The overwhelming majority of financial support for long-term nursing home care comes from Medicaid, a joint federal and state program. While other payers contribute, they either cover a smaller percentage of the population or only provide short-term care, leaving Medicaid to fill the critical gap for those with limited income and resources. This dominance in funding highlights Medicaid's role as a social safety net, but it also creates complexities for both residents and facilities that rely on its reimbursement.
Medicaid's role in financing long-term care
As the largest payer, Medicaid funds more than half of all long-term care services and supports in the U.S.. Its significance in the nursing home sector is particularly pronounced, with data consistently showing that more than 6 out of 10 nursing home residents depend on Medicaid to cover their daily care. For individuals to qualify, they must meet specific financial and medical criteria, which can vary significantly from state to state.
- Eligibility requirements: Applicants must typically have low income and limited assets, though certain items like a primary residence or vehicle may be exempt. A common pathway to eligibility is "spending down" assets to meet the program's financial limits.
- Services covered: For those who qualify, Medicaid can cover a wide range of services, including room, board, skilled nursing care, medications, and rehabilitation services.
- Patient liability: Once a person is approved, they are often required to contribute most of their income toward the cost of their care, with Medicaid paying the remaining balance.
Medicare vs. Medicaid: A critical distinction
Confusion between Medicare and Medicaid is common, but their roles in nursing home financing are very different. While Medicare is a federal health insurance program for seniors and certain younger individuals with disabilities, it is not a long-term care solution.
- Short-term coverage: Medicare primarily covers short-term, skilled nursing facility (SNF) care, typically for rehabilitation following a qualifying hospital stay. This coverage is limited, with beneficiaries responsible for co-payments and all costs after 100 days.
- No long-term custodial care: Medicare does not cover long-term custodial care, which includes the daily assistance with activities like bathing, dressing, and eating. This is the very care that most nursing home residents require on an ongoing basis.
The remaining pieces of the funding puzzle
While Medicaid and Medicare are the most well-known public programs, other sources fill in the gaps, especially for those who do not qualify for public assistance. In 2023, private sources accounted for nearly a third of all long-term services and supports (LTSS) spending.
- Out-of-pocket payments: This includes direct spending by individuals and their families. Many people start by paying out-of-pocket until their savings are depleted enough to qualify for Medicaid, a process known as a "spend down".
- Private long-term care insurance: These policies cover services not funded by Medicare, but they are expensive and relatively few Americans have them.
- Veterans' benefits: The Department of Veterans Affairs (VA) provides long-term nursing care for some qualified veterans and spouses, based on eligibility requirements.
- Other public funds: This category includes smaller federal and state programs that cover a small percentage of LTSS expenditures.
Comparison of Major Nursing Home Payers
| Payer | Coverage Type | Duration of Coverage | Eligibility | Financial Impact for Patient |
|---|---|---|---|---|
| Medicaid | Long-term custodial care and skilled nursing care. | Indefinite, as long as eligibility is maintained. | Needs-based; must meet strict state-level income and asset limits. | Pay most of monthly income to facility; minimal personal needs allowance. |
| Medicare | Limited to short-term, medically necessary skilled nursing care. | Up to 100 days following a qualifying hospital stay. | Entitlement program for seniors and some disabled individuals. | No cost for first 20 days; daily co-payment for days 21-100. |
| Private Pay | Covers all levels of care. | Dependent on personal savings and assets. | None; dependent on personal wealth. | Responsible for all costs; can be over $100,000 annually. |
| Long-Term Care Insurance | Varies by policy, but can cover assisted living and nursing homes. | Varies by policy and benefit limits. | Must purchase a policy, typically when younger and healthier. | Pay monthly premiums; policy determines benefit payouts and duration. |
Conclusion
While the American public sometimes mistakenly believes Medicare is the main payer for nursing homes, the data is clear: Medicaid provides the most financial support for nursing homes, covering the majority of residents. The long-term care financing system is a complex patchwork of public and private funding streams. Most individuals rely on a combination of personal savings, insurance, and government programs throughout their stay, with many ultimately turning to Medicaid after their resources are exhausted. The high cost of long-term care and the limited nature of private funding options solidify Medicaid's essential role as the primary financial backer of nursing home care for low-income seniors and individuals with disabilities.
A note on navigating the system
Given the complexities and variability of eligibility rules by state, individuals and families should seek advice from an elder law attorney or a State Health Insurance Assistance Program (SHIP). These resources can provide guidance on qualifying for aid, managing assets, and navigating the often-arduous application process for Medicaid. The National Council on Aging also provides comprehensive guides on this subject.
