The question of whether Medicaid covers assisted living for a person living with dementia is complex and cannot be answered with a simple yes or no. Medicaid is a federal-state partnership, meaning coverage and eligibility rules vary significantly by state. Federal law places restrictions on using standard Medicaid funds for residential support and personal care in assisted living (AL) settings. Specialized state programs are necessary to access coverage for the dementia care they require in an AL setting.
Medicaid’s Standard Coverage Rules for Long-Term Care
Medicaid was initially designed to cover acute medical care and institutional long-term care in nursing facilities. Under Title XIX of the Social Security Act, long-term care provided in a skilled nursing facility is an entitlement for those who meet financial and medical criteria. This institutional coverage includes skilled medical care, custodial support, and importantly, room and board.
Assisted living (AL) is considered non-institutional, residential care. Standard Medicaid is prohibited from using federal funds to pay for the cost of “room and board” in these settings. This exclusion creates the primary financial challenge for families seeking Medicaid coverage for AL. While standard Medicaid covers specific medical services, the bulk of the cost—custodial care, meals, and housing—is outside the program’s scope.
The core costs associated with daily life in AL, such as rent, meals, and personal care assistance, are considered residential expenses. Since dementia requires constant supervision and assistance with Activities of Daily Living (ADLs), funding these custodial services is the main barrier that must be overcome.
Accessing Assisted Living Coverage Through HCBS Waivers
The mechanism states use to bridge the gap between institutional coverage and community-based care is the Home and Community-Based Services (HCBS) Waiver. Authorized under Section 1915(c) of the Social Security Act, these waivers allow states the flexibility to offer long-term care services outside of a traditional nursing home. The central goal is to prevent institutionalization, allowing individuals to receive care in less restrictive, community settings like assisted living.
For a person with dementia, the HCBS Waiver pays for the services component of assisted living. This includes essential supports such as personal care assistance, medication management, and the supervision required for cognitive impairment. The waiver acts as a subsidy for the care itself, which is often the largest variable cost in an assisted living bill.
To be eligible, the individual must meet the state’s criteria for a “nursing facility level of care” (NFLOC). A dementia diagnosis often establishes the need for continuous oversight and assistance equivalent to nursing home care. The required level of care is determined through a clinical assessment that evaluates the applicant’s cognitive status and functional limitations.
HCBS Waivers are not an entitlement; they are subject to state-imposed enrollment caps and funding limits. If the state has filled all available slots, applicants may be placed on a waitlist, even if they meet all financial and medical requirements. Program names, services covered, and the presence of waitlists vary widely by state.
Determining Financial and Medical Eligibility
Qualifying for Medicaid coverage through an HCBS Waiver requires meeting both financial and medical criteria. Financial criteria establish that the applicant has limited income and assets, demonstrating a need for public assistance. For an individual, the asset limit is commonly set at $2,000 in most states, which includes non-exempt resources like bank accounts and investments.
Applicants whose assets exceed this limit must engage in a process known as a “spend down” to become financially eligible. This involves legally reducing countable assets through permissible expenditures, such as paying down debt or purchasing exempt assets. Income limits are also strictly monitored; while they vary by state, they are often tied to a percentage of the federal poverty line or the cost of nursing home care.
For married couples where only one spouse applies for long-term care, special rules exist to prevent spousal impoverishment. The non-applicant spouse, or community spouse, is allowed to keep a significant portion of the couple’s assets as the Community Spouse Resource Allowance (CSRA). In 2025, this protected amount can be up to approximately $157,920 in most states, offering financial protection for the spouse remaining in the community.
The medical eligibility standard requires formal certification that the applicant needs a Nursing Facility Level of Care (NFLOC). This determination confirms the individual’s condition is severe enough to warrant institutional care, even if they choose to receive services via the waiver. For dementia patients, the assessment focuses heavily on cognitive impairment and the need for standby assistance, cueing, or constant supervision due to safety concerns like wandering or poor judgment.
Managing Remaining Costs and Coverage Gaps
Even with a successful HCBS Waiver application, a financial gap remains because the waiver does not cover the cost of room and board in the assisted living facility. Families must find a way to pay for this residential portion, which includes rent, meals, and utilities. This is a practical reality that significantly impacts the affordability of assisted living for Medicaid recipients.
In many states, this residential cost is partially covered through a combination of the federal Supplemental Security Income (SSI) program and a state-funded supplement, such as an Optional State Supplement (OSS) or State Supplementary Payment (SSP). SSI provides a basic income floor for low-income seniors and people with disabilities. The state supplement increases this payment to help cover the higher cost of living in an assisted living environment. These combined payments are often paid directly to the facility on the resident’s behalf.
The Medicaid recipient will also have a “patient liability” or “share of cost” obligation. This means that nearly all of the individual’s remaining monthly income, such as Social Security benefits or pensions, must be paid to the assisted living facility to cover the cost of care and housing. The recipient is only allowed to keep a small, protected Personal Needs Allowance (PNA), which is a small monthly amount intended for personal expenses like toiletries or clothing.
It is important for families to note that not all assisted living facilities accept Medicaid waivers, and even fewer are willing to accept the combination of SSI/SSP payments and the patient liability income as full payment. Facilities that specialize in dementia care often have higher costs. Families must confirm that a prospective facility is a certified Medicaid provider and participates in the state’s supplemental payment program before admission.