How Medicare covers nursing home costs

Given that nursing home costs can be significant and will only increase, failing to plan for long-term care can have significant financial consequences for retirees and their families.

But some people nearing retirement believe the benefits from retiree health insurance will cover these costs. The fact is they don't.

Once most people reach age 65, they're automatically covered by Medicare, which typically becomes the primary source of insurance coverage. So, it's important to understand the types of benefits Medicare provides -- and doesn't provide. Medicare benefits are subject to eligibility requirements and limitations, and pay very little toward nursing home costs.

Medicare is a federal health insurance program for those age 65 and older that's designed to pay for hospital and medical costs. This coverage is paid for by a part of the FICA tax that you and your employer pay while you're working. At age 65 you become covered under this program.

The original Medicare program consists of two parts: Part A (hospitalization insurance) and Part B (medical insurance). Several years ago, Medicare was expanded to include a Part C (Medicare Advantage or substitute plans) and a Part D (prescription drug coverage).

Almost everyone age 65 and older is eligible for Medicare Part A and Part B. Some people who are under age 65 are also eligible for Medicare if they suffer from certain disabilities or illness.

Generally, a person is eligible for Medicare if he or she or a spouse has worked for at least 10 years in Medicare-covered employment. Coverage under Part A is automatic and provided at no additional cost if you (or spouse) are entitled to receive retirement benefits under Social Security. If you have not worked for the required period of time, you may be able to purchase Part A coverage if you are at least age 65 and meet certain other requirements.

Medicare Part A covers skilled nursing facility care only if the diagnosed condition and treatment meet certain specified standards. Generally, three requirements must be met:

  • You must have first been hospitalized for at least three days before entering the nursing home, and you must be admitted to the nursing home within 30 days of being discharged from the hospital.
  • A licensed doctor must certify that skilled nursing care is necessary.
  • The nursing home you go to must be a Medicare-certified facility.

As a result of these strict requirements, many nursing home stays are not covered. But if you do meet these requirements, Medicare pays all covered expenses for the first 20 days. For the next 80 days, it pays most of the costs, and you are required to pay a daily co-pay. After 100 days, Medicare pays nothing, and you're responsible for all costs.

If you opt to receive care in your home instead (commonly referred to as "home care"), only under certain conditions will Medicare cover part-time care provided by a skilled nurse. Again, before Medicare pays, several strict requirements apply, all of which must be met:

  • A doctor must determine that medical care is needed at home and must make a plan for the care.
  • You need intermittent skilled nursing care, physical, speech or occupational therapy.
  • You're generally unable to leave home (when you do leave, it must be infrequent and for a short time only, such as to go to a doctor's appointment).
  • The home health care agency must be Medicare-approved.

Unlike Medicare's nursing home benefit, you don't need to be admitted to a hospital first to qualify for Medicare home care. In addition, services will be provided on an intermittent or part-time basis only by a visiting nurse, therapist or home health aide.

Medicare generally limits its home care benefit to part-time care because the program is designed to serve individuals who need only intermittent care for a relatively short period rather than on a daily basis.

Once you begin receiving Medicare home care, your plan of care has to be reviewed and approved every 60 days. Medicare will not pay for homemaker services such as housekeeping, shopping and cleaning. It also doesn't pay for custodial care, that is, help with the activities of daily living -- not even bathing or eating.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.