Nursing home costs are rising because of four compounding factors: a nationwide nursing shortage driving up labor expenses, surging demand from 71.6 million aging baby boomers, medical inflation that outpaces general consumer prices by over 35%, and a wave of facility closures shrinking supply further. To navigate the cost of nursing homes, families may explore Medicare/Medicaid planning, proactive asset structuring, in-home care alternatives, and long-term care insurance purchased well before age 70.
The cost of nursing homes has reached staggering heights in recent years, leaving families across the country struggling to afford quality care for their aging loved ones. Many have been left wondering: why are nursing homes so expensive?
Behind that question are real people: parents and grandparents who spent decades building families, careers, and communities. They deserve care that reflects the fullness of who they are, not just the cost of keeping them comfortable. Even so, financial care for elderly parents can be overwhelming.
As a result of his decades-long experience of working with couples and families from all different backgrounds on their retirement and financial planning, Greg Liszka (CFP®, RICP®), President and Advisor at Iron Point Financial, believes that the high cost of nursing homes comes down to four main causes:
- Difficulty finding, hiring and retaining staff,
- An aging population driving overwhelming demand,
- A steep rise in medical inflation, and
- Localized financial challenges that have caused many care homes to close their doors.
Throughout the rest of this blog post, we will explore these issues in greater detail, and then offer four practical solutions that can help families like yours navigate these financial challenges with compassion, understanding and financial efficacy.
Why Are Nursing Homes So Expensive? Four Primary Causes
1. Difficulty Finding, Hiring & Retaining Staff
The reality is that many nursing homes are struggling to attract and retain qualified staff, particularly nurses and caregivers. This staffing shortage can be a critical driver of increasing costs. As Greg explains,
“The cost of care is going through the roof, first and foremost because they have a hard time finding staff. There just aren’t enough nurses. There aren’t enough homes overall, and beds are expensive, but the nurse shortage is a driving factor.”
This isn’t just Greg’s opinion, either: a recent Agency for Healthcare Administration survey found that an enormous 87% of nursing homes have “moderate to high levels of staffing shortages and hiring new staff has been challenging for 98% of nursing homes.” The same source noted that almost all nursing homes and assisted living facilities have raised wages and staff bonuses in an attempt to hire new workers and keep existing staff satisfied.
Why is the shortage of nurses so critical? Because nursing homes have to pay more in staff costs to keep their basic medical care operations running, overall nursing home costs for residents go up. It’s a basic part of the equation, but it’s a major contributor to rising nursing home prices nationwide..
2. The Very Real Issue of Bed Shortages
Today, there are 71.6 million ‘baby boomers’ in America (people between the ages of 57 and 75). That’s over one-fifth of the entire US population… and it’s also the age range at which the assisted living conversation becomes increasingly important.
These are people who have shaped the country’s workforce, raised families, mentored the next generation, and built communities from the ground up. They’ve weathered recessions, raised children through uncertainty, and earned every year they carry. The question isn’t whether they deserve quality care; it’s whether our systems can rise to meet them.
While those on the younger side of the baby boomer generation aren’t likely to need a care home any time in the next five or even ten years, this overall demographic trend is creating an unprecedented, ever-increasing demand for nursing home care, and it doesn’t look like stopping any time soon.
The Population Reference Bureau estimates that the number of Americans over the age of 65 is likely to hit 82 million people by 2050, with a corresponding proportional increase to 23% of the overall population. It doesn’t take a genius to see it but, as Greg plainly observes,
“It’s a supply-and-demand problem. The population thinking about and knocking on nursing home doors is just growing and growing and growing. The baby boomer generation is getting to the start of that line, and who knows where we’ll go from there…”
When demand far outplaces supply – whether that’s in relation to hiring nurses or simply providing bed space – nursing home fees ramp up significantly, and that means fewer and fewer people can afford the care and support they likely need in their sunset years, especially if they’re left to navigate those challenges on their own. Careful preparation, however, can help to mitigate this issue.
3. Medical Inflation Is Higher Than General Inflation
While it hasn’t been quite as marked in recent years as it has during some periods in the last few decades, the overall cost of medical supplies has risen faster than general consumer inflation.
The result? Nursing home prices climb year after year, even when the quality of care stays the same. That inflation calculation includes labor (see our first section on nurse shortages), but it goes beyond that to equipment, medicines and other medical operating costs in care homes. Clients keep telling Greg about this state of affairs, hence his assessment that,
“Medical inflation is just higher than normal inflation, and that means everything gets super expensive when you put it together. There’s the cost of specialized equipment, advanced treatments, and the construction and maintenance of facilities. It all adds up.”
In case you’re wondering about the specifics of this increase, the overall cost of medical care has increased 121.3% since 2000 (including services, insurance, drugs and medical equipment), compared to an 86.1% increase in the price for consumer goods and services (per Peterson-KFF’s analysis of the Bureau of Labor Statistics’ available data).
That’s a 35.2% percentage difference, and it likely means that, the older you get, the more you are going to have to pay in nursing home fees versus other basic living costs like food, utilities and travel (all of which would be especially important for those who would rather have at-home care instead of in-facility living).
Medical Inflation
The rate at which the cost of medical goods and services (equipment, drugs, labor, insurance) increases over time. Since 2000, medical care costs have risen 121.3%, compared to 86.1% for general consumer goods. This gap is one of the biggest drivers behind rising nursing home prices, as every category of care expense gets disproportionately more expensive year over year.
4. Care Homes Going Out of Business
To make all of this worse, the above issues compound for another frustrating trend: despite the growing demand, many nursing homes are shutting down, with few, if any, new homes on the horizon. The main reason for that? It’s just too expensive for them to keep running and too expensive for their clients to pay.
In Greg’s words, “There are actually a lot of homes going out of business. It’s a huge problem. Our need is going through the roof, but the availability is plummeting.” He’s joined by people like Mark Parkinson, CEO of the American Health Care Association (AHCA), who states, “It’s not hyperbole to say access to care is a national crisis. Nursing homes are closing at a rate much faster than they are opening…”
The AHCA’s statistics point to just how stark those numbers are: there are 62,567 fewer nursing home beds, 20% of all nursing homes “have closed a unit, wing, or floor,” and at least 774 homes have closed since 2020, resulting in 28,421 displaced residents. From January to August 2024, only 7 new facilities opened nationwide.
It’s a sad situation that, despite growing demand, many, if not most, nursing homes are shutting down under the weight of financial pressures. These closures fuel a vicious cycle: fewer available facilities means greater strain for the ones still standing, driving nursing home costs higher and higher.
Reading all of this, you might feel the weight of it. That’s understandable. If you’re the one making calls during your lunch break, or lying awake running the numbers, or watching someone you love grow more dependent while you feel less and less prepared, know this: you are not failing them by finding this hard. And the fact that you’re here, reading this, looking for answers, already says something about the kind of family member you are. There are practical paths forward, and we want to help you find them.
Solutions to Manage Nursing Home Costs
1. Understand Medicare and Medicaid
A lot of people mistakenly believe that they have to cover nursing home fees entirely on their own. If that’s you, take heart: there could be a better way! One of the first things Greg explains to new and existing clients who are considering going into a nursing home, or who have relatives nearing that scenario, is that:
“You don’t have to spend everything and go broke. You don’t have to self-pay without help until everything is gone. You don’t have to wait for the nursing home to put you on Medicaid. The rules do not dictate that it has to be that way… the key is to understand those rules and leverage all of the best tools available.”
Of course, the exact tools we would consider vary from person to person, but in our experience at Iron Point Financial, it can be so much better (and can be so much more affordable), to get a long-term plan in place for Medicare and Medicaid now, when you’re healthy and active, than later, when you’re already undergoing the stress of having to work all this stuff out on the fly. That’s why we prioritize educating our clients and laying out the best options to suit their financial situation.
2. Proactive, Careful Asset Structuring
The next priority area we are likely to address with a client who needs to think about long term care is the importance of working with a financial advisor to structure their assets in a way that maximizes Medicaid eligibility, reduces risky assets, and works to protect their wealth through other optimized financial, legal and tax options. In that conversation, Greg always starts with a question:
“What assets are we talking about? What are we trying to protect? There are a lot of different strategies… we could be talking about asset protection trusts, or maybe we’re just retitling assets out of your name. Perhaps we could just cover them with life insurance and eat the costs that way. It all depends.
No matter what situation you or your loved ones find yourselves in, know that with careful planning and measured implementation, we can curate financial plans that help to manage your nursing home costs long before they become an immediate need or crisis situation. As financial fiduciaries, we know what that process can entail, and we will do everything possible to look out for your best interests.
3. Considering Worthy Alternatives Like In-Home Care
For many families, in-home care works out as a far more affordable and flexible alternative, often at a fraction of typical nursing home prices. For those unfamiliar with the idea, in-home care allows aging individuals to remain in a familiar environment, their homes, while receiving the professional, qualified assistance they need (through nurses who come directly to them).
Part of the reason this could be much easier on your wallet is, in Greg’s experience, that,
“Many long term care insurance providers pay for assisted living – for in-home care – because they would rather keep you in your home than have to pay for a full-blown assisted living facility.”
Staying at home could have further relational and emotional benefits, too, as it might be easier to live full-time with younger family members, or even to have your wider friendship circle come and visit.
Keeping a parent or grandparent at home isn’t just about convenience or cost. It can actually represent a really special investment for grandchildren. This decision can preserve the irreplaceable presence of someone whose steady wisdom, hard-won perspective, and quiet strength hold a family together in ways that are difficult to measure but impossible to replace.
Considering the scarcity of nursing home places, you might have to travel considerable distances just to visit your loved one in a facility, making staying at home a much more attractive option. After all, nobody wants to be separated from those they care most about; in-home care can be a great way to ensure that everyone who matters stays close.
4. Invest in Long-Term Care Insurance
Speaking of long-term care insurance: it can be a highly effective, valuable tool for covering the costs of nursing home care, assisted living, or in-home care. However, timing is absolutely of the essence when it comes to purchasing a policy. As Greg frames it,
“You probably don’t want to be looking at long-term care insurance when you’re 70. The chances of you actually getting it at that age are slim to none, and if by some miracle you do, it’s going to be so expensive that it’s probably not worth it.”
Instead, we would strongly recommend looking into long-term care insurance in your late 50s or mid-60s to prepare for it as well as you can ahead of time. Typically, long term care insurance policies kick in once you are unable to perform two out of the five “Activities of Daily Living” (ADLs) – things like bathing, dressing or feeding yourself – so most people sign up years before those activities get too difficult.
For an insurance company, the logic is simple: if you’re 75, and you’ve just signed up, the chances of you cashing in on the policy when you’re 76 are incredibly high, but when you’re a bit younger, you still have a good number of years to pay your premiums, so that’s a risk they’re willing to take.
Have you considered long-term care insurance? Click here for Iron Point Financial’s free PDF resource on the benefits and costs of including long-term care insurance in your retirement plan.
Activities of Daily Living (ADLs)
The five basic self-care tasks used to measure a person’s need for assisted living: bathing, dressing, eating, toileting, and transferring (moving from bed to chair, etc.). Most long-term care insurance policies activate once you are unable to perform at least two of the five ADLs independently, making them a critical benchmark in managing future nursing home fees.
Key Takeaways
87% of nursing homes report moderate to high staffing shortages, and 98% say hiring new staff is a significant challenge, directly inflating nursing home costs across the country.
71.6 million baby boomers are approaching the age where nursing home care becomes relevant, creating unprecedented demand against shrinking supply and pushing nursing home prices higher each year.
Medical inflation has outpaced general inflation by 35.2% since 2000, compounding the cost of nursing homes from every angle: equipment, medication, labor, and facility maintenance.
At least 774 nursing homes have closed since 2020, eliminating 62,567 beds and displacing over 28,000 residents, while only 7 new facilities opened in the first eight months of 2024.
You don’t have to self-pay until you’re broke. Understanding Medicare and Medicaid rules early can unlock tools that significantly reduce nursing home fees for your family.
Long-term care insurance is best purchased in your late 50s to mid-60s. By 70, approval is unlikely, and premiums are prohibitively expensive.
You Don't Have to Navigate Nursing Home Costs Alone
Hopefully, you now have a clearer picture of nursing home costs and can answer the question, “Why are nursing homes so expensive?” much more comfortably. Whether you point to staffing shortages, surging demand from the baby boomer generation, medical inflation, or the growing number of facility closures, the picture is clear: families need a plan, and the earlier that plan starts, the better.
The good news is that you have options. From understanding Medicare and Medicaid to structuring your assets wisely, from exploring in-home care to securing long-term care insurance at the right time, there are real, practical paths forward. You don’t have to figure it out alone, and you certainly don’t have to wait until it becomes a crisis.
At Iron Point Financial, Greg Liszka (CFP®, RICP®) and the team have decades of experience helping families navigate exactly these kinds of conversations. Whether you’re beginning to think about care for an aging parent, or you want to get ahead of nursing home costs in your own retirement plan, a thoughtful conversation now can make all the difference later.
Schedule an appointment through our website, or call our office at 724-458-5090 to start the conversation.
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Iron Point Financial is here to empower you to secure a brighter tomorrow. We operate physical offices in Grove City, PA and Greenville, PA.
We primarily serve residents of Pennsylvania, Ohio, West Virginia and Florida but we also have security registrations for 22 other states across the continental USA.
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Nursing Home Costs FAQs
Why are nursing homes so expensive?
Nursing home costs are driven by four main factors: severe staffing shortages that inflate labor expenses, overwhelming demand from an aging baby boomer population, medical inflation that consistently outpaces general inflation, and a wave of facility closures reducing the available supply of beds.
At Iron Point Financial, we see these pressures compounding for our clients every day. When 87% of nursing homes can’t find enough staff and are raising wages just to keep the lights on, those costs get passed directly to residents. Add in 71.6 million boomers approaching care age and hundreds of facilities closing their doors, and you have a perfect storm that keeps pushing the cost of nursing homes higher and higher.
How much does a nursing home cost per month?
The national median cost of a semi-private nursing home room is approximately $8,000 to $9,500 per month, with private rooms often exceeding $10,000 per month, though nursing home prices vary significantly by state and region.
These figures can feel staggering, but they reflect the reality of round-the-clock skilled nursing care, facility maintenance, medical equipment, and the labor costs we discuss throughout this article. Where you live matters enormously: states with higher costs of living and more acute staffing shortages tend to carry nursing home fees well above the national median.
Does Medicare pay for nursing home care?
Medicare covers skilled nursing facility care only on a short-term basis (up to 100 days) following a qualifying hospital stay, and it does not cover long-term custodial nursing home costs.
This is one of the biggest misconceptions we encounter at Iron Point Financial. Many families assume Medicare will handle the bill indefinitely, only to discover it was designed for rehabilitation, not long-term residence. That’s why understanding the difference between Medicare and Medicaid, and planning for Medicaid eligibility well in advance, can protect families from devastating out-of-pocket nursing home fees.
What is the difference between Medicare and Medicaid for nursing home coverage?
Medicare is a federal health insurance program that covers short-term skilled nursing care (up to 100 days) after a hospital stay, while Medicaid is a joint federal-state program that covers long-term nursing home costs for individuals who meet specific income and asset eligibility requirements.
The distinction matters for families planning ahead. Medicare kicks in for rehab-style stays but stops well before most people’s actual nursing home needs end. Medicaid, on the other hand, can cover long-term custodial care, but qualifying requires careful financial planning. As Greg emphasizes, you don’t have to spend everything down to nothing before Medicaid becomes an option; the key is understanding the rules and structuring your assets early to manage the cost of nursing homes on your terms.
When should I consider buying long-term care insurance?
The ideal time to purchase long-term care insurance is in your late 50s to mid-60s, when you are more likely to be approved and premiums are significantly more affordable, helping you offset future nursing home prices before they become unmanageable.
Waiting until 70 or later is a gamble many people lose. At that age, the chances of being approved are slim to none, and if you do get a policy, the premiums are often so high they negate the benefit. Insurance companies are taking a calculated risk on you: the younger and healthier you are at sign-up, the more years of premiums they collect before you’re likely to need care, and that’s a deal they’re willing to make.
What are alternatives to nursing home care?
In-home care is the most common alternative, allowing aging individuals to receive professional medical assistance in their own home, often at significantly lower nursing home fees, and many long-term care insurance providers cover it.
Beyond the financial savings, staying at home keeps your loved one in a familiar environment, closer to family and friends. Insurance providers often prefer it, too, because covering a visiting nurse costs far less than a full-time facility. For families weighing their options against rising nursing home costs, in-home care can offer the best of both worlds: qualified medical support without the emotional and financial weight of uprooting someone’s entire life.
