Overview of Medicare and Medicaid in Nursing Home Settings
Medicare and Medicaid are both federal programs, but they serve distinct populations and cover different types of care. Confusion between the two is common, particularly when families are navigating nursing home placement for an older adult. Understanding how each program applies to nursing facility care requires examining the type of care needed, the duration of that care, and the financial profile of the individual seeking coverage. In general terms, Medicare covers short-term, medically necessary skilled care, while Medicaid covers long-term custodial care for individuals who meet specific income and asset criteria. The rules governing both programs are complex and vary meaningfully by state.
Medicare Part A Coverage for Skilled Nursing Facility Stays
Medicare Part A provides limited coverage for care in a Medicare-certified skilled nursing facility (SNF). This benefit is intended for individuals who require skilled nursing or rehabilitation services following a qualifying hospital stay, not for individuals who need ongoing assistance with daily living activities.
To access the SNF benefit, a beneficiary must first meet the three-day inpatient hospital stay requirement. The individual must be formally admitted as an inpatient for at least three consecutive calendar days, not counting the day of discharge. Observation status stays, even if the patient sleeps in a hospital bed for multiple nights, do not count toward this requirement. This distinction has significant financial consequences and has been the subject of ongoing litigation and legislative attention.
Once the three-day requirement is met and a physician certifies the need for daily skilled care, Medicare Part A covers SNF costs according to the following benefit structure for each benefit period:
- Days 1 through 20: Medicare pays 100 percent of covered costs. The beneficiary pays nothing for these days.
- Days 21 through 100: The beneficiary is responsible for a daily coinsurance amount. In 2024, this coinsurance is $204.00 per day. Many Medicare supplement (Medigap) plans cover this coinsurance, depending on the plan type.
- Day 101 and beyond: Medicare coverage ends entirely. The beneficiary becomes responsible for the full daily cost of care.
A benefit period begins the day a beneficiary is admitted to a hospital or SNF and ends when the individual has not received inpatient hospital or skilled nursing care for 60 consecutive days. There is no limit on the number of benefit periods a Medicare beneficiary may use over a lifetime.
What Medicare Does Not Cover in Nursing Homes
Medicare explicitly does not cover custodial care, which is defined as assistance with activities of daily living such as bathing, dressing, eating, toileting, and mobility when no skilled nursing or rehabilitative need is present. This is also referred to as long-term care or personal care. Because the majority of nursing home residents require primarily custodial rather than skilled care, Medicare covers only a small fraction of total nursing home expenditures nationally.
The average annual cost of a private room in a nursing home exceeded $108,000 in 2023, according to industry survey data. Semi-private rooms averaged approximately $94,900 annually. Once Medicare's 100-day SNF benefit is exhausted, individuals without long-term care insurance or sufficient personal assets must turn to Medicaid to cover ongoing costs.
Medicaid's Role in Long-Term Nursing Home Coverage
Medicaid is the primary payer for long-term nursing home care in the United States. As a joint federal-state program, Medicaid is administered by individual states within federal guidelines, meaning eligibility rules, covered services, and reimbursement rates differ significantly across states. Individuals considering Medicaid for nursing home coverage should contact their state Medicaid agency or a licensed elder law attorney for state-specific information.
To qualify for Medicaid nursing home coverage, an applicant must meet both functional and financial eligibility criteria.
- Functional eligibility generally requires that the individual demonstrate a medical need for nursing-level care, typically assessed through standardized tools measuring activities of daily living and cognitive status.
- Income limits vary by state. Some states use a fixed income cap, often set at 300 percent of the federal Supplemental Security Income (SSI) benefit rate, which was $2,829 per month in 2024. Other states apply a spend-down or medically needy pathway.
- Asset limits for a single applicant are typically set at $2,000, though some states permit higher amounts. A primary residence may be exempt up to a certain equity value, which was capped federally at $713,000 in 2024 (or $1,071,000 in states that elected the higher threshold).
It is important to distinguish between institutional Medicaid and community Medicaid. Institutional Medicaid covers care in nursing facilities. Community Medicaid supports home and community-based services (HCBS) through waiver programs and generally carries different, often less restrictive, eligibility thresholds. An individual may qualify for community Medicaid waiver services without meeting the stricter income and asset standards required for nursing home Medicaid.
The spend-down process applies in states that use a medically needy pathway. Under spend-down, an applicant with income or assets above the eligibility threshold may become eligible for Medicaid once they have incurred medical expenses sufficient to reduce their countable resources to the program limit. Married couples face additional rules, including protections for the community spouse under the Spousal Impoverishment provisions established by the Medicare Catastrophic Coverage Act of 1988.
Determining Which Program Applies
The appropriate program in a given situation depends on two primary factors: the type of care being provided and the duration of care needed.
- If an individual has had a qualifying three-day hospital stay and now requires daily skilled nursing or rehabilitation services, Medicare Part A is the first payer, up to the 100-day benefit limit.
- If an individual requires primarily custodial care, or if the Medicare benefit has been exhausted, and the individual meets financial eligibility criteria, Medicaid becomes the applicable program.
- If an individual has private long-term care insurance, that policy may cover costs before Medicaid eligibility is considered, depending on policy terms.
- If an individual has sufficient personal assets, they are expected to pay privately until assets are reduced to Medicaid eligibility thresholds.
Dual Eligibility: When Both Programs Apply
Approximately 12.5 million Americans are dually eligible for both Medicare and Medicaid, according to CMS data. In a nursing home context, dual eligibility means Medicare pays first for covered skilled care services, and Medicaid covers costs that Medicare does not pay, including the daily coinsurance for days 21 through 100 and ongoing custodial care costs once Medicare coverage ends. Dual-eligible individuals may also be enrolled in Special Needs Plans (SNPs) designed to coordinate benefits across both programs. Medicaid for dual-eligible nursing home residents also typically covers the Medicare Part B premium and other cost-sharing obligations.
Medicaid Planning and the Look-Back Period
Federal law imposes a 60-month (five-year) look-back period for nursing home Medicaid applicants in most states. During the application review process, the state Medicaid agency examines financial transactions made by the applicant or their spouse within the five years prior to application. Transfers of assets for less than fair market value during this period may result in a penalty period during which Medicaid will not pay for nursing home care, even if the applicant otherwise meets eligibility criteria.
Medicaid planning refers to legal strategies used to structure assets in a manner consistent with Medicaid eligibility rules. Common approaches include the use of irrevocable trusts, certain annuity structures, and the conversion of countable assets into exempt assets. The appropriateness of any planning strategy depends on individual circumstances, state rules, and the timing of anticipated care needs. Penalties for impermissible transfers can be substantial, and planning done too