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Who Pays for a Nursing Home – and How?

Nursing home stays are expensive. A typical monthly bill for the nursing home can come to as much as $14,000—or more. And you don’t want to skimp on that care, because the quality of care at a nursing home can make a significant difference in the quality of life for you or your loved one.

But most people don’t have that kind of money just lying around. So how does nursing home care get paid for? The truth is complicated—and often unfair. Nursing home bills can decimate residents’ savings and assets, leaving nothing behind for themselves or for spouses and heirs. Long-term care insurance can save you from that—but the industry is undependable and fraught with abuse.

Here’s an overview of how nursing home bills are typically paid for.

Medicare

Many people believe that Medicare will pay for nursing home expenses when it’s needed. That’s wrong—Medicare may pay some nursing home costs for people who need skilled nursing care or rehabilitation, but only under very limited conditions. And typically, Medicare pays for less than 10% of the total bill—so you can’t depend on it.

Couple Doing Paperwork

To qualify for Medicare coverage, the resident must use a home that is certified by Medicare—not all are. And they must meet the following conditions:

  • They require skilled nursing care every day.
  • They have been in the hospital for at least three consecutive days, not including the day of discharge, before moving to the nursing home.
  • They were admitted to the nursing home within 30 days after discharge from the hospital.
  • They were admitted to the nursing home for the same condition for which they were hospitalized.
  • The need for skilled nursing care or rehabilitation was certified by a physician.

If you do qualify, Medicare may—or may not—pay as much as the first 20 days of your stay at the nursing home. After the first 20 days but before the first 100, it will pay only 80%–and most people have Medigap insurance to pay the rest. After 100 days, you’re responsible for the rest.

Medicaid

Medicaid will pay most nursing home bills for people who have very limited income and assets. Eligibility varies state-by-state, so you’ll have to check the requirements where you live to determine eligibility. Like Medicare, Medicaid will pay for nursing home costs only in facilities that have been certified by the government for Medicaid residents.

Medicaid reimbursement is in fact common. Medicaid pays for seven out of ten nursing home or retirement community residents nationwide. But not everyone starts out qualifying for Medicaid—in fact, most people don’t. What usually happens is that people start out by paying their nursing home costs themselves. Once they run out of money or assets to the point that they qualify, Medicaid kicks in. In general, federal laws may protect surviving spouses from living in poverty once this happens. 

The resident

If you don’t qualify for Medicare or Medicaid, and you don’t have a health insurance plan that covers it, you’re responsible for all the costs out of pocket. Of the seven out of ten whose nursing home bills are paid for by Medicaid, approximately five out of ten spend down their retirement savings, income, and assets first.

A managed care plan

Generally, managed care plans don’t pay for nursing home care—unless the home you are using has an agreement with that insurance company on the plan you use. Double-check with your insurance company to see if coverage is available, whether the home is approved by your plan, and whether the insurance company will check up on the home’s quality of care.

Medigap insurance

This is private insurance designed to cover the gaps in Medicare coverage. The problem with Medigap (or Medicare supplemental insurance) is that while it may help pay for skilled nursing care, it usually does only when you already qualify for Medicare coverage—so it’s generally useless for covering nursing home care if you need 100% of the costs paid for. It is useful, however, for periods when Medicare is covering only 80% of the costs. It will also kick in if the bill for the hospital is more than what Medicare will reimburse.

Long-term care insurance

Long-term care insurance is designed to cover the long-term nursing care expenses not covered anywhere else—and these policies can be a lifesaver in preserving your assets. But while some people have a great experience with long-term care insurance, the industry as a whole is guilty of many abuses. Claim denials, high premium increases, and regular payment denials can make these plans worthless when they’re really needed—even though they tend to be quite expensive. And some companies seem to go out of their way to make it difficult for insureds to file claims.

Long-term care insurers have an incentive to deny claims. Often, even if they’re clearly obligated to pay, they know that if they simply delay the case by making a mistaken denial, they will cause a delay—and the insured could die before a judgment is rendered and they have to pay out. It’s gotten so bad that a congressional inquiry has been started, led by representatives John Dingell and Bart Stupak of Michigan.

Because of this, buying long-term care insurance can be a fraught experience—and whether you get a company that will pay your costs with no problems once you need it may come down to chance. Hopefully by the time you need to file a claim (if you ever do), new regulations will be in place that will better govern the industry.

It’s not easy to pay for nursing home bills—and it often requires some agonizing decisions. Do you take on the high premiums of long-term care insurance—and risk that your policy won’t cover what you need when you need it? Or do you plan to rely on Medicaid—and allow your assets and savings to be practically eliminated first? It’s not easy for anyone, but many people and their families will eventually face these decisions. Do your research and prepare before you need a nursing home, and you’re more likely to make a reasoned and sensible decision when the time comes.