Does Medicaid Cover the Cost of Nursing Home Care? Variation By Ownership Status, Payer-Mix, and Staffing Level

This paper examines whether Medicaid payment rates are aligned with the cost of caring for Medicaid residents and how this relationship varies by facility characteristics.

Medicaid is the primary payer for most nursing home residents, but limited information exists on the relationship between payment rates and costs of caring for Medicaid beneficiaries.

Per diem Medicaid payment rates were obtained directly from states. Estimated Medicaid per diem costs were calculated from Medicare Cost Reports, then combined with payment rates to calculate a payment-to-cost ratio. Medicaid payment rates and payment-to-cost ratios were examined by key facility characteristics: ownership, Medicaid payer-mix, and nursing staff levels.

Nationally, the mean Medicaid payment rate was $198 per resident-day, while the mean Medicaid cost was $253. On average, Medicaid payment rates covered about 82 cents per dollar of estimated Medicaid costs in nursing homes in 2019. This figure declined to 76 cents in not-for-profit facilities. Most nursing homes (92%) had Medicaid per-diem costs that exceed Medicaid payments. Nursing homes with a greater share of Medicaid residents had Medicaid costs that better aligned with Medicaid payment rates. Furthermore, Medicaid payments covered a smaller share of Medicaid costs in nursing homes with the highest nursing staff levels compared with those with lower staffing levels.

Policymakers should consider Medicaid payment as part of nursing home reform, as Medicaid payment levels that do not cover costs reduce available financial resources to increase nursing staff levels and improve quality of care absent cross-subsidization from other funding sources.