Caregiving costs are easier to manage when you know what you are likely to face and where you can find financial assistance. Looking at professional care, insurance coverage, family caregiving, and other financial resources gives you a more complete picture of the road ahead. Planning early leaves more room to make decisions based on your loved one’s needs rather than your financial limits.
Are you looking for more tips on caring for your family and ways to feel less stressed about money? Check out our blog for articles readers like you are enjoying now.
