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A Guide to Nursing Home Coverage: Medicare, Medicaid, and Other Options

Last updated March 17th, 2020

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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 2015, US expenditures on nursing homes and continuing care retirement centers totaled $156.8 billion – $88 billion of which came from Medicare and Medicaid. But while more than half of US spending on nursing home care comes from Medicare and Medicaid, more than a quarter comes from out-of-pocket spending – with the remaining coming from other sources.

Source of US Spending on Nursing Homes and Continuing Care Centers:

  • Medicaid: $50 billion (32% of overall expenditures)
  • Out-of-Pocket: $40 billion (26% of overall expenditures)
  • Medicare:  $38 billion (24% of overall expenditures)
  • Private Insurance: $13 billion (8% of overall expenditures)
  • Third Parties: $11 billion (7% of overall expenditures)
  • Veteran Affairs: $5 billion (3% of overall expenditures)

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

The exorbitant costs of nursing homes is hard to fathom. In 2016, the average private nursing home room cost around $92,376 for a year. To put that into perspective, the average annual college tuition at private US universities is $33,480. The average nursing home costs for the duration of the average stay at a nursing home 835 days) is over $211,000. That’s nearly six times as much as the average student loan debt of $37,000.

Nursing Home Costs | The CheckUp by HealthCare.com

Nursing Home Coverage Under Medicare

1.4 million Americans currently live in nursing homes, 85 percent of whom are over the age of 65. 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.

Part A Skilled Nursing Facility flowchart

Under Medicare Part A:

  • The first 20 days are fully covered, but days 21 to 100 require that you pay $164.50 in coinsurance;
  • 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 but only up until you need skilled nursing care 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 at 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 the National Care Planning Council, the average stay is 835 days – that’s nearly three years.

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. It’s as low as 8 percent in states like Hawaii and as high as 60 percent in states like North Dakota.

How much Medicaid pays towards nursing home fees will depend on the fate of Medicaid expansion in the Senate’s current health care bill.

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).

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 an LTCI plan you can choose homecare or an assisted-living facility, and you’re covered for more extensive medical treatment. With Medicaid, nursing homes are your only option and the medical services you receive are minimal.

If you are thinking about an 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.

Nursing Home Coverage for Veterans

More than 1.5 million veterans and their spouses are eligible for coverage for nursing home care from the Department of Veterans Affairs (VA). 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 $250, 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. Reports actually indicate that 91 percent of nursing homes are understaffed and nearly half of nursing home staff make less than 200 percent of the federal poverty level (FPL).

In addition to the rent, taxes, and medical equipment, the staggering costs are partly due to the high staff-to-resident ratios (usually more than 2-to-1) and the 24-hour services offered at the facilities.

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.

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