A young nurse smiles at an older woman and comforts her.
Nursing home care can be expensive. Knowing the options for paying for nursing home care can help ensure your loved one get the care they need.

There are many ways to pay for nursing home care. A person who needs to live in a nursing home can utilize their savings, Social Security benefits, pensions, or other retirement income. If personal funds won’t cover all the costs or are not options, other external sources can help cover the cost of a nursing home.

Insurance

Does Medicare cover nursing home costs? 

Medicare is a national insurance program that provides health insurance for certain populations of people; one group is adults age 65 and over. This health insurance program covers certain medical costs. Medicare does not cover nursing home costs that are not medical.

Medicare Part A is hospital insurance. This part of Medicare may cover nursing home costs, but it does not cover the cost of custodial care when that is the only care the person needs. It’s important to note that most nursing home services are considered custodial care. These tasks include activities of daily living, like bathing, dressing, toileting, transferring to and from bed, and eating.

There are different types of Medicare plans, and each has rules about the costs they cover and in what circumstances. For example, Original Medicare may pay for a specific medically-necessary service for a limited amount of time when a person is in a nursing home. Another Medicare plan called Medicare Advantage may cover some costs if the specific nursing home has a contract with Medicare Advantage.

To learn if Medicare covers the services a person needs, you can review the parts of the Medicare plan or read Medicare’s information on what Medicare covers and what’s not covered by Part A & Part B.

Does Medicaid cover nursing home costs? 

Medicaid is a national health insurance program for individuals who meet low-income and asset requirements. It is run jointly by the federal government and individual states. The federal government sets some standards, then allows states to decide the services they provide.

Each state has different Medicaid programs for different types of care they cover. Depending on the state’s program, Medicaid may pay up to 100% of nursing home care if the person who needs care meets the financial requirements to receive Medicaid.

Many, but not all, nursing homes accept Medicaid as payment for residency. It’s important to talk with a prospective nursing home to determine if they accept Medicaid payment for residency before moving in.

Contact the appropriate state Medicaid office to determine which services and care are covered. 

Does long-term care insurance cover nursing home costs?

Long-term care insurance is a type of insurance policy designed to help pay for personal care (also known as custodial care) in a variety of residential settings.

Long-term care insurance policies may vary in what they do and do not cover. Some long-term care insurance policies help pay for nursing home costs, as many services that nursing homes provide are non-medical. 

It’s important to consult with the insurance provider to learn what types of costs and how much the policy covers.

Does life insurance cover nursing home costs?

Some life insurance policies can help pay for nursing home costs. The main types of policies that can help cover nursing home costs include combination products, long-term care riders, accelerated death benefits, life settlements, and viatical settlements. Each type of insurance product works differently, depending on the policy and the policyholder’s situation.

  • Combination products: Some insurance providers offer plans that combine life insurance with long-term care insurance.
  • Long-term care riders: An insurance rider is supplemental coverage added to an existing policy that helps cover unexpected situations. This type of supplemental coverage has rules that apply to when and how the policyholder can use them. For example, the policyholder may need to show that they can not perform two activities of daily living independently, such as bathing, dressing, moving to and from bed, or eating. If the person qualifies and uses money from their policy, the dollar amount is deducted from the amount paid out to policy beneficiaries after the policyholder dies.
  • Accelerated death benefits (ADB): Some life insurance policies have accelerated death benefits, which may be used to help pay for nursing home care. This feature of a policy allows the policyholder to take an advance on the death benefit of the policy. The dollar amount that the policyholder uses while they are still living is deducted from the benefit paid out to beneficiaries after death. A person may be able to use the ADB feature depending on the rules of their policy. Needing long-term care in a nursing home may be one of these qualifying reasons. The amount the policyholder can use for nursing home care is typically capped at a percentage of the policy’s face value.
  • Life settlements: Life settlement plans allow the policyholder to sell the policy for its value at the time, and the policyholder can use the funds as they need to. There are age restrictions for using a life settlement (typically ages 74 years or older for women, 70 years or older for men), and the money may also be taxed. It’s important to note that when a policyholder sells the policy to the settlement company, the company assumed responsibility for paying monthly premiums. It also receives the death benefit upon the policyholder’s death — not the previously named beneficiary.
  • Viatical settlements: Viatical settlement plans are similar to life settlement plans because they allow the policyholder to sell the policy for its value. These plans are different from life settlement plans because different rules apply to them. For example, these plans require that the policyholder has a terminal illness and less than a two-year life expectancy, typically. If the policyholder is approved, the settlement is based on a percentage of the death benefit and the life expectancy.  

Each policy has different requirements and rules. It’s important to talk with the policy’s provider to determine if and how much nursing home care the policy will help cover. 

Sale of your home or assets

Individuals who are moving from their homes into nursing homes may be leaving one of their largest assets: their homes. While some will want to keep their home in the family, others may want to sell their home. Older adults who sell their homes when moving into nursing homes may be able to use the proceeds of the sale to help fund nursing home expenses.

Veterans benefits

Older adult U.S. military veterans who meet certain criteria can utilize various benefits to help with nursing home costs. Below are a few benefits that can help with senior living expenses:

  • Aid and Attendance benefit: Eligible individuals who apply and are approved receive the Aid and Attendance benefit, which are monthly payments that can help pay for care. This benefit can help cover a variety of long-term senior care including in-home care, memory care, adult day care, nursing home care, and assisted living.
  • Homebound Allowance: Eligible individuals who apply with proof that they have a medical need for assistance or supervision due to a disability and are approved can receive money to help pay for the cost of nursing home care.

ElderLife Financial offers assistance to veterans who want to determine their eligibility and apply for benefits.

Bridge loans

A bridge loan is a short-term loan that individuals can use to help pay for immediate expenses while they wait for other funding to become available. Typically, these loans are used in commercial industries, like real estate.

ElderLife Financial Services offers its ElderLife Bridge Loan, which is specifically designed for people who need to secure immediate funding for senior care. For example, a person who needs to move to a nursing home may obtain an ElderLife Bridge Loan to pay for residency at the facility while they wait for their home to sell. When the home sells, the person pays off the loan and can use the proceeds from the home sale for their care. This loan helps people access funds immediately so their current financial situation doesn’t prevent them from getting the help they need.

Other financial products

There are other financial options for paying for nursing home care. Many factors help determine which type of loan is most appropriate: whether the person plans to stay in their home, the type of care the person needs, the person’s financial situation, and the cost of care. 

Homeowners can obtain home equity loans, home equity lines of credit (HELOC), and other personal loans to help pay for nursing home care.

Are nursing home expenses tax-deductible?

The IRS allows some deductions for unreimbursed long-term care expenses. There are rules, limits, and criteria that must be met. It’s important to consult with an accountant to determine whether the costs can be tax-deductible. 

Some costs that may be tax-deductible, if they apply to you, include

  • A portion of long-term care insurance premium.
  • Unreimbursed medically necessary long-term care. 
  • Cost of room and board at a nursing home if the main reason a person lives there is to receive medically necessary care.

IRS Publication 502 Medical and Dental Expenses indicates the full list of qualifying expenses. A person can claim these and other qualifying expenses only if they itemize their deductions.  

Some of the criteria for determining that home care is tax-deductible include

  • A licensed health care provider determines the person receiving care to be chronically ill.
  • Total expenses exceed 7.5% of the person’s adjusted gross income.

It is helpful to know that an adult child may be able to deduct expenses they pay for if they claim the parent as a dependent. Consult with an accountant to determine which expenses are tax-deductible.