Imagine your elderly parent falls and breaks a hip. When he or she is discharged from the hospital, fulltime skilled nursing care will be required. You work fulltime and there’s no one at home to provide care. Your parent lives on Social Security and cannot afford a nursing home. Neither can you. Your mind races. Does Medicare pay for nursing homes? The hospital announces your parent is ready to be discharged. Panic sets in. What should you do?

The average annual cost for a nursing home semi-private room is $100,000. That comes to $8,300 per month. Do you have that kind of spare change in your budget? Most people don’t.

Does Medicare Pay for Nursing Home Costs?

Medicare covers the cost of fulltime skilled nursing care for the first 20 days. For the next 80 days, you are responsible for a $210 daily copay ($6,372 per month), then Medicare pays the remaining costs. If your parent has Medicare supplement or some other form of private insurance, it covers the $210 daily copay. At the end of the 80-day period (100 days total), Medicare drops out of the picture. It does not pay for anything else related to nursing home care.

Okay, you think, Medicare buys me three months to investigate other options. Then you discover your parent doesn’t have Medicare supplement or any form of private insurance. That means 21 days from now, you will be on the hook for $6,372 a month. Once again, panic sets in.

EGGSTACK RETIREMENT PLANNER

If you have an aging parent without much in the way of wealth or income, you could find yourself in this situation. Let’s look at what you can do to prevent this from happening to you.

Medicaid

If your parent qualifies for Medicaid, it will pick up where Medicare leaves off. The problem is, the Medicaid application process is significant and can take up to two years to get approved. According to Medicaid, the official time period is 45 to 90 days. In the scenario we've painted here, there are only 21 days until the bills start piling up at a rate of $6,372 per month. Two months later, the monthly bills increase to $8,300.

Medicaid: It’s Complicated

Medicaid is comprised of a number of government programs, and the rules and eligibility requirements vary by state. Let's focus on Medicaid Long Term Care for the Elderly. The information and figures presented here should be considered general guidelines.

Your parent will qualify for Medicaid as long as the requirements for both the income cap and the asset cap are met. The income cap in many states is 3 times the SSI payment amount (also known as the federal benefit rate). For 2025, the SSI payment amount is $967, so the corresponding Medicaid income cap is $2,901 (3 x $967). If your parent's monthly income is less than $2,901, the Medicaid income eligibility requirement in many states will be met.

Medicaid Asset Cap

For most states, the Medicaid asset cap is $2,000, although it ranges from $1,000 to $15,000. Assets such as a home, vehicle, jewelry, clothing, and furniture are exempt from the asset cap. If your parent has cash in the bank or other assets such as stocks or bonds in excess of $2,000, those assets must be spent before your parent can qualify for Medicaid. In other words, in order to comply with the Medicaid asset cap, the first few weeks or months of nursing home care will be on your parent’s ticket until their funds are depleted. Most states have other methods to comply with the asset cap, such as gifting to relatives or setting up an annuity or funeral trust. You should seek the advice of a Medicaid Planning Professional if your parent falls into this category.

For many people, gifting is not the best option. Let’s go back to our example. Neither you nor your parent can afford a nursing home, but let’s say your parent has some money in the bank in excess of $2,000 and insists on giving it to you. The state will penalize your parent for gifting the cash to a relative by making your parent ineligible for Medicaid for a period of time. The more money your parent gives, the longer the ineligibility period. The gifting option is not a good idea when the ineligibility period results in you paying more money out of pocket for nursing home care than your parent gifts you.

Conclusion

A scenario like the one we've outlined here could derail your personal finances and send your retirement plans into the abyss. Do you have an aging parent who is, or at some point could be, partially or entirely financially dependent on you? Are your personal finances and retirement plans based on both you and your spouse or partner continuing to work? Are you relying on a specific number of years of service to obtain certain retirement-related goals such as qualifying for a pension or lifetime medical insurance or student loan forgiveness? If so, without proper planning those goals could go up in smoke.

If the potential exists for a scenario such as the one we’ve outlined here to play out in your family, you need to take action. Ask your parent if he or she has Medicare supplement insurance or some other form of private insurance. Start the application process for Medicaid, don’t wait for an emergency. Your parent will not lose their Medicaid coverage if they don’t use it.

Hopefully your parent lives a long, healthy life and never needs Medicaid. But in the event that your parent does need it, it's best to put the application process behind you. Applying for Medicaid is not a bad omen, it doesn’t mean your parent’s health is going to spiral downward, no more than having auto insurance makes you wreck. Medicaid covers many other things besides nursing home care such as hospital stays, in-home care, ambulatory services, laboratory fees, and X-rays. It's best to deal with the application process when there are no deadlines to deal with.

Photo credit: Pixabay Eggstack News will never post an article influenced by an outside company or advertiser. Our mission is to help you overcome uncertainty about retirement planning and inspire confidence in your financial future.