How Do Nursing Homes Get Paid by Medicare? A Comprehensive Guide to Eligibility and Coverage

According to official Medicare data, coverage for nursing home stays is highly limited and temporary. This guide breaks down how do nursing homes get paid by Medicare, detailing the specific, short-term skilled care circumstances that qualify and outlining the payment structure.

Quick Summary

Medicare pays Skilled Nursing Facilities (SNFs) for short-term, medically necessary stays following a qualifying inpatient hospital stay, not for long-term or custodial care. Original Medicare fully covers the first 20 days per benefit period, with a daily coinsurance for days 21–100, after which coverage ends for that period.

Key Points

• Medicare pays for short-term skilled care: Medicare Part A covers short-term stays in a Skilled Nursing Facility (SNF) for rehabilitation, not long-term custodial care.

• 3-day inpatient hospital stay required: To qualify for Medicare-covered SNF care, you must first have a medically necessary, 3-day inpatient hospital stay; observation status does not count.

• Tiered coverage structure: Beneficiaries have $0 cost for the first 20 days, pay a daily coinsurance for days 21–100, and are responsible for all costs from day 101 onwards within a single benefit period.

• Benefit periods can reset: A new 100-day coverage period can begin if you are out of skilled care for 60 consecutive days, followed by another qualifying hospital stay.

• Medicaid is the long-term solution: For ongoing or long-term custodial nursing home care, Medicaid is the primary payment source for those with limited income and assets, as Medicare does not cover these costs.

• Medicare Advantage rules may differ: If you have a Medicare Advantage plan, your SNF coverage rules, costs, and network requirements may vary, so it is important to check with your specific plan.

• Planning is essential: Because Medicare coverage is temporary, families should explore other options like long-term care insurance, Medicaid, and private funds to cover the high costs of extended nursing home care.

Understanding Medicare's Limited Role

One of the most common misconceptions about Medicare is that it covers long-term nursing home care. In reality, Medicare's coverage for facility-based care is strictly for short-term stays in a Skilled Nursing Facility (SNF) under very specific conditions. These stays are for recovery and rehabilitation from an illness or injury, not for permanent residency or assistance with daily living activities over the long term. Medicare Part A is the portion of the program that handles this, paying the SNF directly for covered services when a beneficiary meets all requirements.

The Critical Requirements for Medicare Coverage

For Medicare Part A to cover a stay in a skilled nursing facility, the beneficiary must meet all of the following strict criteria:

• Qualifying Inpatient Hospital Stay: You must have a medically necessary inpatient hospital stay of at least three consecutive days. The day you are discharged doesn't count. Crucially, time spent under 'observation status' in the hospital does not count toward this 3-day requirement. If you are uncertain about your status, it is vital to ask the hospital staff.
• Timely SNF Admission: The admission to the SNF must occur within 30 days of the qualifying hospital stay. In some exceptional cases, this window can be extended.
• Doctor's Order: A physician or other healthcare provider must certify that you require daily skilled care and that this care is medically necessary. The care must be related to the condition treated during your hospital stay or a condition that arose while you were receiving care in the SNF.
• Daily Skilled Care Need: You must require daily skilled services, such as intravenous injections, physical therapy, or complex wound care, that can only be performed by or under the supervision of a licensed nurse or therapist. Assistance with daily living activities alone does not qualify as 'skilled care.'
• Medicare-Certified Facility: The skilled nursing facility must be certified by Medicare to receive payments from the program.

The Tiered Payment Structure for 2025

For each "benefit period," Medicare's payment structure for a covered skilled nursing stay is broken down into specific tiers, with different levels of patient financial responsibility.

• Days 1–20: For the first 20 days, Medicare Part A covers 100% of the cost for covered services. The patient pays nothing, provided they have already paid their Part A hospital deductible for the same benefit period.
• Days 21–100: During this period, Medicare continues to pay for most expenses, but the patient is responsible for a daily coinsurance amount. For 2025, this coinsurance is $209.50 per day.
• Day 101 and beyond: After 100 days, Medicare coverage for skilled nursing care ends for that benefit period. The beneficiary is responsible for 100% of all costs.

What is a Benefit Period?

A benefit period is a measurement used by Original Medicare for your use of inpatient hospital and skilled nursing facility services. It begins on the day you are admitted to a hospital or SNF as an inpatient. A benefit period ends when you have not received any inpatient hospital care or skilled care in an SNF for 60 consecutive days. After a benefit period ends, you can start a new one if you meet the eligibility criteria again. This means you could potentially have more than one benefit period in a year, and each new period would require you to pay the Part A deductible.

Original Medicare vs. Medicare Advantage (Part C)

Understanding the difference between Original Medicare and a Medicare Advantage Plan is crucial for SNF coverage. Original Medicare's rules are standard across the country, but Medicare Advantage plans, which are offered by private companies, can have different rules. For instance, some Medicare Advantage plans may waive the 3-day inpatient hospital stay requirement. However, they may also have different network restrictions, copayments, and prior authorization requirements. It is essential to check with your specific Medicare Advantage plan provider for details on your SNF coverage.

What Happens When Medicare Stops Paying?

Since Medicare's skilled nursing coverage is temporary, it is important to know your options once it ends. For individuals requiring extended or long-term custodial care, Medicare is not a long-term solution. Alternative payment sources include:

• Medicaid: A joint federal and state program that provides medical assistance to people with limited income and resources. Medicaid is the primary payer for long-term nursing home care in the United States, but eligibility rules vary significantly by state.
• Long-Term Care Insurance: Private insurance policies can be purchased to help cover the costs of long-term care. These are typically expensive, and it is best to plan ahead before the need for care is immediate.
• Private Funds and Assets: Many individuals use their personal savings, retirement funds, or other assets to pay for long-term care out-of-pocket.
• Dual Eligibility: Individuals with both Medicare and Medicaid are known as 'dual eligible' and have access to the benefits of both programs, with Medicaid potentially covering costs that Medicare does not.

Comparison of Key Payment Sources for Nursing Home Care

Feature	Medicare (Part A)	Medicaid	Private Pay/Insurance
Coverage Type	Short-term, medically necessary skilled nursing care	Long-term and custodial care for eligible low-income individuals	Long-term care or any level of care, depending on funds/policy
Duration	Up to 100 days per benefit period (tiered coverage)	Indefinite, as long as financial/medical eligibility is met	As long as funds or policy limits allow
Eligibility	Age 65+ (or qualifying disability), prior 3-day inpatient hospital stay, need for daily skilled care	Low income and limited resources, varies by state, typically requires 'nursing facility level of care'	Varies based on personal assets or long-term care insurance policy rules
Cost to Beneficiary	$0 for days 1-20, daily coinsurance for days 21-100, all costs thereafter	Little to no out-of-pocket cost for eligible residents; many must contribute income	100% of costs (can be extremely high)

Conclusion: Navigating the Complexities

Figuring out how do nursing homes get paid by Medicare reveals a complex system designed for short-term rehabilitation, not permanent residence. Understanding the critical difference between skilled and custodial care, as well as the tiered payment structure and benefit periods, is essential for families preparing for potential care needs. By knowing the limitations of Medicare and exploring other options like Medicaid or long-term care insurance, you can better prepare for the financial realities of senior care. For the most up-to-date and authoritative information, always consult official sources like the Medicare website.

Frequently Asked Questions

What is the difference between skilled nursing care and custodial care?

Skilled nursing care is a medical service that must be performed or supervised by licensed medical professionals, such as administering IV medication or complex physical therapy. Custodial care is non-medical assistance with daily activities like bathing, dressing, and eating. Medicare only covers skilled care, not custodial care.

Does my 3-day hospital stay count if I was under 'observation status'?

No, time spent in the hospital under observation status does not count toward the 3-day inpatient stay required for Medicare-covered skilled nursing facility care. You must be formally admitted as an 'inpatient' by a doctor's order.

What happens when Medicare stops paying after 100 days?

After day 100 in a benefit period, Medicare coverage for skilled nursing care ends. At that point, you are responsible for all costs. Other payment options include Medicaid, private long-term care insurance, or paying out-of-pocket with personal savings.

Can I have another 100 days of coverage if I need it later?

Yes, it is possible to get another 100-day coverage period. This requires you to be out of skilled care for 60 consecutive days, after which a new qualifying 3-day inpatient hospital stay would start a new benefit period.

What does the daily coinsurance cover?

The daily coinsurance for days 21–100 covers your portion of the cost for Medicare-covered services in a skilled nursing facility, which includes room and board, skilled nursing services, therapies, medical supplies, and medications.

Do Medicare Advantage plans cover skilled nursing facilities differently?

Yes, Medicare Advantage plans (Part C) are offered by private insurers and can have different rules than Original Medicare. While they must provide at least the same level of coverage, they might waive the 3-day hospital stay requirement or have different network facilities and cost-sharing arrangements. Always check your specific plan's details.

Does Medicare pay for nursing homes for dementia patients?

Medicare does not cover long-term custodial care for dementia, but it will cover short-term skilled care if the patient meets all other requirements, such as a qualifying hospital stay. Some medical services and therapies related to dementia may be covered under Parts B and D, but not the long-term room and board.