In fiscal year 2020, 76.5 million Americans were enrolled in Medicaid, including about 6.4 million seniors. Medicaid is the nation’s largest payer for long-term care, in part because care costs are high — average annual costs run roughly $51,600 for assisted living and about $93,000 for a semi-private nursing home room according to industry data.
Many people underestimate how long they might need long-term care or how much it will cost. Others simply lack adequate retirement savings to cover extended care. Medicaid provides a safety net for low-income seniors, allowing them to access necessary long-term care services regardless of their ability to pay.
But how does Medicaid determine who qualifies? Can someone who owns assets such as a home still be eligible for coverage? The answer depends on how income and assets are counted under Medicaid rules.
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How Medicaid eligibility is determined
Medicaid eligibility hinges on a mix of income and countable assets. Some assets are exempt and do not count toward eligibility limits — examples include one vehicle, a primary residence up to certain equity limits, and a modest amount of cash (commonly $2,000 for individuals), among other specific items. Nonexempt assets, which include most other property and financial accounts, must be spent down before Medicaid benefits will begin.
Home equity is treated as an exempt asset up to state-specific thresholds. Because U.S. seniors collectively hold trillions in home equity, many fall below those thresholds and therefore remain financially eligible for long-term care coverage. This exemption can mean that homeowners qualify for Medicaid without having to draw on their home equity while receiving care.
Research has shown a substantial share of older Americans would meet home equity thresholds used in Medicaid asset calculations. With roughly 54 million people aged 65 and older and a high homeownership rate among seniors, millions may become eligible for Medicaid long-term care benefits while retaining their home equity.
Some retirees intentionally keep their homes rather than sell them, which contributes to limited housing inventory. While protecting a primary residence from being used to pay for care is a factor for some, the overall rules and implications are broader and include other considerations such as estate recovery.
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Estate recovery and reimbursement
Medicaid pays substantial long-term care costs, but state and federal law allow for recovery of some benefits after a recipient dies. The Omnibus Budget Reconciliation Act of 1993 requires states to seek reimbursement from the estates of deceased Medicaid beneficiaries for certain long-term care costs. That recovery can include the decedent’s home equity under specified circumstances.
In practice, Medicaid functions more like a government-backed payer that can pursue repayment through estate recovery once the recipient has passed away, unless a qualified surviving dependent or other exception applies.
Medicaid trusts and eligibility planning
A Medicaid trust — often an irrevocable trust designed to qualify someone for Medicaid — can be used to remove assets from an applicant’s countable resources. Transferring assets to such a trust typically means the grantor relinquishes ownership and direct control; a trustee manages the trust according to its terms. Properly drafted, these trusts can help some people meet financial eligibility requirements for Medicaid-certified long-term care facilities.
However, creating a trust primarily to shift the cost of care to Medicaid raises ethical and practical issues. Many advisors recommend using trusts as part of a comprehensive retirement plan rather than as a sole strategy to avoid personal payment for care.
It’s important to know about the Medicaid look-back period: transfers of assets made within five years of applying for Medicaid can trigger a penalty period during which benefits are delayed. The penalty length depends on the value of the transfer. Similar look-back policies can apply in other senior care arrangements, such as continuing care retirement communities.
>> Related: Medicaid Trusts and Continuing Care Retirement Communities
Medicare versus Medicaid for long-term care
Understanding what Medicare and Medicaid cover is essential. Medicare generally does not pay for long-term custodial care — assistance with activities of daily living (ADLs) — if that is the only care needed. Medicare may cover short-term skilled nursing services that are medically necessary, such as wound care, IV therapy, and medication administration.
Medicaid, for those who meet financial and clinical eligibility, typically covers assisted living services and skilled nursing care. Crucially, both Medicare and Medicaid cover services only when they are provided by Medicare-/Medicaid-certified providers; care delivered by noncertified providers will be paid out of pocket.
>> Related: Long-Term Care: How Much Does Medicare Actually Cover?
Meeting the rising need for long-term care
Demand for long-term care — from occasional help with daily tasks to full-time skilled nursing — is growing. Health agencies estimate that a large share of people over 65 will need significant long-term care services at some point. Securing enough trained caregivers is an ongoing challenge, and the financial burden of care remains a major concern for many families.
Medicare and Medicaid can ease some of the financial pressure, but broader policy and community solutions are needed to ensure seniors receive affordable, high-quality care and can age with dignity.