What Families Get Wrong About Medicaid and Long Term Care
Medicaid pays for more long term care than any other program in the country. That does not mean it is a plan.
When a parent needs care, Medicaid almost always comes up in the conversation. It sounds like a safety net. And in some ways it is. Medicaid funds more than 43% of all long term care in the United States, which is a staggering number. So the assumption that it will step in and cover things makes a certain kind of sense.
The problem is that the assumptions most families make about what Medicaid covers, when it kicks in, and what it costs the family in the long run are often wrong. If you are currently helping a parent navigate care costs, these are the misconceptions worth understanding before they become expensive surprises.
Medicaid Covers Care. It Usually Does Not Cover the Room.
This distinction matters more than most people realize. Medicaid will generally cover custodial care services, help with bathing, dressing, meals, and personal needs. What it typically does not cover is room and board at an assisted living facility, which can make up the bulk of the monthly cost.
To get Medicaid to help with assisted living costs, a beneficiary generally needs to apply for and receive a Home and Community Based Services waiver. These waivers are not automatic, not available in every county, and often have waiting lists. The assumption that Medicaid will simply take over and cover a parent's assisted living bill is rarely accurate in practice.
Medicaid Is Not a Supplement. It Is a Last Resort.
To qualify for Medicaid, a person must meet income and asset limits set by their state. For most people with any meaningful savings, that means spending down those assets first. About half of patients who enter a nursing home as private pay patients eventually exhaust their funds and turn to Medicaid. For some that was the plan from the beginning. For most it was not a plan at all. It was just what happened.
The family hoping that Medicaid will step in and preserve what is left often discovers that there is very little left by the time it does.
Giving Money to Your Kids Will Not Protect It
This comes up often and it almost never works the way families hope. When someone applies for Medicaid, the state looks back at five years of financial history and examines gifts, transfers, and large expenditures. If assets appear to have been intentionally moved to qualify for benefits faster, Medicaid eligibility is delayed, not eliminated.
Here is how the penalty works in practice.
Say a parent gifts $150,000 to their children over the two years before entering a nursing home. When they apply for Medicaid, that gifting is discovered. The state divides the total by the average monthly cost of nursing home care in that state to calculate a penalty period. In Ohio in 2025, that divisor is $7,787 per month. A $150,000 gift creates roughly 19 months before Medicaid coverage begins.
During that gap, care still needs to be paid for. The children who received the gifts often end up returning the money to cover the costs anyway. The transfer accomplished nothing except delay.
California has its own rules and look back periods depending on the specific benefit being applied for, and the state is currently in the middle of phasing out its look back period entirely for some programs. This is exactly the kind of detail that changes frequently and requires current guidance, not general assumptions.
Medicaid Will Come After the Estate After Your Parent Is Gone
This is the part almost no one knows about going in. For individuals age 55 or older, states are required by law to seek reimbursement from the person's estate for Medicaid benefits paid on their behalf. This includes nursing facility services, home and community based services, and related costs.
So even if a parent qualifies for Medicaid and receives benefits for years, the state can file a claim against the estate after death to recover what it paid. A home that was expected to pass to the children can become a target for estate recovery. The family legacy that Medicaid was supposed to protect can be the very thing that satisfies the repayment claim.
What This Means If You Are in the Middle of This Right Now
None of this means Medicaid is not worth understanding or that it cannot help. It funds an enormous share of long term care in this country for a reason. But it is a program with strict eligibility rules, significant gaps in coverage, and real consequences for families who rely on it without fully understanding how it works.
If you are currently helping a parent through a care transition, or if you are in your own years before retirement and want to avoid putting your children in this position, the time to understand these rules is before a care event forces the conversation. An elder law attorney and a financial planner working together can make a meaningful difference in how this plays out for your family.
Alfred Edmonds is an Investment Advisor Representative at Cetera Investors in San Jose, CA. He specializes in retirement income planning for California educators, pre-retirees, and high net worth individuals. This content is for informational and educational purposes only and does not constitute financial, tax, legal, or insurance advice. Medicaid rules vary significantly by state and are subject to change. California rules may differ from examples cited. Please consult a qualified elder law attorney and financial professional regarding your specific situation. A diversified portfolio does not assure a profit or protect against loss in a declining market.