How to Afford Nursing Home Care Costs

The prospect of needing nursing home care presents a significant financial challenge. The substantial costs can quickly deplete savings and assets, making effective financial planning crucial. Understanding available strategies and resources is key to managing these expenses. This article explores government assistance programs and personal financial tools that can help mitigate the burden of nursing home care costs.

Understanding Government Assistance for Care Costs

Government programs can provide financial assistance for nursing home care, but their scope and eligibility requirements vary significantly. Understanding these rules is an important step in financial planning for long-term care needs.

Medicare offers limited coverage for skilled nursing facility (SNF) care, distinct from long-term custodial nursing home care. To qualify, a person must have a prior medically necessary inpatient hospital stay of at least three consecutive days, with SNF admission generally occurring within 30 days of hospital discharge. Medicare Part A covers the full cost for the first 20 days of an SNF stay if eligibility criteria are met. For days 21 through 100, a daily co-insurance amount applies. After 100 days, Medicare ceases to cover SNF costs and does not cover non-medical long-term custodial care.

Medicaid serves as a primary source of funding for long-term nursing home care for individuals with limited income and assets. Eligibility is complex, involving strict financial criteria that vary by state and marital status. Generally, an individual’s countable assets must be below a certain limit, often around $2,000 in most states. Income limits also apply; some states use an “income cap,” while others allow a “medically needy” spend-down process where income exceeding a threshold can be used for medical expenses to qualify.

A significant rule in Medicaid eligibility is the “look-back period,” which examines financial transactions for a certain duration prior to the application date. In most states, this period is 60 months (five years). Transfers of assets for less than fair market value during this time can result in a penalty period of ineligibility. The penalty period’s length is calculated by dividing the uncompensated transfer’s value by the average monthly cost of nursing home care in the state, known as the penalty divisor. This period aims to prevent individuals from divesting assets simply to qualify for Medicaid.

Medicaid includes spousal impoverishment protections to prevent the community spouse from becoming financially destitute when their partner enters a nursing home. These rules allow the community spouse to retain a certain amount of combined assets, known as the Community Spouse Resource Allowance (CSRA). In 2025, the CSRA can range from a minimum of $31,584 to a maximum of $157,920, with amounts varying by state. The community spouse may also be entitled to a Minimum Monthly Maintenance Needs Allowance (MMMNA) from the institutionalized spouse’s income to ensure sufficient funds for living expenses.

Veterans and their surviving spouses may be eligible for the Aid and Attendance benefit, a non-service-connected pension from the Department of Veterans Affairs. This benefit helps cover long-term care costs for those requiring assistance with daily living activities. Eligibility typically requires the veteran to have served at least 90 days of active duty, with at least one day during a wartime period, and to meet income and asset limits. The net worth limit for eligibility for this benefit was around $159,240 in 2025.

Utilizing Personal Financial Assets

Personal financial assets offer several avenues for funding nursing home care, either directly or through strategic leveraging. Understanding how these resources can be best deployed is part of a comprehensive financial plan.

Long-term care insurance policies cover extended care services, including nursing home stays. These policies feature a daily benefit amount, which is the maximum the policy pays per day for covered services. An elimination period, similar to a deductible, is a waiting period (often 90 days) during which the policyholder must self-fund care before benefits begin. Benefit periods, ranging from a few years to lifetime coverage, define the duration over which the policy will pay out.

Personal savings and investments are a direct source of funds for nursing home care. Liquid assets like savings accounts, certificates of deposit (CDs), mutual funds, and individual stocks can pay for care expenses. Retirement accounts, including Traditional IRAs and 401(k)s, can also be accessed, though withdrawals are generally subject to ordinary income tax rates. Early withdrawals before age 59½ may incur a 10% penalty, though some exceptions apply.

Home equity can be a substantial asset for funding care, offering several options. Selling the home provides a lump sum that can directly cover nursing home costs. Alternatively, a reverse mortgage allows homeowners (typically aged 62 or older) to convert a portion of their home equity into cash without selling the property. If a single borrower moves out permanently for more than 12 consecutive months (e.g., to a nursing home), the reverse mortgage loan generally becomes due. If a co-borrower remains in the home, the loan typically does not become due.

Life insurance policies can be leveraged to cover care costs. Policyholders may cash out a permanent life insurance policy for its cash surrender value, which is typically less than the death benefit. Another option is to take a loan against the policy’s cash value. A life settlement involves selling an existing policy to a third-party investor for a lump sum. A viatical settlement is a specific type for terminally or chronically ill individuals, often yielding a higher percentage of the death benefit than a standard life settlement.

The Medicaid Application Journey

Applying for Medicaid to cover nursing home costs is a detailed process that requires careful preparation and adherence to specific steps. Having understood the eligibility rules, the focus shifts to the procedural aspects of the application.

Preparing for a Medicaid application involves gathering documents to demonstrate financial and medical eligibility. This typically includes:
Multiple years of bank and investment account statements.
Proof of all income sources, such as Social Security benefit letters and pension statements.
Medical records confirming the need for nursing home level of care.
Records of any asset transfers, sales, or gifts made within the five-year look-back period.

Once necessary documentation is compiled, the application can be submitted through various channels. Many states offer online portals, while others may require submission by mail or in person at a local Medicaid office. Ensure all sections are completed accurately and thoroughly to avoid delays.

The application then enters a review process by state Medicaid agencies. This review can take several weeks or months, during which a caseworker may contact the applicant or their representative for additional information or clarification. Promptly responding to these requests is crucial to avoid application delays or denials.

If a Medicaid application is denied, applicants have the right to appeal. The denial letter typically outlines the reasons and provides instructions on how to initiate an appeal. This process usually involves requesting a fair hearing, where the applicant can present their case and additional evidence to an administrative law judge.