Memory care costs roughly $6,200 to $9,000 per month nationally, depending on location and level of service, and Medicare won’t cover it. That leaves families piecing together multiple funding sources to cover what often amounts to $75,000 to $110,000 per year. The good news: there are more options than most people realize, from government programs to creative uses of existing insurance policies and real estate.
Why Medicare Won’t Cover Memory Care
This is the first thing most families discover, and it’s a painful surprise. Medicare pays for some dementia-related services like cognitive assessments, care planning, and prescription drugs under Part D. It also covers up to 35 hours per week of home health care for people certified as homebound, and it pays for up to 100 days in a skilled nursing facility after a qualifying hospital stay. But it does not pay for long-term residential memory care. After those 100 days in a nursing home, you’re on your own, paying with personal funds, Medicaid, or both.
Medicaid: The Largest Safety Net
Medicaid is the single biggest payer for long-term care in the United States, but qualifying requires meeting strict income and asset limits. In 2025, the income threshold for long-term care Medicaid is $2,901 per month for an individual in most states (set at 300% of the federal SSI limit). Asset limits are tighter: most states cap countable assets at $2,000 per person, though your primary home is typically exempt as long as its equity is below $730,000 (some states allow up to $1,097,000).
If your loved one’s income or assets exceed these limits, a strategy called “Medicaid spend-down” involves using excess resources to pay for care or other allowable expenses until they qualify. This is where a Medicaid planning attorney can be invaluable, because the rules around asset transfers are complex. Gifts or transfers made within five years of applying (the “look-back period” in most states) can trigger penalties that delay eligibility.
Many states also offer Medicaid waiver programs that cover memory care in assisted living settings rather than only nursing homes. These waivers often have waiting lists, so applying early matters. A spouse who remains at home is generally allowed to keep a portion of the couple’s assets and income, a protection known as the “community spouse resource allowance.”
Long-Term Care Insurance
If your family member purchased a long-term care insurance policy years ago, now is when it pays off. Most policies begin paying benefits when the insured person needs help with two or more of six basic activities of daily living (bathing, dressing, eating, toileting, transferring, and continence) or when they have a cognitive impairment. Dementia typically meets both triggers.
Before benefits kick in, you’ll need to get through the elimination period, which functions like a deductible measured in time rather than dollars. Most policies have elimination periods of 30, 60, or 90 days, chosen when the policy was purchased. During that window, you pay out of pocket. Once the elimination period ends, the policy pays a daily or monthly benefit up to its coverage limit. Review the policy carefully for inflation protection, maximum benefit periods, and whether it covers assisted living memory care units or only nursing homes.
Veterans Benefits
Veterans and surviving spouses of veterans have access to a pension benefit called Aid and Attendance that can significantly offset memory care costs. In 2025, a veteran with no dependents who qualifies for Aid and Attendance can receive up to $29,093 per year (about $2,424 per month). A veteran with a dependent spouse can receive up to $34,488 per year. Surviving spouses of veterans may also qualify for a smaller benefit.
To qualify, the veteran must have served at least 90 days of active duty with at least one day during a wartime period, and the applicant must demonstrate a medical need for assistance with daily activities. There are also income and asset limits, though they’re more generous than Medicaid’s. The application process can take several months, so starting early is important.
Tapping Life Insurance Policies
An existing life insurance policy can be converted into a funding source for memory care in several ways, and families often overlook this option entirely.
Accelerated death benefits are a feature included in some policies that lets you collect a portion of the death benefit while still alive if you have a qualifying condition. The payout is typically capped at 50% of the death benefit, though some policies allow the full amount. For policies that specifically cover long-term care, the monthly benefit for nursing home care is usually about 2% of the policy’s face value. So a $200,000 policy might provide $4,000 per month. These payments are generally tax-free.
Viatical settlements involve selling your life insurance policy to a third-party company for a lump sum. The amount you receive depends on life expectancy: someone with 12 to 18 months to live would typically receive about 65% of the death benefit, while someone with over 24 months might receive 50%. This permanently gives up the policy and the death benefit your heirs would have received, so it’s a trade-off worth weighing carefully.
Life settlements work similarly but are available to people who aren’t terminally ill. The payout is generally lower, but it converts an asset you may no longer need into immediate cash for care.
Using Your Home to Pay for Care
For many families, the home is the largest asset available. There are a few ways to access that equity.
Selling the home outright is the most straightforward option and frees up the most capital. If the person with dementia lived in the home as a primary residence for at least two of the last five years, up to $250,000 in capital gains ($500,000 for a married couple) is excluded from taxes.
A reverse mortgage lets a homeowner aged 62 or older borrow against home equity without making monthly payments. The loan comes due when the borrower moves out or dies. If one spouse moves to memory care while the other stays home, the arrangement can continue as long as the staying spouse is a co-borrower on the loan. If the spouse at home isn’t a co-borrower, the loan may become due after the borrower has been in a healthcare facility for more than 12 consecutive months, though HUD rules may protect certain non-borrowing spouses depending on when the loan was originated. This is worth discussing with a HUD-approved counselor before committing.
Bridge Loans for the Gap
Sometimes you need to start paying for memory care before your long-term funding is in place. Maybe you’re waiting for a home sale to close, for VA benefits to be approved, or for Medicaid to process. Bridge loans are short-term loans designed to cover exactly this gap. Interest rates vary widely, starting at 1-2% above the prime rate but potentially climbing to 25-30% depending on the lender and terms. Rates commonly increase each quarter the loan remains unpaid. These loans only make sense when you have a clear, reliable funding source on the horizon and a realistic timeline for receiving it.
Tax Deductions That Reduce the Burden
Memory care expenses can be deducted as medical expenses on your federal tax return if the person is in the facility primarily for medical care, which dementia typically qualifies for. When the primary reason for residence is medical, the entire cost of the facility, including meals and lodging, is deductible. If the residence is primarily for non-medical reasons, only the portion attributable to actual medical care qualifies.
The catch: you can only deduct the amount that exceeds 7.5% of adjusted gross income, and you must itemize deductions on Schedule A rather than taking the standard deduction. For a family paying $80,000 a year in memory care costs with an adjusted gross income of $60,000, the deductible portion would be everything above $4,500, or $75,500. That can result in significant tax savings.
State and Local Programs
Many states operate programs specifically for people with Alzheimer’s disease and related dementias that exist outside of Medicaid. Florida, for example, runs an Alzheimer’s Disease Initiative providing caregiver training, counseling, respite care, and medical supplies. It also operates a Home Care for the Elderly program that subsidizes care for people aged 60 and older living in family-type settings, and a Respite for Elders Living in Everyday Families program that provides in-home respite to prevent caregiver burnout.
These programs won’t cover the full cost of a memory care facility, but they can reduce the overall financial burden, especially for families providing some care at home. Your state’s Area Agency on Aging is the best starting point for finding local programs. Many states also have Medicaid waiver programs with slots specifically designated for dementia care in community settings.
Combining Multiple Sources
Very few families pay for memory care with a single funding source. A more realistic scenario looks like this: a veteran’s spouse receives $2,000 per month from Aid and Attendance, long-term care insurance covers another $3,000 per month after the elimination period, and the family sells the home to cover the remainder and build a reserve. Meanwhile, the tax deduction reduces the effective annual cost by several thousand dollars.
The key is starting the financial planning process as early as possible, ideally before placement becomes urgent. Medicaid applications, VA benefit claims, home sales, and insurance claims all take time. Having those wheels in motion before a crisis gives you more options and less stress when the move to memory care happens.