How Do Nursing Homes Get Paid for Long-Term Care?

The financial arrangements for long-term care in nursing homes involve a range of payment sources. No single payment method universally covers all situations, and individuals often transition between different funding streams as their needs and financial circumstances evolve. The complex nature of these payment systems requires careful consideration to manage the costs of extended care.

Private Payment Sources

Private payment, often called “private pay,” involves individuals and their families directly covering nursing home costs from their own financial resources. This method frequently serves as the initial payment source for many residents. Funds typically originate from personal savings, investment portfolios, and retirement assets like 401(k)s or Individual Retirement Accounts (IRAs).

Individuals may also use income from pensions, Social Security benefits, or other regular earnings. When liquid assets are insufficient, families might sell real estate, such as a primary residence, or other valuable possessions. Financial contributions from family members can also supplement an individual’s resources to cover substantial monthly expenses. The national median cost for a private room in a nursing home was approximately $10,836 per month in 2023.

Long-Term Care Insurance Payments

Long-term care insurance policies help cover the costs of extended care services, including nursing home care. These policies typically pay a daily benefit amount for covered services once an individual meets eligibility criteria, often involving needing assistance with Activities of Daily Living (ADLs) or having a cognitive impairment. The insurance company may pay the nursing home directly or reimburse the policyholder for qualified expenses.

Policies include a daily benefit maximum and a lifetime maximum benefit. An elimination period, similar to a deductible, is a specified number of days (e.g., 30, 60, or 90 days) that must pass after care begins before benefits start. During this period, the individual remains responsible for the full cost of care. The specific terms and benefit amounts vary widely depending on the policy purchased.

Medicare Coverage for Nursing Home Stays

Medicare, the federal health insurance program for individuals aged 65 or older and some younger people with disabilities, offers specific and limited coverage for nursing home care. Medicare Part A covers skilled nursing facility (SNF) care, which is rehabilitative rather than long-term custodial care. For coverage, an individual must have had a qualifying hospital stay of at least three consecutive days before entering the SNF. The individual must also require daily skilled nursing care or therapy services that can only be provided in an SNF.

Medicare Part A covers the full cost of SNF care for the first 20 days of each benefit period, provided all conditions are met. For days 21 through 100, a daily co-insurance amount applies, which was $204.00 per day in 2024. After day 100 in a benefit period, Medicare does not cover further SNF costs. Medicare does not pay for long-term, non-skilled personal care, such as assistance with dressing, bathing, or eating, if that is the only care needed.

Medicaid Funding for Nursing Home Care

Medicaid is a joint federal and state program that provides medical assistance to individuals and families with low incomes and limited resources. For many Americans, Medicaid becomes the primary payer for long-term nursing home care once other financial resources are exhausted. Eligibility for Medicaid long-term care benefits is determined by strict income and asset limits, which vary by state.

When an individual’s assets and income exceed these limits, they may need to “spend down” their resources until they meet the program’s financial criteria. This process can involve using funds to pay for medical expenses, including nursing home costs, until the individual reaches the allowable asset and income thresholds. Once eligible, Medicaid directly pays the nursing home for covered services. Nursing homes are reimbursed by state Medicaid agencies based on established rates, which can be lower than private pay rates. Payment rates and rules, including those for asset transfers and look-back periods, are determined at the state level, leading to variations.

Veterans Benefits and Other Programs

Veterans and their surviving spouses may be eligible for financial assistance for nursing home costs through Department of Veterans Affairs (VA) programs. The Aid and Attendance (A&A) benefit is a needs-based pension enhancement for eligible veterans and surviving spouses who require aid for daily activities or are housebound. This benefit can provide a significant monthly payment to offset the high cost of long-term care.

To qualify for A&A, veterans must meet service requirements, and both veterans and surviving spouses must meet VA income and asset limitations. The benefit is paid directly to the eligible individual, who then uses it for their care. Some states or local governments may offer limited financial assistance programs or waivers for specific populations or circumstances, though these vary widely in scope and availability.