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*.

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.

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.