Most people pay for nursing homes through a combination of personal savings, Medicaid, and insurance, not a single source. The national median cost for a semi-private nursing home room is $114,975 per year, or about $315 per day. A private room runs even higher at $129,575 annually. Those numbers mean very few families can cover the full cost out of pocket for long, so understanding every available funding option matters.
Why Medicare Covers Less Than You Think
Medicare is the most common source of confusion. It was designed for short-term recovery, not long-term residence. Part A covers skilled nursing facility care for up to 100 days per benefit period, and only after a qualifying hospital stay. The first 20 days are fully covered. From day 21 through day 100, you pay a daily co-pay of $217 (in 2026). After day 100, Medicare pays nothing.
That 100-day window also requires that you’re receiving skilled care like physical therapy or wound care. Once you’re stable and just need help with daily activities like bathing, dressing, or eating, Medicare stops covering the stay. Most people who live in nursing homes long-term need exactly that kind of custodial care, which means Medicare is only relevant for the first few months at most.
Medicaid: The Largest Payer for Long-Term Care
Medicaid is the single biggest funding source for nursing home residents nationwide. Unlike Medicare, it covers long-term custodial care with no time limit. The tradeoff is strict financial eligibility. In most states, a single individual can have no more than $2,000 in countable assets and very limited monthly income. The median income limit through the “medically needy” pathway is just $511 per month, though exact thresholds vary by state.
Many people who enter a nursing home with moderate savings eventually “spend down” to qualify for Medicaid. This means using your own money to pay for care until your assets fall below the state’s threshold, at which point Medicaid takes over. Once on Medicaid, nearly all of your income (Social Security, pensions) goes toward the nursing home bill, and Medicaid covers the rest.
The Look-Back Period
You can’t simply give away your assets to qualify faster. When you apply for Medicaid long-term care, the state reviews all financial transactions from the previous 60 months. Any assets gifted, transferred, or sold below fair market value during that window trigger a penalty period during which Medicaid won’t pay for your care. The penalty length is calculated by dividing the total value of transferred assets by the state’s penalty divisor, which reflects the average monthly cost of nursing home care in your area. A $100,000 gift in a state where the divisor is $10,000 per month would result in a 10-month penalty.
Protecting a Spouse’s Finances
When one spouse enters a nursing home and the other remains at home, Medicaid doesn’t require the at-home spouse to become impoverished. Federal rules allow a “community spouse resource allowance,” which lets the spouse at home keep a portion of the couple’s combined assets and a minimum monthly income. The exact amounts vary by state and are updated annually. This protection exists specifically so that paying for one person’s nursing home care doesn’t leave the other unable to cover basic living expenses.
Long-Term Care Insurance
Long-term care insurance is the most direct private coverage for nursing home costs, but only about 7% of adults over 50 carry a policy. If you do have one, benefits typically kick in when you need help with two or more of six activities of daily living (bathing, dressing, eating, toileting, transferring, and continence) or when you have a cognitive impairment like dementia.
Policies pay a set daily or monthly benefit, often for a defined period like three or five years. The earlier in life you buy a policy, the lower the premiums, but premiums can still increase over time. One major limitation: if you don’t already have a policy by the time you’re reading this article and you’re over 65 or have health problems, coverage may be expensive or unavailable.
Veterans Benefits
Veterans and their surviving spouses may qualify for a pension with Aid and Attendance, a monthly benefit specifically designed to help cover the cost of long-term care. A veteran with no dependents who qualifies for Aid and Attendance can receive up to $29,093 per year. A veteran with a dependent spouse can receive up to $34,488 per year. Eligibility requires wartime service, limited income, and a net worth below $163,699.
These benefits won’t cover the full cost of a nursing home, but they can significantly reduce the gap between what other sources pay and what the facility charges. The VA also operates its own nursing homes (called Community Living Centers) for eligible veterans, which may have lower or no out-of-pocket costs depending on the veteran’s service-connected disability rating.
Using Life Insurance to Pay for Care
If you hold a life insurance policy, several options let you access its value while you’re still alive. An accelerated death benefit, included in some policies, lets you draw against the death benefit to pay for nursing home care. The monthly amount available for nursing home care is typically 2% of the policy’s face value, and total payouts are often capped at 50% of the death benefit, though some policies allow the full amount.
A life settlement lets you sell your policy outright to a third party for a lump sum. This option is generally available to women age 74 and older and men age 70 and older. A viatical settlement works similarly but is only available if you’re terminally ill with a life expectancy of two years or less. The payout depends on how long you’re expected to live: someone with 1 to 6 months receives about 80% of the death benefit, while someone with 18 to 24 months receives around 60%.
Newer combination products bundle life insurance with long-term care coverage, so the policy pays out either way. If you need long-term care, the benefit covers those costs. If you never need care, your beneficiaries receive a death benefit. These products have grown in popularity as standalone long-term care insurance has become harder to find.
Home Equity and Reverse Mortgages
For homeowners, the equity in your house can be a significant funding source. A reverse mortgage (specifically a Home Equity Conversion Mortgage) lets you borrow against your home’s value without making monthly payments. The loan is repaid when you sell the home, move out, or die.
There’s an important catch for nursing home planning. If you leave the home for a healthcare facility for more than 12 consecutive months and no co-borrower or eligible non-borrowing spouse remains in the house, the loan comes due. If your spouse is a co-borrower and stays in the home, the reverse mortgage can remain in place. If they’re not a co-borrower, they may still qualify to stay under HUD rules depending on when the loan was originated, but this is worth confirming with your lender before counting on it.
Selling the home outright is the more straightforward option. Many families sell a parent’s house once it’s clear they won’t be returning, and use the proceeds to pay for care directly or to bridge the gap until Medicaid eligibility begins.
Medicaid Asset Protection Trusts
An irrevocable trust, often called a Medicaid Asset Protection Trust, lets you move assets out of your name so they don’t count toward Medicaid’s asset limit. Once assets are in the trust, you no longer own or control them, which is why the trust must be irrevocable. The critical detail: the trust must be established at least five years before you apply for Medicaid to clear the look-back period. If you create the trust and need care within that five-year window, Medicaid will treat the transfer as a penalty-triggering gift.
Income generated by assets inside the trust can also cause problems. If the trust is structured so that income flows back to you, that income still counts toward Medicaid’s income limit. Setting up a trust correctly requires an elder law attorney, and it only works as a planning tool if you start well before you need care.
How Most People Actually Piece It Together
In practice, paying for a nursing home rarely involves a single source. A common path looks something like this: Medicare covers the first weeks or months after a hospitalization. Personal savings, retirement accounts, and possibly long-term care insurance cover the next stretch. As assets deplete, the family may sell the home or access life insurance value. Eventually, once resources fall below the threshold, Medicaid takes over for the remainder of the stay.
The earlier you start planning, the more options you have. Families who begin exploring Medicaid eligibility rules, long-term care insurance, and trust strategies five or more years before care is needed have significantly more flexibility than those facing an unexpected nursing home admission. For veterans and their families, applying for Aid and Attendance benefits early can also reduce the financial pressure during the transition.