Both Medicaid and Medicare pay for nursing home care; however, there are some caveats, and they aren’t the only way to pay for nursing homes.
In 2017, US expenditures on nursing homes and continuing care retirement centers totaled $166.3 billion.1 But while some spending on nursing home care comes from Medicare, this typically only covers skilled, short-term, medically-necessary care. Medicaid is the largest public payer of long-term care services including nursing home care, but this coverage applies only if a person’s assets are below a certain level.2 Out-of-pocket spending is also used to cover nursing home care – with the remaining coming from other sources, such as private insurance and veteran affairs.
For those looking for ways to pay for nursing home care, there may be other options available to you (outside of Medicare, Medicaid, or straight out-of-pocket).
Nursing Home Costs
In 2019, the average private nursing home room cost around $102,204 for a year.3 To put that into perspective, the average annual college tuition at private US universities is $53,890.4 The average costs for the duration of the average stay at a nursing home (835 days) is over $233,000. That’s nearly six times as much as the average student loan debt of $29,200.5
Nursing Home Coverage Under Medicare
1.4 million Americans currently live in nursing homes, 85 percent of whom are over the age of 65.6 Since Medicare is the government program that covers Americans 65 and older, it’s fair to assume that Medicare covers nursing home coverage; however, this isn’t usually the case.
In order for Medicare to pay for nursing home care, you’ll need to stay at a skilled nursing facility (SNF). And this is where you may run into an issue: not all nursing homes are skilled nursing facilities. Compared to a traditional nursing home, SNFs offer more extensive medical services. Medicare (specifically: Medicare Part A) contributes towards your costs only if it’s at an SNF. Further, Medicare provides this SNF coverage following specific guidelines.
Under Medicare Part A:
- The first 20 days are fully covered, but days 21 to 100 require that you pay $176 copayment;
- You’re covered for up to the first 100 days of your stay at a skilled nursing facility, but ONLY if you require a “skilled need” or skilled nursing care – on average, Medicare covers about 20 days. (For example, if you need injections or physical therapy for a period of time, Medicare will contribute to your costs at an SNF for as long as you need skilled care (nursing or therapy) and as long as it’s less than 100 days); and
- Your stay at the SNF must come within 30 days of a hospital visit AND that hospital visit should have lasted at least three days. (For example, if you were admitted into a hospital on July 1st, you would have had to stay in that hospital until at least July 4th. If you’re required to go to a skilled nursing facility afterwards, Medicare will cover your nursing home costs only if you check-in to an SNF between July 4th and August 3rd).
For most Americans, though, nursing home stays exceed 100 days. According to data from the National Nursing Home Survey, the average stay is 835 days (nearly three years) for long-term care; Medicare does not cover long-term care.7
Even if Medicare does not pay for your stay in a nursing home, it may still cover hospital care, doctors’ services, and medical supplies while you’re in the nursing home.
Nursing Home Coverage Under Medicaid
Many Americans start out spending out-of-pocket for nursing home care. Eventually, once they run out of funds, they turn to Medicaid.
Medicaid is a joint federal and state program that covers medical expenses for low-income Americans. Eligibility for the program varies state by state and enrolling isn’t always easy. You’re eligible for Medicaid only if you have no other payment options. Often, state applications require an exhaustive list of legal and financial documentation before you’re considered for Medicaid funding.
When it comes to long-term-care financing, though, many states have laxer rules. For instance, in some states, you can qualify for nursing-home-only Medicaid even if you make 300 percent of the Supplemental Security Income (SSI) level.
Overall, around 32 percent of Medicaid’s $400 billion goes towards paying for long-term care (which includes nursing homes, assisted living facilities, hospice care, home care, and continuing care retirement centers). Of course, that percentage varies by state, with some states providing more Medicaid coverage for long-term care than other states.8 It’s as low as 8 percent in states like Hawaii and as high as 60 percent in states like North Dakota.
Nursing Home Coverage Under Long-Term Care Insurance
For middle-class Americans who are ineligible for Medicaid and can’t afford nursing home care out-of-pocket, consider long-term care insurance (LTCI).9
LTCI plans provide you with the financial security and independence to cover your own healthcare costs as you age rather than depending on family and friends. These plans also give you the flexibility you don’t get with Medicare or Medicaid. With a LTCI plan, you can choose homecare or an assisted-living facility, and you’re covered for more extensive medical treatment. With Medicaid, nursing homes may be your only option although some states offer homeware and other services.
If you are thinking about a LTCI plan, it’s best to get started quickly. Eligibility and rates depend on your age and health; the younger and healthier you are, the better and more affordable your plan will be.
The plans work as follows. You pay a monthly premium. Then, once you need long-term care, the plan pays you a daily or monthly benefit amount for a certain benefit period. However, similar to a deductible, you first have to cover your costs for an elimination period before the plan begins to cover your expenses.
There are inherent risks with LTCIs. If you die before you ever need long-term care, then your LTCI premiums are wasted. With prices for LTCIs rising, it may seem too risky a plan to go for. In that case, you may want to consider a life insurance-LTCI hybrid. The hybrid model will still pay for your long-term care costs, but if you die before you ever need long-term care, the policy will act like a life insurance plan and pay that money out to your heirs.
Other ways to pay for nursing home care costs include through personal assets (private pay), a reverse mortgage, an annuity, or a Health Savings Account (HSA). A reverse mortgage is a type of home equity loan that allows the mortgage holder to receive cash against the value of a home without selling it. An annuity is a long-term investment sold by an insurance company, which makes guaranteed payments over a specified period of time. An HSA is a savings account that allows you to set aside untaxed money to pay for qualified medical expenses.
Nursing Home Coverage for Veterans
Veterans and their spouses are eligible for coverage for nursing home care from the Department of Veterans Affairs (VA).10 The VA provides coverage for selected veterans with its own nursing homes as well as contracted non-VA nursing homes.
Why Is Nursing Home Care so Expensive?
The average nightly stay at a nursing home facility is roughly $280, which is only a fraction of the average hospital stay (around $10,000 per day). So, what makes the costs for nursing home care so high?
Well, a large chunk of the fees – as much as 65 percent – go to pay the staff. That doesn’t mean nursing homes are overstaffed and overpaid. A 2018 Kaiser Health News study highlighted fluctuating staffing levels and understaffing at nursing homes.11 A 2016 study by the Paraprofessional Healthcare Institute found that more than half of nursing assistants, who make up 65% of nursing home staff, make two times the federal poverty level.12
In addition to the rent, taxes, and medical equipment, the costs are partly due to the high staff-to-resident ratios (usually more than 2-to-1); the 24-hour services offered at the facilities; recruiting, training and retaining staff; and regulatory compliance.
Is There Anything You Can Do to Lower Your Nursing Home Coverage Costs?
Occasionally, there are ways to pay lower fees for nursing home care. Since some facilities accept lower fees for Medicaid residents, try to negotiate your private fees down to the Medicaid rate. Alternatively, not all states charge the same for nursing home visits; therefore, it may be worth moving out-of-state for a cheaper nursing home.13