Paying for a nursing home with no money to spare is a predicament many people eventually face. With an average U.S. life span of more than 76 years, however, you should think about how to prepare.
Sorting out the pros and cons of possible payment strategies can be a painstaking process. If you’re on a tight budget — or you fear that nursing home costs will put you on one — it can help to consult with a certified financial planner or elder law attorney. Below, three experts discuss how they advise their clients.
How Much Does a Nursing Home Care Facility Cost?
The average monthly cost for a nursing home ranges between $8,669 for a semi-private room and $9,733 for a private room, according to 2023 data from Genworth Financial.
There’s no such thing as a free nursing home; the facility must be paid somehow. The majority of nursing home residents in the U.S. — more than 60% — depend on Medicaid to pay for their long-term care, according to the American Health Care Association. Soundalike Medicare does not cover long-term nursing home care.
Other residents, who finance their nursing home care through private pay, use means such as long-term care insurance, hybrid long-term care/life insurance policies, reverse mortgages and annuities.
[READ: Must-Ask Questions When You’re Choosing a Nursing Home.]
If I Don’t Have Any Money, Then Who Will Pay for a Nursing Home Facility?
Who pays for a nursing home if you have no money or a limited income? Here’s what to know about coverage for nursing home care:
— Medicaid
— Medicare
— Veterans benefits
— Social Security
Paying for a nursing home with Medicaid
As mentioned, Medicaid is the typical answer for how to pay for a nursing home with no money. But don’t assume you can rely on Medicaid. Qualifying isn’t a given, and you have to be careful when making efforts to become eligible. You need to know about eligibility rules and limitations several years in advance to avoid potential financial pitfalls.
Medicaid eligibility
Some Medicaid eligibility criteria varies by state. Eligibility can be based on:
— Income threshold
— Asset threshold
— What is or is not considered an asset. For example, a 401(k) plan or individual retirement account is exempt in some states, but not others. “Some states will only treat an IRA as an exempt asset if it is put into ‘pay-out’ status and will count the income received against the applicant, while others do not require it to be paid out,” explains Joseph Bestreich, an associate attorney specializing in elder law and estate planning at Capell Barnett Matalon & Schoenfeld LLP in Syosset, New York. He’s also currently a member of the New York State Bar Association Elder Law Section and Trusts and Estates Section.
— Look-back periods. Most states have a five-year look-back period (more on that below), but Bestreich explains that New York state has been working on implementing a two-and-a-half look-back period since the start of the COVID-19 pandemic.
Medicaid rules for long-term care
Generally, in order to qualify for Medicaid coverage for long-term care, you must:
— Be at least 65 years old or have a qualifying condition, such as a disability
— Apply for the program in your state of residence and be a U.S. citizen or qualifying immigrant
— Earn a monthly income under the Medicaid limit. The threshold depends on your state, but the typical income limit for long-term care Medicaid is $2,829 for 2024.
— Have a demonstrated need for long-term care
What is covered in my Medicaid plan?
As long as the nursing home is Medicaid-certified (meaning it meets specific standards from the state and federal government to participate in Medicaid), Medicaid will cover all of the associated costs. Individuals may still be responsible for personal expenses or services deemed nonmedically necessary.
Medicaid spend-down strategy
If you don’t qualify for Medicaid due to having excess assets, you can attempt a Medicaid “spend down.” This is essentially where you spend excess assets on qualifying expenses, such as paying down mortgages or other debts, prepaying funerals, establishing burial accounts, making home modifications or purchasing exempt assets like automobiles. This places your countable assets under the state Medicaid maximum limits.
Here are a few key points to understand about a Medicaid spend down:
— Medicaid spend-down rules and restrictions vary by state. To learn about Medicaid spend-down eligibility in your state, call your state Medicaid office or visit Medicaid.gov.
— There is a five-year look-back period for Medicaid eligibility. This look-back period is the government’s way of ensuring that you haven’t recently given away money or other resources in the form of ineligible transfers, such as gifts to friends and family members during that time frame. “Medicaid understands that when someone puts in an application to have their care paid for, they may have done so after intentionally placing themselves into a lower financial position to qualify,” explains Keith R. Miles, a certified elder law attorney who practices in Georgia and North Carolina. “So, the state Medicaid department will look back five years to make sure none of that happened.”
— Planning ahead is crucial to a Medicaid spend-down. That’s why you need to get your ducks in a row in advance. “When we talk to people, we talk to them about proactive planning and trying to possibly do things five years ahead,” Miles says.
[READ: Nursing Home Requirements: Who’s Eligible?]
Medicare
Medicare does not cover nursing home care or long-term care.
Medicare rules for long-term care
Medicare and most Medicare Advantage and Medigap plans don’t cover any long-term “custodial care” services, which is supportive care for activities of daily living, like daily grooming, dressing and eating.
Medicare Part A does cover skilled nursing care under some circumstances, but this is different than nursing home care. Skilled nursing care involves a skilled nursing need, such as wound care or IV medications, and usually takes place right after a hospital discharge. It’s also a short-term need. After 100 days of skilled nursing care, you pay all of the associated skilled nursing costs until the end of your benefit period.
Visit Medicare.gov to learn more about accessing Medicare Part A for short-term skilled nursing needs.
How to use veterans benefits to pay for nursing home care
Some individuals use veterans benefits to pay for nursing home care. In general, you need to meet the income eligibility requirements and have a disability that resulted from your military service. The Veterans Affairs website shares that it pays for some nursing home care, but you may have a copay for those services, which could be up to about $97 per day.
To access these benefits, you need to sign up for VA health care and qualify for the requested nursing home care. Visit VA.gov, contact a VA social worker or call the VA health benefits hotline at 877-222-8387 for more information.
Paying for a nursing home with Social Security
You can choose to offset nursing home costs using your Social Security benefits. However, Social Security monthly income averages around $1,000 to $2,000, while monthly nursing home costs can top $9,000 or more on average.
Also, note that if Medicaid pays for your nursing home, the Supplemental Security Income portion of Social Security benefits may be affected. Because SSI is a needs-based program, qualifying for Medicaid could result in a reduction of your SSI benefits, in some cases limited to only $30 per month.
[SEE: Nursing Home Alternatives to Consider]
Reducing Nursing Home Expenses
When it’s clear that you or a loved one needs a nursing home, there are ways to reduce monthly nursing home expenses. Looking into lower-cost nursing homes is an obvious one, though you want to make sure the facility offers good-quality care. Start by researching long-term care facilities in your location of interest.
Nursing Home Care Compare, the five-star rating system run by the federal Centers for Medicare & Medicaid Services, assigns a star rating to long-term care facilities based on health inspections, staffing and quality. You can look at a nursing home’s deficiencies on the online tool.
You also can locate potential facilities and find inspection data by searching the U.S. News Best Nursing Homes ratings, which are based in part on CMS surveys, as well as additional factors and methodology.
Once you locate nursing homes in your area, there are ways to economize:
— Don’t pay for a private room
— Avoid extra fees for amenities
— Explore a reverse mortgage
Don’t pay for a private room
The cost difference between a private room and a semi-private room — a shared room that usually has a curtain or other divider between roommates — is considerable.
“It’s normal to prefer a private room,” says Niv Persaud, a certified financial planner and managing director of Transition Planning & Guidance, based in Atlanta. “Sometimes it doesn’t make financial sense.”
Nationwide, the average daily rate for a private room in a nursing home facility is $320, compared with a daily rate for a semi-private room of $285, according to the 2023 Cost of Care Survey from Genworth. Put another way, the average yearly cost of a private room is more than $116,000, compared with an average yearly cost of a semi-private room of just over $104,000.
Avoid extra fees for amenities
Simply, you pay for what you get. Nursing homes that offer beauty salons and barber services will tack the costs onto the monthly bill. Similarly, having a resident’s clothing sent out for dry cleaning or providing in-room cable TV represents extra costs.
Explore a reverse mortgage
Financial strategies like reverse mortgages could provide needed funds. With a reverse mortgage, the homeowner gives up equity in their home so they can receive regular payments.
“If you don’t intend to pass your home to the next generation, a reverse mortgage may be an option,” Persaud says. “Before moving forward, make sure you understand the fees associated with this type of mortgage. This includes the impact on Medicaid benefits, when you can no longer live in your home and ongoing expenses, such as upkeep, taxes and insurance.”
A financial advisor can identify other options and resources you may not have considered. Persaud recommends choosing a certified financial planner via the Certified Financial Planner Board of Standards.
“It’s never too early to have these conversations so you know your options,” she says.
Is a Nursing Home the Best Option for Seniors Without Funds?
To determine if a nursing home is right for you:
— Evaluate whether your nursing home has more than you really need. Higher-end nursing homes may provide attractive services and activities, such as massage therapy or cultural excursions, as standard options. However, you pay more for the nursing home overall. If your loved one isn’t really benefiting from those amenities, consider choosing or changing to a facility with fewer frills. For example, Persaud has a client whose mother has Parkinson’s disease. “Her symptoms have worsened to the point where she cannot use a lot of the amenities at the nursing home,” Persaud says. “So, now we’re exploring lower cost nursing homes without those amenities.”
— Be proactive about nursing home decisions and options. Whether you’re the prospective resident or looking out for a loved one, local community centers and senior centers may offer services, suggestions and support. Staff members or center users might have personal experiences with nearby nursing homes to share. In addition, contact the local Area Agency on Aging. If your parents are active older adults, they can start doing their own research, Persaud suggests.
Nursing home alternatives
If you’re paying for long-term care out of pocket, it might be worth looking into other options. Creative measures can postpone, if not prevent, the need to resort to a nursing home. Alternatives include:
— Group homes. Also called adult family homes or board and care homes, group homes tend to be smaller residences located in regular neighborhoods. Offering fewer amenities but featuring home-like atmospheres, they typically cost less than traditional nursing home facilities.
— Home care. Home care, such as a home health aide coming to your home to help with dressing and grooming, costs about $5,000 per month. The cost will vary depending on where you live and how many hours per day you require help. Although home health care can be expensive, it may work if the recipient needs limited hours of care or only needs that extra level of care a few days a week.
— Adult day care. Adult day care can offer socialization and varying levels of care for your loved one while providing you respite to work during the day or just have some time for yourself.
— Combination of services. Combining adult day care with evening homemaker services could offer some caregiving relief.
Medicaid waiver programs
Neither Medicare nor Medicaid pays for the costs associated with room and board at an assisted living community. However, there are Medicaid waivers designed to delay nursing home care until absolutely necessary. These waivers can help cover some services within long-term care, such as home health aides or paying for memory care with no funds. They do not pay for the room and board portion of the services.
Medicaid waiver programs and services can vary considerably by state. Visit Medicaid.gov to see your state’s waiver list.
Rental assistance programs
The Department of Housing and Urban Development works to incentivize building and maintaining affordable housing options for various populations, including seniors. Seniors may use a Section 8 voucher — a rental assistance program for eligible low-income individuals and families — to help offset some of the housing costs of facilities that are Section 8 subsidized, but vouchers are in limited supply. Visit HUD.gov for more information.
Financial Planning for Long-Term Care
Most of the population is going to live a very long time — that’s the baseline assumption for elder lawyers, Miles says. In his practice, the focus is on addressing eventual long-term needs that may arise over the course of someone’s life, rather than concentrating solely on inheritances for heirs after they die.
Make sure you understand the following about financial planning for long-term care:
— Long-term care insurance isn’t for everyone. “Long-term care insurance makes sense for some people,” Persaud says. “It depends on the individual’s total financial picture and age. If you’re younger, long-term care insurance premiums will be more affordable than they are for someone over 50 years old.”
— You might need more financing beyond long-term care insurance. Mechanisms like traditional long-term care insurance aren’t always enough to adequately finance nursing home care. Even a good policy can have shortcomings, such as daily coverage limits and having to pay the bills first and be reimbursed later, Miles says.
— You may want to look into a life insurance or annuity product with a living benefit rider. This option lets you access some of your life insurance benefits while you’re still alive, allowing you to use some of those funds for long-term care if you need.
— The risk of needing long-term care increases with age. Older policyholders represent a higher risk for insurance companies, which is why insurance premiums also rise with age.
— There are more hybrid policies nowadays. Since the early 2000s, low interest rates have hampered insurance companies from building their reserve to pay claims on long-term care policies, Persaud says. “That’s why many insurance companies no longer offer pure long-term care insurance. Instead, they offer hybrid policies — a combination of life insurance and long-term care insurance.” Hybrid policies that combine long-term care coverage with life insurance at a locked-in premium are an alternative. Policies vary with each insurer, so it’s important to choose carefully.
— Protect your assets before spending all your funds. Medicaid has a resource limit of $2,000 for an individual and $3,000 for a couple. But that doesn’t necessarily mean you have to spend down until you get there; elder law attorneys will advise clients to think ahead at the time of doing their normal estate planning. “There are certain strategies that are allowed, which many people do not take advantage of because they try to ‘do-it-yourself’ or use legal software rather than properly seek legal advice from a qualified elder law attorney,” Miles adds.
— Consider setting up an irrevocable trust. Miles explains that many people have revocable living trusts for incapacity planning or probate avoidance. However, all of the resources within those revocable living trusts would be countable and cause an applicant to be disqualified. A better strategy would utilize an irrevocable trust, which is non-countable for Medicaid assets and cannot be changed in most circumstances. .
Proactive Financial Measures
When you consult with elder law attorneys, they may discuss asset-protection strategies, including:
— Transferring a home to a minor child or to an adult child with a disability.
— Setting up a personal care arrangement to compensate a family caregiver, though it typically cannot be the spouse
— Transferring home ownership to a parent’s grown caregiver child who lives with the parent, thus delaying the parent going into a nursing home. That child must live in the home with that parent for at least two years immediately prior to the parent’s admittance to a nursing home or assisted living community.
— Transferring home ownership to a co-owner sibling. This typically must be biological or adopted and not step-related sibling. The sibling must have lived in the home with the applicant for at least one year before the applicant receives Medicaid Long-Term Care.
— Setting up a special needs trust for an individual under 65 who is disabled, whether they are related or not.
— Setting up a pooled trust with excess resources and assets paid to a charitable organization. In most states, you must be under 65, or there is a transfer penalty.
— Setting up an irrevocable Medicaid trust where others, typically children, are named as trustees or “lifetime beneficiaries.” Trustees or beneficiaries cannot be the spouse.
— Setting up an annuity that complies with Medicaid requirements
— Setting up a promissory note that complies with Medicaid requirements
Arrangements like these have intricate rules that you need to understand before moving ahead, so it’s safer to consult with an expert than to DIY with online legal forms.
The Bottom Line
It’s important to carefully weigh financial strategies to help ensure that they won’t backfire and lead to penalties or leave your survivors vulnerable to Medicaid estate recovery claims to reimburse the state for long-term care. Elder law planning is focused on the living, not the proverbial “death and taxes,” Miles emphasizes.
But if your budget is tight, can you afford elder law advice?
“The attorney answer is: It may be a painful expenditure in the short-term, but it will potentially benefit you and your heirs in the long run,” Miles says.
His bottom line is: “We’re doing this because we’re trying to save your life savings. And if we lay it out properly, we can demonstrate to that client: Here’s the benefit for you. Or, if not for you, then for your family.”
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How to Pay for a Nursing Home With No Money originally appeared on usnews.com
Update 07/25/24: This story was previously published at an earlier date and has been updated with new information.
