Why Do Nursing Homes Take All Your Money?

Nursing home care provides comprehensive services for individuals requiring constant supervision and medical assistance, addressing significant health needs like chronic conditions, post-surgical recovery, and rehabilitation. The financial aspects associated with nursing home care often raise concerns for individuals and their families, prompting a need to understand the underlying costs and payment mechanisms.

The High Cost of Long-Term Care

Nursing home care involves substantial daily expenses due to the extensive services. These facilities offer a wide array of support, including:
Skilled nursing care
24-hour supervision
Assistance with daily living activities such as bathing and dressing
Comprehensive meal services
Rehabilitation services like physical, occupational, and speech therapy
Medication management
Social activities

Several factors contribute to the elevated costs of nursing home care. The requirement for round-the-clock medical staffing, including registered nurses and therapists, represents a significant operational expense. Facilities also incur costs for medical equipment, specialized supplies, and maintaining a safe, compliant environment that meets stringent health regulations. The average annual cost for a semi-private room in a nursing home was approximately $111,325 in 2024, with a private room averaging $131,583 in 2025. These costs vary significantly by location and are also influenced by the specific level of care required by the resident.

Primary Payment Methods for Nursing Home Care

Financing nursing home care involves a sequence of payment methods, beginning with personal funds. Individuals start by paying out-of-pocket, utilizing savings, pensions, or other personal financial resources. This phase, known as private pay, continues until personal assets are substantially depleted or eligibility for other assistance programs is established.

Medicare, the federal health insurance program for individuals aged 65 or older and certain younger people with disabilities, offers limited coverage for skilled nursing facility care. It primarily covers short-term, rehabilitative services following a qualifying hospital stay of at least three consecutive days. To qualify, individuals must enter a Medicare-certified skilled nursing facility within 30 days of hospital discharge and require daily skilled nursing or therapy services. Medicare Part A fully covers the first 20 days of care, but for days 21 through 100, a daily co-insurance amount applies, which was $209.50 per day in 2025. After 100 days, Medicare ceases to cover nursing home care.

Once private funds are exhausted and Medicare’s limited benefits are no longer applicable, Medicaid becomes the primary payer for long-term nursing home care. Medicaid is a joint federal and state program that provides health coverage to low-income individuals and families. It serves as a “payer of last resort,” meaning other payment sources must be used first. Eligibility for Medicaid requires meeting strict financial and medical criteria, which involves a detailed review of an applicant’s income and assets.

Medicaid’s Asset Assessment Process

Medicaid’s financial eligibility determination involves a thorough assessment of an applicant’s assets. Assets considered countable for Medicaid eligibility include cash, funds in bank accounts, investments such as stocks and bonds, and certain real estate beyond the primary residence. Other financial instruments like annuities and some trusts are also counted.

However, certain assets are exempt or “non-countable” when determining Medicaid eligibility. These include the applicant’s primary residence, provided its equity value is within state-specific limits, and there is an intent to return home or a spouse or dependent lives there. Additionally, one automobile, household goods, personal belongings, and certain prepaid burial funds up to a specified amount are exempt.

For single individuals, strict asset limits apply, around $2,000, to qualify for Medicaid long-term care. If an applicant’s countable assets exceed this limit, they must “spend down” these assets to reach the eligibility threshold. This process involves using the excess funds to pay for medical care, outstanding debts, or to purchase exempt assets. It ensures that personal resources are utilized for care before Medicaid benefits begin.

A significant component of the asset assessment is the Medicaid look-back period, which is 60 months, or five years, preceding the date of the Medicaid application. During this period, state Medicaid agencies review all financial transactions for any uncompensated transfers of assets. If assets were transferred for less than fair market value during this look-back period, a penalty period of Medicaid ineligibility can be imposed. The length of this penalty is calculated by dividing the uncompensated transfer amount by the average monthly cost of nursing home care in the state, known as the penalty divisor.

Medicaid rules also include protections designed to prevent “spousal impoverishment” when one spouse requires long-term care and the other remains in the community. The Community Spouse Resource Allowance (CSRA) allows the community spouse to retain a portion of the couple’s combined assets, up to a certain maximum amount, which was $157,920 in 2025. Additionally, the Minimum Monthly Maintenance Needs Allowance (MMMNA) permits the community spouse to retain a certain amount of income to cover living expenses. These provisions aim to balance the need for long-term care funding with the financial stability of the community spouse.

Medicaid Estate Recovery Programs

After a Medicaid recipient’s death, states are required by federal law to attempt to recover certain long-term care costs through Medicaid Estate Recovery Programs (MERP). The primary purpose of these programs is to recoup funds spent on nursing facility services, home and community-based services, and related hospital and prescription drug services for individuals who were aged 55 or older, or permanently institutionalized, at the time they received Medicaid benefits.

The assets subject to recovery include all real and personal property owned by the Medicaid recipient at the time of death. This extends beyond assets that pass through probate, including non-probate assets such as property held in joint tenancy with right of survivorship, certain bank accounts, and assets subject to a life estate. The home of the deceased recipient is the most significant asset subject to recovery, even if it was exempt during the eligibility determination phase.

However, there are exemptions and hardship waivers that can prevent or delay recovery. States cannot pursue recovery if there is a surviving spouse, a child under 21 years of age, or a blind or permanently disabled child of any age. Undue hardship waivers are also granted if recovery would cause severe financial distress for the heirs. The specific criteria for these waivers and the types of assets protected can vary by state.