Who most often pays the costs of people living in a nursing home?

Oct 14, 2025 4 min read •

senior care Healthy Aging

Over 60% of nursing home residents rely on Medicaid as their primary payer, a fact often misunderstood by families planning for long-term care. This reality is crucial when asking who most often pays the costs of people living in a nursing home, as the financial burden typically shifts from private funds to a government program based on financial need.

Quick Summary

The majority of long-term nursing home care costs are paid by Medicaid for individuals with limited income and assets. Initial payment is often private, using savings or insurance, but many people eventually 'spend down' their resources to become eligible for Medicaid coverage.

Key Points

Medicaid is the largest payer: For the majority of long-term residents, Medicaid is the primary source of payment after personal funds have been exhausted.
Medicare only covers short-term skilled care: Medicare does not cover long-term custodial care and its coverage is limited to 100 days of skilled nursing care per benefit period.
Private pay is often the first step: Many people initially fund their care out-of-pocket using savings, but the high cost often leads to a 'spend-down' of assets.
LTC insurance is not widely held: Long-term care insurance can help, but it's expensive and not a reality for most seniors.
Veterans have options: Eligible veterans and their spouses can utilize VA benefits, such as Aid and Attendance, to help cover costs.

Understanding the Primary Payer: Medicaid

For most people requiring long-term nursing home residency, Medicaid is the primary payer. This is a critical point, as many families mistakenly believe Medicare or private insurance will cover these extensive costs. Medicaid is a joint federal and state program designed to provide health coverage to individuals with limited financial resources. Because long-term nursing home care is so expensive, many seniors initially pay privately but must eventually rely on Medicaid after exhausting their personal funds.

Medicaid Eligibility and the Spend-Down Process

To qualify for Medicaid coverage for nursing home care, an individual must meet strict income and asset limits, which vary by state. The "spend-down" process is how an individual who is not initially eligible can qualify for Medicaid. By using their savings and other assets to pay for their care, they eventually deplete their resources to the point where they meet the state's eligibility threshold. Spousal protections exist to prevent the non-resident spouse from being impoverished by this process.

The Medicaid Coverage Process

Initial Assessment: A medical needs assessment determines if the individual requires a nursing home level of care.
Application: The individual or their authorized representative applies for Medicaid through the state agency.
Financial Contribution: Once approved, the resident is required to contribute most of their monthly income (e.g., Social Security or pension) towards the cost of care. This is known as the Patient Paid Amount (PPA).
Medicaid Pays the Rest: Medicaid then covers the remaining balance of the nursing home costs.

The Role of Other Funding Sources

Private Pay: The Starting Point for Many

For many people, the journey into nursing home care begins with private pay. This involves using personal income, savings, investments, and retirement funds to cover costs. In some cases, families may assist with this financially. Given that the national annual median cost for a private nursing home room was over $127,000 in 2024, these funds can be exhausted relatively quickly. Some families also use the proceeds from selling a home to finance care.

Medicare: For Limited, Short-Term Stays

There is a widespread misconception that Medicare covers long-term nursing home care. In reality, Medicare's coverage is strictly limited to short-term, medically necessary stays in a skilled nursing facility (SNF) following a qualifying hospital stay of at least three consecutive days.

Days 1–20: Medicare covers 100% of the cost.
Days 21–100: The patient is responsible for a daily coinsurance amount.
After Day 100: Medicare coverage ends for that benefit period, and other payment sources must be used.

This coverage is for skilled care, not the custodial care (help with daily activities) that most long-term residents need.

Long-Term Care Insurance

Long-term care (LTC) insurance is a private policy designed to cover services like nursing home care. While it can be a valuable tool for protecting assets, it's not a common source of payment for the majority of residents.

Policy Structure: Benefits typically begin after a waiting period and cover a daily or monthly amount for a set period.
High Cost: Premiums for LTC insurance can be expensive, especially if purchased later in life.
Eligibility: Medical underwriting can make it difficult for those already in poor health to qualify.

Veterans' Benefits

Qualifying veterans and their surviving spouses may be eligible for financial assistance to help pay for long-term care through the Department of Veterans Affairs (VA). Benefits such as the Aid and Attendance Pension can provide significant financial relief, but eligibility depends on service history, income, and care needs.

A Comparison of Payment Methods for Nursing Home Care


Payment Source	What It Covers	Who It's For	Key Limitations
Medicaid	Long-term custodial care (room, board, meals, and medical services) in a certified facility.	Individuals with limited income and assets.	Requires a spend-down of assets; strict eligibility requirements vary by state.
Medicare	Short-term (up to 100 days) skilled nursing care following a qualifying hospital stay.	Individuals 65+ or with qualifying disabilities.	No coverage for long-term custodial care; ends after 100 days.
Private Pay	All long-term care costs; provides maximum choice of facilities.	Individuals with significant personal savings, income, or assets.	Extremely expensive; can quickly deplete life savings.
Long-Term Care (LTC) Insurance	Varies by policy, but can cover extended nursing home stays.	Individuals who purchased a policy in advance and can afford premiums.	High premiums; often not an option for those already needing care.
Veterans' Benefits	Supplements income to help pay for care, including some nursing home costs.	Qualifying wartime veterans and surviving spouses with demonstrated need.	Strict eligibility rules; amounts vary based on income and need.

Conclusion: The Path to Affording Long-Term Care

For many people, the path to financing a nursing home stay begins with private payment, and as personal funds are depleted, it often transitions to reliance on Medicaid. Other sources like Medicare, LTC insurance, and veterans' benefits play specific, often limited, roles. The cost of nursing home care is substantial, making early financial planning and understanding all available options essential for healthy aging and senior care. Families should investigate eligibility for all possible programs to avoid financial hardship down the road. For more information and resources on preparing for long-term care, consult the National Institute on Aging to get started on your research.

Frequently Asked Questions

The most common misconception is that Medicare will pay for extended, long-term stays in a nursing home. In reality, Medicare's coverage is strictly for short-term, medically necessary stays, not the custodial care most residents need.

The 'spend-down' process is when an individual pays for their own nursing home care using their personal income and assets until they have depleted them to the point of qualifying for Medicaid eligibility.

Yes, long-term care insurance can pay for nursing home care, depending on the policy. However, premiums can be costly, and the number of people with these policies is relatively low.

Yes, using personal savings and other assets is a common method of payment, known as private pay. Many people begin by paying this way until their resources are exhausted.

Medicare will only cover a limited time in a skilled nursing facility, not a standard nursing home. After a qualifying hospital stay, it covers the first 20 days fully and days 21–100 with a daily coinsurance. After 100 days, coverage stops.

Yes, the VA offers benefits like the Aid and Attendance Pension for qualifying veterans and their surviving spouses. This provides a financial supplement that can be used to help pay for long-term care.

If a person's private funds run out, they can apply for Medicaid. If they meet the eligibility criteria, Medicaid can take over as the payer for their long-term care needs.

References

Medical Disclaimer

This content is for informational purposes only and should not replace professional medical advice. Always consult a qualified healthcare provider regarding personal health decisions.