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Understanding Medicare Coverage and Your Out-of-Pocket Costs

Medicare is a federal health insurance program primarily for people age 65 and older, though some younger people with disabilities or end-stage renal disease may also be covered. Many people misunderstand how Medicare works and what it actually pays for, which leads to surprises when they receive medical bills. A free informational guide about Medicare can help you learn the basic structure of the program and understand where your costs come from.

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Medicare has four main parts. Part A covers hospital care, including inpatient hospital stays, skilled nursing facility care, hospice care, and some home health services. Part B covers doctor visits, outpatient care, and preventive services. Part D covers prescription drugs. Part C, also called Medicare Advantage, is an alternative way to receive Parts A and B benefits, often through private insurance companies, and many Part C plans include prescription drug coverage.

The costs you pay depend on which parts of Medicare you have and how you use services. For example, in 2024, Medicare Part B has a monthly premium that most beneficiaries pay, currently around $164.90 per month for most people. When you see a doctor covered by Part B, you typically pay a $15 to $50 copay depending on the type of visit. For hospital care under Part A, you pay a deductible of $1,632 for the first 60 days of a hospital stay in 2024. These numbers change each year.

Many people don't realize that original Medicare—Parts A and B—does not cover long-term nursing home care. This is a major gap that causes financial hardship for families. A resource guide can explain what Medicare does and does not cover, so you can understand where your actual costs will come from and why nursing home expenses are often not covered by Medicare at all.

Practical Takeaway: Before you need healthcare services, learning the basic structure of Medicare helps you understand what portions of your medical bills will be your responsibility. Knowing this ahead of time allows you to budget and plan for expenses.

What Medicare Does Not Cover: The Nursing Home Gap

One of the most important things to understand about Medicare is what it does not pay for. Medicare Part A does cover skilled nursing facility care for a limited time, but only under specific circumstances. You must be admitted to a hospital first and stay there for at least three consecutive days as an inpatient. Then, within 30 days of leaving the hospital, you can be admitted to a skilled nursing facility. Medicare will then cover up to 100 days of care in that facility, but with conditions.

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For the first 20 days in a skilled nursing facility, Medicare covers the full cost if you meet the requirements. For days 21 through 100, you pay a daily copay amount, which is $204.50 per day in 2024. After 100 days, Medicare stops paying, and you are responsible for all costs. This coverage is not automatic—the facility must determine that you need skilled nursing care, meaning you need medical care or rehabilitation services that require nursing staff, not just help with daily living activities.

Importantly, Medicare does not cover custodial care or long-term care in a nursing home. Custodial care means help with activities like bathing, dressing, using the toilet, and eating—daily living tasks that do not require medical training. Most people who live in nursing homes for extended periods are there primarily for custodial care, not skilled medical care. This means Medicare will not pay for their stay. According to data from the U.S. Department of Health and Human Services, the average cost of nursing home care in the United States is approximately $8,000 to $10,000 per month, depending on location and the level of care provided.

When Medicare coverage ends at a nursing home, families must find another way to pay. Some people pay out of pocket. Others use long-term care insurance if they have it. Many people eventually use Medicaid, which is a different program from Medicare. Medicaid is jointly funded by the federal government and states and does cover long-term nursing home care, but only for people with limited income and assets. Understanding this gap between what Medicare covers and the actual costs of nursing home care is critical for planning.

Practical Takeaway: If you or a family member might need nursing home care, do not assume Medicare will pay for it. Learning the difference between skilled nursing care (which Medicare covers for a limited time) and custodial care (which Medicare does not cover) helps you understand your actual financial responsibility.

Medicaid and Long-Term Nursing Home Care: A Different Program

Because Medicare does not cover long-term nursing home costs, many people turn to Medicaid. It is important to understand that Medicaid is a completely separate program from Medicare, despite the similar name. Medicare is a federal insurance program based on age or disability status. Medicaid is a joint federal-state program that provides health coverage to people with low income and limited assets. Each state runs its own Medicaid program within federal guidelines, so rules vary by state.

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Medicaid does cover long-term nursing home care, which is why it becomes crucial for families facing high nursing home bills. However, to qualify for Medicaid to pay for nursing home care, you generally must have limited income and assets. Income limits vary by state, but in many states, your monthly income must be below $2,000 to $2,500 to qualify. Asset limits also vary by state. In most states, countable assets must be below $2,000 to $3,000 to qualify for Medicaid, though some assets—like your home, one car, and certain personal items—do not count toward this limit.

The process of becoming Medicaid-covered for nursing home care involves documenting your financial situation. You must provide information about your income, bank accounts, investments, real estate, and other assets. States also have rules about how people can arrange their finances to become eligible for Medicaid. Some people move money to family members or set up certain types of trusts, but there are look-back periods that may prevent this strategy from working. Federal law includes a five-year look-back period in most cases, meaning that if you transfer assets in certain ways within five years before applying for Medicaid, it may affect your eligibility. An informational guide can explain what Medicaid covers regarding nursing home care and the general financial rules that apply, though the specific rules in your state may differ.

Understanding Medicaid is essential because it is one of the primary ways that long-term nursing home care gets paid for in the United States. According to the Kaiser Family Foundation, Medicaid paid for approximately 43% of all nursing home care in the United States, making it the largest single payer for this service.

Practical Takeaway: If you anticipate needing long-term nursing home care, learning about Medicaid separately from Medicare is important. Knowing that Medicaid has income and asset limits helps you understand whether you might need to plan your finances differently or look into other payment options.

Long-Term Care Insurance and Other Payment Options

Many people pay for nursing home care through long-term care insurance, which is a private insurance product designed specifically to cover the costs of extended care services. Long-term care insurance policies vary widely in what they cover, how much they pay per day, and how long they will pay. Some policies cover only nursing home care, while others cover assisted living facilities, adult day care, and home care services as well. A typical long-term care insurance policy might pay a daily benefit of $100 to $300 per day for nursing home care, though policies with higher daily benefits are available.

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The cost of long-term care insurance depends on your age when you buy the policy, your health status, the daily benefit amount you choose, and how long the policy will pay benefits. According to the American Association for Long-Term Care Insurance, the average cost of a long-term care insurance policy for a 55-year-old is approximately $2,000 to $3,500 per year, though this varies significantly based on individual circumstances. People who buy policies when they are younger generally pay lower premiums. People who wait until they are older or have health problems may pay significantly more or may not be able to purchase a policy at all because insurers may deny coverage based on medical conditions.

Not everyone has access to long-term care insurance or can afford it. Other ways people pay for nursing home care include paying out of pocket from savings and investments, receiving help from family members, and eventually relying on Medicaid after savings are depleted. Some