Primary ways to pay for nursing home care
The responsibility for paying for nursing home care primarily falls on the resident themselves. Payment is typically covered through a combination of sources, depending on the individual's financial situation.
Private pay
For many, the journey to covering long-term care begins by using personal savings and assets. This is known as “private pay.” Sources of private pay funds can include:
- Personal savings and investment portfolios.
- Retirement funds, such as 401(k)s and IRAs.
- The sale of assets, such as a home.
- Annuities and life insurance policies.
Medicare
It is a common misconception that Medicare will pay for extended nursing home stays. In reality, Medicare's coverage is very limited and only applies to short-term, medically necessary stays in a skilled nursing facility (SNF).
Coverage requires the following conditions:
- Qualifying hospital stay: A preceding inpatient hospital stay of at least three consecutive days.
- Skilled care: A doctor must certify the need for daily skilled nursing or therapy services related to the hospital stay.
Even when covered, Medicare only provides:
- Full coverage for the first 20 days.
- Partial coverage for days 21–100, with a daily copayment.
- No coverage beyond 100 days in a benefit period.
Medicaid
Medicaid is the largest single payer of nursing home care in the United States. It is a joint federal and state program for individuals with limited income and assets. The rules vary significantly by state, but generally require applicants to meet strict financial and medical criteria.
To qualify for Medicaid nursing home coverage, a person must:
- Have limited income and assets, typically no more than around $2,000 in countable assets in most states.
- Meet their state's functional eligibility criteria, which assesses the need for a nursing home level of care.
- Pass the "Medicaid look-back period," a 60-month review of asset transfers. Transferring assets for less than fair market value during this period can trigger a penalty period of Medicaid ineligibility.
Once a person qualifies, Medicaid pays for 100% of the covered costs in a Medicaid-certified facility. Most of the resident's income, such as Social Security, is then paid to the facility, with a small monthly personal needs allowance set aside for the resident.
Comparison of nursing home payment options
| Feature | Private Pay | Medicare | Medicaid |
|---|---|---|---|
| Funding Source | Personal savings, income, investments | Federal government program | Joint federal and state program |
| Duration | Unlimited, as long as funds last | Up to 100 days for skilled care | Unlimited, as long as eligibility is met |
| Level of Care | Any level, including custodial | Skilled nursing and rehabilitative care only | Nursing home level of care |
| Eligibility | No financial requirements | Specific hospital stay and medical need | Strict income and asset limits |
| Asset Protection | None; assets are spent down | None; assets are spent down | Requires advance planning to protect assets |
| Facility Choice | Broad choice of facilities | Certified skilled nursing facilities | Certified Medicaid facilities |
Adult children's liability: Filial responsibility and contracts
While the primary financial burden falls on the parent, adult children can, in some situations, become legally or contractually responsible for nursing home costs.
Filial responsibility laws
More than half of U.S. states have filial responsibility laws that can hold adult children financially responsible for their indigent parents' care. Historically, these laws were rarely enforced, but some states, like Pennsylvania, have seen recent cases where nursing homes sued children for unpaid bills. The likelihood of enforcement depends on the state, but legal action is more probable in cases involving fraud or misuse of a parent's funds.
Responsible party contracts
A more common risk for adult children is signing the nursing home admission agreement as a "responsible party" or guarantor. Federal regulations prohibit facilities from requiring a third party to be personally liable as a condition of admission. However, confusing contract language can still lead to liability if the child is not careful.
- Signing as an agent: When an adult child signs using a Power of Attorney (POA) for their parent, they are legally acting on the parent's behalf and using the parent's funds, not their own.
- Breach of contract: If a child with POA fails to use the parent's money to pay the nursing home or does not properly apply for Medicaid when needed, they could be sued for breach of contract.
Planning to protect assets
For families concerned about nursing home costs draining a parent's estate, strategic planning is essential. Consulting an elder law attorney is crucial for navigating state-specific laws and eligibility rules.
- Long-Term Care Insurance: Purchasing a policy can cover many of the costs that Medicare does not. Policies should be bought well in advance, ideally in your 50s or early 60s, before a serious health issue arises.
- Medicaid Planning: Strategies can help individuals protect a portion of their assets and still qualify for Medicaid. This often involves restructuring assets and understanding the state's look-back period.
- Trusts: Certain trusts can be used as part of a comprehensive estate plan to shield assets from nursing home costs.
Conclusion
Determining who pays for parents in nursing homes requires a clear understanding of the roles played by private resources, government programs, and legal contracts. While the resident is the primary payer, Medicaid is the largest safety net for long-term care when assets are depleted. Adult children should be aware of potential liability under filial responsibility laws and, most importantly, should exercise extreme caution when signing any admission agreements to avoid assuming personal financial responsibility. Proactive financial and estate planning, guided by an elder law attorney, is the most effective way to navigate the high costs and complex rules of nursing home care.
For more information on payment options and elder law, visit the National Institute on Aging's resource on Paying for Long-Term Care.
