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Paying for Nursing Home Care: The Different Roles of Medicare and Medicaid

Q. My 85-year-old father is in a nursing home and his long-term care insurance has nearly run out. I'm told that under the new law he will have to sell all his assets to be eligible for 100 percent Medicare benefits in the nursing facility. Is this true?

A. No — at least, not in the way you seem to think. As so many people do, you're confusing Medicare and Medicaid. These programs are entirely different. And nothing in the new law changes existing laws that relate to paying for nursing home care*.

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Medicare is a federal program that covers a wide range of medical services for people age 65 and older and some younger people with disabilities. Medicare covers these services regardless of whether enrollees live in a nursing home or in the community — for as long as they live — provided that their monthly premiums continue to be paid. But Medicare does not cover any "custodial care" — that is, the costs of a room, meals and help with daily tasks such as dressing and bathing that a nursing home provides — and never has. (The only exception is coverage for short-term stays in a skilled nursing facility, most often for a few days or weeks of continuing care or rehabilitation after being in the hospital, as explained in this previous Q&A.)

Medicaid is the nation's medical safety net, providing health care assistance for certain groups of people (including those over age 65) whose incomes and financial resources are very low. Though mainly funded and guided by the federal government, Medicaid is run by the states and eligibility rules vary among them. (The program is also known by different names in some states — for example, Medi-Cal in California, TennCare in Tennessee and MassHealth in Massachusetts.) But, nationwide, Medicaid does pay the costs of nursing home care for people who are eligible.

Most people who enter nursing homes do not qualify for Medicaid at first but pay for the very high costs of this care through long-term care insurance or out of pocket until the insurance runs out and/or they have spent down their savings and are then eligibile for Medicaid.

Eligibility depends on a means test. Your income and assets must be under a certain dollar level set by your state. Certain assets may be exempt — up to about $2,000 in savings, investments or other financial resources that can be turned into cash; a life insurance policy with a face value of up to $1,500 and a burial plot worth up to $1,500.

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If you are married and own a house together, your spouse can continue to live in it as well as keeping all furniture and household goods and one automobile. If the house is sold, the proceeds are regarded as joint assets and some will go to Medicaid to help pay for the cost of your nursing home care. After you and your spouse die, Medicaid could go after the proceeds of the estate to help reimburse the nursing home costs.

But be warned: You cannot give away assets or sell them for less than market value to qualify for Medicaid nursing home help faster. In assessing your eligibility, Medicaid officials will examine your financial records going back five years to look for asset transfers. If they find one that falls outside the rules, your Medicaid coverage for nursing home care would be delayed by a certain length of time, according to a formula that divides the transfer amount by the average monthly cost of nursing home care in your state.

So if, for example, you made a gift of a house worth $250,000 to a family member or friend, or sold it at far less than its market value, and the average monthly nursing home cost in your state is $5,000, your eligibility for Medicaid coverage would be delayed by 50 months ($250,000 divided by $5,000 = 50). The same rule applies to transfers of cash or other assets.

There are some exceptions to this rule. To take just one example: If you are not currently married and have an adult child who has lived in your home and looked after you for at least two years before you enter a nursing home, you can transfer the title of your home to that child without any delay in coverage.

This is only a thumbnail sketch of the many rules that govern Medicaid eligibility for nursing home care, many of which vary from state to state. To find out how the rules apply to you, you or a family member may need to consult an informed counselor or a qualified elder law attorney.

You can get a lot of information from your state's heath insurance assistance program (SHIP), which is a public service that provides personal help from trained counselors on all Medicare and Medicaid issues at no charge. To find SHIP counselors in the state where you or your family member is living in a nursing home (or will soon enter one), go to the SHIP website. SHIP counselors could also put you in contact with an elder law attorney if you need one.

* Note: The new health care law does introduce a new voluntary insurance program that allows working people to contribute money from their earnings in return for daily cash payments later on if they develop a disability or a medical condition that impairs daily living activities. The payments can be used toward the cost of assistance in your home, in an assisted living facility or in a nursing home. But they wouldn't be enough to cover the full costs of permanent residency in a nursing home. This program (known as the CLASS Act) is still being organized and full details of when it will begin and how it will work are not yet known. For more information, see AARP's fact sheet.

Patricia Barry is a senior editor at the AARP Bulletin.

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