Senior care is expensive, and most families need to combine several funding sources to cover it. A private room in a nursing home runs a national median of $350 per day, or about $127,750 a year. Assisted living averages $5,900 per month. Even home health aides cost roughly $34 an hour, which adds up to nearly $78,000 annually at 44 hours a week. Understanding every available option, from government programs to insurance to creative asset strategies, can make the difference between running out of money in two years and sustaining quality care for a decade.
What Medicare Does and Doesn’t Cover
Medicare is not designed to pay for long-term care. It covers skilled nursing facility stays only after a qualifying hospital admission, and only for up to 100 days per benefit period. The first 20 days are fully covered. From day 21 through day 100, you pay a daily coinsurance of $217 (2026 rate). After day 100, Medicare pays nothing.
This means Medicare can help with short-term rehabilitation after a hip replacement or stroke, but it will not fund ongoing custodial care like help with bathing, dressing, or meal preparation. Most families discover this gap only when they need it, which is why other funding sources are essential.
Medicaid for Long-Term Care
Medicaid is the single largest payer of nursing home care in the United States, but qualifying requires meeting strict income and asset limits. In Texas, for example, an individual must have gross monthly income below $2,982 and countable assets of no more than $2,000. For couples, the income cap is $5,964 with a $3,000 asset limit.
These thresholds are deliberately low, and they vary by state. However, the rules protect certain assets. A spouse who continues living at home can typically keep between $32,532 and $162,660 in resources, plus the value of the home, one car, household goods, and burial funds. This “community spouse resource allowance” exists to prevent the healthy spouse from becoming impoverished.
Many families engage in Medicaid planning years before care is needed. Transferring assets too close to a Medicaid application triggers a penalty period (typically a five-year lookback), so starting early matters. An elder law attorney can help structure finances legally to preserve assets while meeting eligibility requirements.
Veterans Benefits: Aid and Attendance
Veterans and surviving spouses have access to a pension benefit that many families overlook. The Aid and Attendance pension provides tax-free monthly income to wartime veterans who need help with daily activities like bathing, dressing, or eating, or who are housebound.
The maximum annual benefit for a single veteran qualifying for Aid and Attendance is $29,093, or about $2,424 per month. A married veteran can receive up to $34,488 per year. If both spouses in a veteran couple qualify, the combined benefit reaches $46,143 annually. These amounts won’t cover a nursing home on their own, but they can make a significant dent in assisted living or home care costs.
To qualify, you generally need at least 90 days of active military service with at least one day during a wartime period, and you must meet the same type of income and asset limits that apply to VA pension programs. The application process can take several months, so filing early is worthwhile.
Long-Term Care Insurance
If your family member already has a long-term care insurance policy, it’s the most straightforward funding source. Traditional policies pay a daily or monthly benefit once the insured person can no longer perform two or more activities of daily living (bathing, dressing, eating, toileting, transferring, or continence). These policies operate on a use-it-or-lose-it model: if you never file a claim, you never recoup your premiums. Another downside is that premiums can increase over the life of the policy, sometimes dramatically.
Hybrid policies, which combine life insurance with long-term care coverage, have become more popular. They cost more upfront, often requiring a large lump sum or payments over a shorter period, but premiums tend to stay stable. The key advantage: if you never need care, your beneficiaries receive a death benefit instead. Some hybrid policies even guarantee beneficiaries a small payout (often 10% of the death benefit) even after long-term care benefits have been used.
If you don’t already own a policy and your loved one is in their 70s or older, buying one now is usually impractical. Premiums at that age are prohibitively expensive, and health conditions may make someone uninsurable. Long-term care insurance works best as a planning tool purchased in your 50s or early 60s.
Tapping Home Equity
For many older adults, their home is their largest asset. A reverse mortgage, formally called a Home Equity Conversion Mortgage (HECM), allows homeowners to convert equity into cash without selling. There’s no minimum equity percentage required, but you must be at least 62. The amount you can borrow depends on your age (or the age of the youngest borrower), current interest rates, and the appraised value of the home.
The critical rule: you must continue living in the home as your primary residence, and you must keep up with property taxes and homeowner’s insurance. This makes reverse mortgages a good fit for paying for home care but a poor fit for funding a nursing home stay, since moving out of the home triggers repayment. If both spouses are on the loan, the surviving spouse can remain even after the borrower who needed care passes away or moves to a facility.
Selling the home outright is the simpler option when someone is transitioning permanently to assisted living or a nursing home. Bridge loans can cover the gap if your loved one needs to move into a facility before the house sells. These loans are approved quickly for large amounts, typically enough to cover moving costs, move-in fees, and about a year of monthly care expenses. Interest rates run higher than standard personal loans, but they solve a real timing problem, especially in slow housing markets or when a home needs improvements before listing.
Life Insurance as a Funding Source
Many families don’t realize that a life insurance policy can pay out before death. Most policies include an accelerated death benefit rider that allows you to access a portion of the death benefit early if you meet certain health criteria. Qualifying conditions typically include terminal illness (with death expected within six to twelve months), the need for long-term care due to inability to perform daily activities like bathing and dressing, or permanent nursing home confinement.
Companies offer anywhere from 25 to 100 percent of the death benefit as early payment. This can provide a substantial lump sum, though it reduces or eliminates the amount beneficiaries will receive later. A life settlement, where you sell the policy to a third party for a lump sum, is another option, though you’ll typically receive less than the full death benefit.
Tax Deductions That Offset Costs
Senior care expenses can be tax-deductible as medical expenses, but only the portion that exceeds 7.5% of your adjusted gross income. If your household income is $60,000, for example, only care costs above $4,500 would count toward the deduction. Given that care costs often reach five or six figures annually, many families clear this threshold easily.
What qualifies depends on why the person is receiving care. If someone is in a nursing home primarily for medical reasons, the entire cost, including meals and lodging, is deductible (minus any insurance reimbursement). If the stay is primarily for non-medical reasons, such as needing supervision but not active treatment, only the portion spent on actual medical care qualifies. Home care expenses for medically necessary services also count. You’ll need to itemize deductions on your tax return rather than taking the standard deduction, so it’s worth running the numbers both ways.
The PACE Program
The Program of All-Inclusive Care for the Elderly (PACE) is one of the most comprehensive and least well-known options for seniors who need nursing home-level care but want to remain at home. To qualify, you must be at least 55, live in the service area of a PACE organization, and be certified by your state as needing nursing home-level care while being able to live safely in the community with support.
PACE covers an extraordinarily broad range of services: primary care, prescription drugs, hospital care, home care, adult day programs with meals, dental care, physical and occupational therapy, mental health counseling, transportation to appointments, and even nursing home care if it becomes necessary. The program is funded through Medicare and Medicaid, so people who qualify for both pay nothing out of pocket. Those with Medicare only may pay a monthly premium for the long-term care portion, but there are no deductibles or copays for any PACE-covered service. The limitation is geographic: PACE organizations operate in specific areas, and not every community has one.
Putting Together a Realistic Plan
Most families end up layering multiple sources. A common pattern looks like this: Social Security and pension income cover a portion of monthly costs, a long-term care insurance policy (if one exists) fills part of the gap, VA benefits contribute if the person is a veteran, and savings or home equity cover the rest. When personal resources run out, Medicaid becomes the safety net.
The order in which you use these sources matters. Spending down assets too quickly can leave you in a difficult position if care needs last longer than expected. Spending too slowly while avoiding Medicaid planning can mean missing the five-year lookback window. An elder law attorney or a certified financial planner who specializes in aging can help you sequence these funding sources to maximize coverage and minimize financial damage to the family. Many offer initial consultations at low or no cost, and the planning they provide often saves families tens of thousands of dollars over the course of a loved one’s care.