www.ahrq.gov

Agency for Healthcare Research and Quality

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Nursing Home Expenses,

1987 and 1996

MEPS Chartbook No. 6

Medical Expenditure Panel Survey
Suggested citation:

Rhoades JA, Sommers JP. Nursing home expenses, 1987 and 1996. Rockville (MD):Agency for Healthcare Research and Quality;

2001. MEPS Chartbook No. 6.AHRQ Pub. No. 01-0029.

The estimates in this report are based on the most recent data available from MEPS at the time the report was written. However, selected

elements of MEPS data may be revised on the basis of additional analyses, which could result in slightly different estimates from those shown

here. Please check the MEPS Web site for the most current file releases—

www.meps.ahrq.gov

MEPS Chartbook No. 6 by:

Jeffrey A. Rhoades, Ph.D.

John P. Sommers, Ph.D.
i

From 1987 to 1996, total annual

expenses increased from $28 billion to

$70 billion, and annual expenses per

resident day increased from $56 to $118.

Medicare paid a greater portion of the

nursing home bill in 1996 than in 1987,

especially for hospital-based nursing

homes, nursing homes with fewer beds,

and those located in the West Region.

The proportion of total annual nursing

home expenses per resident paid for by

Medicare increased for all age groups.

The share paid for by Medicaid

decreased for all racial/ethnic groups,

particularly for minorities. Medicaid as a

source of payment decreased from

69.0% to 50.6% of total annual nursing

home expenses per resident for

Hispanics, and it decreased from 77.7%

to 66.4% for blacks.

Residents who were not married, did not

own a home, or were covered by

Medicaid tended to have higher annual

expenses per resident but lower annual

expenses per resident day.

Medical Expenditure Panel Survey Agency for Healthcare Research and Quality

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executive summary

In 1996, people residing in a nursing

home for the shortest period of time

(both admitted and discharged during

the year or both admitted and dying

during the year) had the lowest annual

expenses per resident but the highest

annual expenses per resident day.

Medicare paid the largest proportion of

the total nursing home bill for these

residents.

How have nursing home expenses and sources of payment changed from

1987 to 1996?

Facilities

Residents The share of annual expenses per

resident paid for by Medicare increased

from 1987 to 1996 for each income

category.The greatest increase was for

residents in the highest income

category.

In 1996, individuals with neither

functional disability nor mental

conditions had lower annual expenses

per resident but higher annual expenses

per resident day. Medicare paid a

greater portion of the nursing home bill

for such individuals than for residents

with functional disabilities or mental

conditions.

Thoughout this report, a nursing home is defined as having

at least three beds, being either certified by Medicare or

Medicaid or licensed by a government agency as a nursing

home, and providing 24-hour skilled nursing care. 

1 Introduction

3 Sources of Data

5 Section 1

Overview

13 Section 2

Facility Characteristics

19 Section 3

Resident Characteristics

41 Conclusions

42 References

43 Technical Notes

46 Definitions of Terms

Medical Expenditure Panel Survey Agency for Healthcare Research and Quality

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contents

iii

Nursing homes serve only a

minority of the functionally

impaired elderly, but nursing home

care dominates long-term care

financing. State and Federal

spending for nursing homes

represented 67.4% of total annual

expenditures for nursing home and

home health services in 1996 (Levit,

Lazenby, Braden, et al., 1997).

With increasing life expectancy

and a growing population with

functional impairments, meeting

long-term care needs will continue

to be a challenge. Demand for

nursing home care could require

600,000 new beds by 2010 (Porter

and Witek, 1991). Because most

nursing home care is financed out

of pocket or through Medicaid, the

prospect of rapid increases in the

number of Americans who are

elderly and at risk for nursing home

care has turned the financing of

these services into a matter of

intense private and public concern.

This report presents

information concerning expenses

(total payments received for care,

defined more fully in the section

“Definitions of Terms”) and sources

of payment for nursing homes for

1987 and 1996. A nursing home

was defined as having at least three

beds, being either certified by

Medicare or Medicaid or licensed by

a government agency as a nursing

home, and providing 24-hour

skilled nursing care. Some other

surveys, including the National

Nursing Home Survey, conducted

by the National Center for Health

Statistics, used a broader definition

of nursing home that does not

require the facility to provide

round-the-clock nursing care

(Strahan, 1987 and 1997).

Medical Expenditure Panel Survey Agency for Healthcare Research and Quality

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introduction

1

Medical Expenditure Panel Survey Agency for Healthcare Research and Quality

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3

The estimates presented in this

report are drawn from the 1996

Medical Expenditure Panel Survey

(MEPS) Nursing Home

Component (NHC) and the 1987

National Medical Expenditure

Survey (NMES) Institutional

Population Component (IPC).

Both surveys were designed to

provide extensive data on the types

of health care services Americans

use, how frequently they use them,

how much is paid for the services,

and who pays for them. The NHC

and IPC are nationally

representative surveys, sponsored by

the Agency for Healthcare Research

and Quality (AHRQ). They collect

detailed information on

characteristics of nursing homes and

nursing home residents and on the

use of and expenses for nursing

home and health care services.

The estimates presented here

are nationally representative of

nursing homes and their residents.

Estimates for residents are based on

a sample of current residents as well

as admissions during the reference

year. Current residents are sampled

persons living in a nursing home as

of midnight December 31 of 1986

or 1995, while admissions are

sampled persons admitted any time

during the reference year, January 1

to December 31 of 1987 or 1996.

Unless otherwise noted, only

differences that are statistically

significant at the 0.05 level are

discussed in the text. In some cases,

totals on figures may not add

precisely to 100% as a consequence

of rounding.

MEPS data are released to the

public in a number of formats,

including public use data files and

the printed MEPS Research Findings

and MEPS Highlights series. The

numbers shown in this chartbook

are drawn from a variety of the

MEPS Research Findings reports, as

well as additional analyses

conducted by the MEPS staff. The

sources of information are listed in

the references at the end of this

report.

sources of data

Medical Expenditure Panel Survey Agency for Healthcare Research and Quality

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5

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section 1

Overview The dramatic growth in the

number of Americans over age 75,

the desire to minimize the duration

of expensive inpatient hospital care,

and policy developments (including

the expansion of nursing home

benefits under the Medicare

Catastrophic Coverage Act of 1988)

over the past decade have raised the

importance of data pertaining to the

nursing home market. At the same

time, there are substantial regional

variations that result from a variety

of factors, including State

regulations and demographic

realities. A better understanding of

current nursing home expenses and

changes over the past decade can

contribute to informed decisions

about the provision of long-term

care.
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• Total annual expenses rose from

$28 billion in 1987 to $70

billion in 1996, a 150% increase.

• Annual expenses per resident

(mean total annual nursing

home expenses per nursing

home resident) increased by

63%—from $13,866 in 1987

to $22,561 in 1996.

• Annual expenses per resident

day (mean total payments per

resident day) rose from $56 in

1987 to $118 in 1996,

representing a 111% increase.

See Technical Notes 1 and 2. See the “Definitions of

Terms” section for more detailed definitions.

Agency for Healthcare Research and Quality

6

Medical Expenditure Panel Survey

How have nursing home expenses changed

from 1987 to 1996?

0

10

$20

$30

$40

$50

$60

$70

$70

Annual expenses in billions

$28

1987 1996
$0

$5,000

$10,000

$15,000

$20,000

$25,000 $22,561

Annual expense per resident

$13,866

1987 1996

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Agency for Healthcare Research and Quality

7

Medical Expenditure Panel Survey

How have nursing home expenses changed

from 1987 to 1996? (continued)

$0

$20

$40

$60

$80

$100

$120

$118

Expense per resident day

$56

1987 1996
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Agency for Healthcare Research and Quality

8

Medical Expenditure Panel Survey

The major sources of payment

for total annual nursing home

expenses shifted from 1987 to 1996.

The share of total expenses paid by

Medicaid was 48.8% in 1987 and

44.0% in 1996. Self-payment (outof-pocket payments) fell from 44.9%

in 1987 to 30.3% in 1996. Medicare

payments represent the greatest

change between the two years—

almost a 900% increase, from 1.9%

of total payments in 1987 to 18.9%

in 1996.

See Technical Notes 3 and 4.

Have sources of payment for nursing home

care changed?

Medicaid

Medicare

Self-payment

Private insurance

Other

44.0%

18.9%

30.3%

3.5% 3.3%

48.8%

1.9%

44.9%

1.6% 2.8%

1987 1996
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• Annual expenses per resident day

were highest in the Northeast

and West for both 1987 ($73

and $59, respectively) and 1996

($144 and $151, respectively).

• The biggest increase in daily

expenses took place in the

West—an increase of 156% over

the 9-year period. Daily expenses

in the Northeast rose 97% over

the same period.

Agency for Healthcare Research and Quality

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Medical Expenditure Panel Survey

What regional trends can be seen in daily

nursing home expenses?

$0

$20

$40

$60

$80

$100

$120

$140

$160

$73

Northeast

$144

$49

$107

$49

Midwest South West

$97

$59

$151

1987

1996

Expense per resident day
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• The proportion of nursing home

expenses paid for by Medicare rose

in all regions.

• The greatest change in sources of

payment was observed in the West,

where Medicare’s share increased

from 4.1% to 34.7% while there

were decreases in both self-payment

(47.5% to 26.2%) and Medicaid

(41.9% to 29.8%)

Agency for Healthcare Research and Quality

10

Medical Expenditure Panel Survey

How have sources of payment varied by

region over time?

Medicaid

Medicare

Self-payment

Private insurance

Other

52.8%

10.4%

29.1%

2.5% 5.2%

58.4%

1.4%

36.0%

1.8% 2.5%

1987 1996

41.4%

17.3%

35.8%

3.3%2.1%

43.2%

1.9%

51.2%

0.9% 2.8%

1987 1996

Northeast

Midwest
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Agency for Healthcare Research and Quality

11

Medical Expenditure Panel Survey

How have sources of payment varied by

region over time? (continued)

Medicaid

Medicare

Self-payment

Private insurance

Other

46.5%

19.4%

28.4%

3.0%2.7%

48.4%

1.2%

46.5%

1.0% 2.9%

1987 1996

29.8%

34.7%

26.2%

6.4%3.0%

41.9%

4.1%

47.5%

3.5% 2.9%

1987 1996

South

West

Facility

Characteristics

While the trend in long-term

care is toward expansion of

community-based care for people

with functional limitations, some

people need 24-hour skilled nursing

care. The need for different types

and levels of long-term care has

resulted in an increasing number of

options for obtaining care. Given

these changes in the long-term care

market, it becomes increasingly

important to make clear and

consistent distinctions among the

different kinds of facilities that lie

along the continuum of care. 

Medical Expenditure Panel Survey Agency for Healthcare Research and Quality

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section 2

13
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• The greatest increase in annual

expenses per resident day has

been for hospital-based nursing

homes. Daily expenses for

hospital-based nursing homes

rose from $83 in 1987 to $212

in 1996—a 155% increase.

• Annual expenses per resident day

increased 106% for freestanding

nursing homes and 76% for

nursing homes with multiple

levels of care.

Agency for Healthcare Research and Quality

14

Medical Expenditure Panel Survey

Have daily expenses changed for different

types of nursing homes?

$0

$50

$100

$150

$200

$250

$54

Freestanding

$111

$58

Hospital based

$102

$83

$212

1987

1996

Expense per resident day

Multiple levels of care

Nursing home type
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• The proportion of total annual

expenses paid by Medicare and

Medicaid changed the most for

hospital-based nursing homes

between the two years. There

was an increase in the proportion

of total annual expenses paid for

by Medicare (from 6.2% in 1987

to 44.2% in 1996) with an

accompanying downward trend

in the proportion paid for by

Medicaid (from 59.3% to

19.4%).

• In comparison, for freestanding

nursing homes, the proportion

of total annual expenses paid by

Medicare increased from 1.6% in

1987 to 15.2% in 1996 while the

proportion paid by Medicaid

(49.6%) was unchanged in both

years (data not shown).

Agency for Healthcare Research and Quality

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Medical Expenditure Panel Survey

How have sources of payment changed for

hospital-based nursing homes?

Medicaid

Medicare

Self-payment

Private insurance

Other

19.4%

44.2%

16.5%

5.8% 14.1%

59.3%

6.2%

28.3%

2.2%4.0%

1987 1996
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Agency for Healthcare Research and Quality

16

Medical Expenditure Panel Survey

How have sources of payment varied by

nursing home size over time?

• For smaller nursing homes (3-

74 beds), the share of total

annual nursing home expenses

paid for by Medicare increased

dramatically. Medicare covered

2.4% of total annual expenses in

these homes in 1987, rising to

37.3% in 1996. There was a

corresponding downward trend

for self-payment (from 55.2% to

28.1%) and Medicaid (from

36.5% to 28.9%, not significant)

over the same time period.

Medicaid

Medicare

Self-payment

Private insurance

Other

28.9%

37.3%

28.1%

4.3% 1.5%

36.5%

2.4%

55.2%

3.4%2.5%

1987 1996

3-74 beds
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Agency for Healthcare Research and Quality

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Medical Expenditure Panel Survey

How have sources of payment varied by

nursing home size over time? (continued)

Medicaid

Medicare

Self-payment

Private insurance

Other

43.0%

16.4%

34.7%

3.9% 2.1%

44.7%

1.6%

48.8%

1.6%3.2%

1987 1996

75-124 beds

48.7%

14.9%

31.0%

3.5% 1.9%

50.9%

1.8%

44.2%

1.1%2.0%

1987 1996

125-199 beds

continued on page 18
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Agency for Healthcare Research and Quality

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How have sources of payment varied by

nursing home size over time? (continued)

Medical Expenditure Panel Survey

54.3%

10.4%

24.4%

2.4%

8.5%

60.9%

2.2%

33.1%

0.8%3.1%

1987 1996

200 beds or more

Medicaid

Medicare

Self-payment

Private insurance

Other

• The pattern was less dramatic

for the other nursing homes,

particularly the largest (200

beds or more). For these largest

homes, the Medicare share

increased only from 2.2% to

10.4%. The declines for selfpayment (from 33.1% to 24.4%)

and Medicaid (from 60.9% to

54.3%, not significant) were also

less dramatic for the largest

nursing homes.
Resident

Characteristics

Despite the increasing

availability of long-term care

alternatives, such as communitybased care and personal care

facilities, nursing homes continue to

be an important part of the longterm care system. The nursing

home population represents a small

proportion of both the elderly

population and the general

population of people with

disabilities. Nursing homes primarily

serve members of these populations

who have severe medical and

disability problems that require the

intensity of care available in a

nursing home. A lack of financial

resources or family caregivers

contributes to the need for these

institutions (Congressional Budget

Office, 1991).

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section 3

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• For both 1987 and 1996, the

general trend was for individuals

(and their families) to pay a

greater proportion of the nursing

home bill as the resident’s age

increased. For example, in 1996,

15.4% of total annual nursing

home expenses for residents age

64 and under were self-payments

(out-of-pocket payments made by

nursing home residents or their

families). In the same year, 38.0%

of total annual nursing home

expenses for residents age 85 and

over were self-payments.

• The proportion of total annual

nursing home expenses per

resident paid for by Medicare

increased for all age groups from

1987 to 1996. At the same time,

the proportion paid for by

Medicaid decreased for age

groups 65-74 and 75-84.

Agency for Healthcare Research and Quality

20

Medical Expenditure Panel Survey

Is the age of nursing home residents

associated with sources of payment?

0%

10%

20%

30%

40%

50%

60%

70% 66.6%

64 and under

21.6%

54.0%

36.6%

65-74 75-84 85 and over

48.6%

44.9%

50.5%

1987

1.1% 2.5%

46.0%

2.4% 1.5%

0%

10%

20%

30%

40%

50%

60%

70% 63.2%

64 and under

15.4%

43.2%

22.0%

65-74 75-84 85 and over

28.9%

44.6%

38.0%

Medicaid

Medicare

Self-payment

1996

9.0%

24.6%

38.5%

25.3%

13.7%
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Agency for Healthcare Research and Quality

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Medical Expenditure Panel Survey

Do nursing home expenses per person vary

for different racial/ethnic groups?

• There was a statistically

significant increase in both

annual expenses per resident and

annual expenses per resident day

for all ethnic and racial groups

from 1987 to 1996, with the

exception of annual expenses per

resident for Hispanics.

• Annual expenses per resident

increased by approximately

$10,000 for whites and others

and for blacks while the increase

for Hispanics was only about

$4,500. Annual expenses per

resident day essentially doubled

for all ethnic and racial groups

from 1987 to 1996.

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$13,778

White and other

$22,479

$14,233

Hispanic

$24,253

$16,075

$20,685

1987

1996

Black

$0

$20

$40

$60

$80

$100

$120

$140

$56

White and other

$118

$55

Hispanic

$117

$60

$134

Black

Annual expense per resident

Expense per resident day
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• The white and other group had

the highest percentage of selfpayments for nursing home care

in both 1987 and 1996.

• The proportion of annual

nursing home expenses per

resident paid for by Medicare

increased in all groups from

1987 to 1996. The rise in the

share paid by Medicare was

greater for Hispanics (from

2.6% to 30.5%) than for whites

and others (from 1.9% to

19.0%) and blacks (from 1.5%

to 12.9%).

• The share paid for by Medicaid

decreased for all groups—

Hispanics (from 69.0% to

50.6%), whites and others (from

45.9% to 41.5%), and blacks

(from 77.7% to 66.4%)

Agency for Healthcare Research and Quality

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Medical Expenditure Panel Survey

How have sources of payment varied by

race/ethnicity over time?

0%

10%

20%

30%

40%

50%

60%

70%

80%

45.9%

Medicaid

77.7%

69.0%

1.5%

Medicare Self-payment

47.9%

21.8%

White and other

Black

Hispanic

1987

1.9% 2.6%

16.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

41.5%

66.4%

19.0%

32.8%

12.1% 12.1%

1996

50.6%

12.9%

30.5%

Medicaid Medicare Self-payment
. .

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.

. . .

• In both 1987 and 1996,

residents who were not married

(widowed, divorced, separated,

or never married) had higher

annual expenses per resident

than married residents. In 1996,

unmarried residents had lower

annual expenses per resident day

than married residents. The

combination of higher annual

expenses per resident and lower

annual expenses per resident day

indicates that unmarried

residents tended to have longer

lengths of stay than married

residents, and possibly received

care of a more custodial nature.

• Annual expenses per resident

increased by approximately

$9,000 for both married and

unmarried residents from 1987

to 1996.

Agency for Healthcare Research and Quality

23

Medical Expenditure Panel Survey

Are nursing home expenses different for

married and unmarried residents?

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$11,326

Married

$19,771

Not married

$14,457

$23,420

1987

1996

$0

$20

$40

$60

$80

$100

$120

$140

$58

$137

$55

$114

Annual expense per resident

Expense per resident day

Married

Not married
. . .

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.

. . .

• In both 1987 and 1996,

unmarried residents relied more

on Medicaid than married

residents did.

• For both married and

unmarried residents Medicare

paid a greater portion of the

nursing home bill in 1996 than

in 1987. The proportion paid

for by Medicaid did not change

significantly for either group.

Agency for Healthcare Research and Quality

24

Medical Expenditure Panel Survey

How do sources of payment for nursing

home residents vary by marital status?

0%

10%

20%

30%

40%

50%

60%

39.3%

1987

50.2%

34.0%

26.2%

1996 1987 1996

44.0%

46.6%

31.4%

Medicaid

Medicare

Self-payment

Married

3.7%

27.5%

50.6%

1.6%

16.6%

Not married
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.

. . .

• Total annual expenses were

greatest for those residing in a

nursing home for the entire

year.

• Total expenses increased

significantly for all groups from

1987 to 1996.

Agency for Healthcare Research and Quality

25

Medical Expenditure Panel Survey

How do nursing home expenses vary by

residents’ institutional status?

$0

$5

$10

$15

$20

$25

$30

$35

$40

$2.8

1987

$20.6

$3.5

1996

$39.8

$13.7

Resident on 1/1, deceased by 12/31

Resident entire year

Admitted and died during year

Admitted during year, resident on 12/31

Resident on 1/1, discharged during year

Admitted and discharged during year

Annual expenses in billions

$0.7 $0.1

$7.2

$4.4

$0.7

$4.1

$0.4

continued on page 26
. . .

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. . .

• For both years, annual expenses

per resident were highest for the

people who resided in nursing

homes for the longest period of

time—those in the nursing

home all year or admitted

during the year and not

discharged during the year.

Annual expenses for an

individual residing in a nursing

home all year totaled $36,368 in

1996. The residents with the

lowest annual per-person

expenses were individuals

admitted during the year who

died or were discharged during

the year.

Agency for Healthcare Research and Quality

26

Medical Expenditure Panel Survey

How do nursing home expenses vary by

residents’ institutional status? (continued)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$3,580

1987

$19,755

$10,212

1996

$3,872

$36,368

$23,005

Annual expense per resident

$9,070

$7,238

$17,517

$9,457

$12,558

$8,569

Resident on 1/1, deceased by 12/31

Resident entire year

Admitted and died during year

Admitted during year, resident on 12/31

Resident on 1/1, discharged during year

Admitted and discharged during year
. .

.

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.

.

.

.

.

. . .

• Annual expenses per resident

day present a different pattern.

In 1996, those with the shortest

nursing home stays (individuals

admitted during the year who

died or were discharged during

the year) had the highest annual

expenses per resident day. For

example, people admitted and

discharged from the nursing

home in 1996 had a high

annual expense per resident day

of $257 while having a low

annual expense per resident of

$8,569. The observed

relationship is also consistent

with such residents receiving

nursing home services of a

higher intensity, supported by

the fact that those with the

shortest nursing home stays

relied most heavily on Medicare

as a source of payment. 

Agency for Healthcare Research and Quality

27

Medical Expenditure Panel Survey

How do nursing home expenses vary by

residents’ institutional status? (continued)

$0

$50

$100

$150

$200

$250

$300

$66

1987

$54 $61

1996

$80

$204

$155

Expense per resident day

$55 $51

$109 $101

$133

$257

Resident on 1/1, deceased by 12/31

Resident entire year

Admitted and died during year

Admitted during year, resident on 12/31

Resident on 1/1, discharged during year

Admitted and discharged during year
• In 1987, total annual expenses

were greatest for residents who

were poor; in 1996, they were

highest for residents in the lowincome category.

• In 1996, annual nursing home

expenses per resident declined as

income increased. The lowest

annual expense per resident,

$18,310, was for residents with

the highest income.

• In 1996, annual expenses per

resident day rose as income

rose, from $103 for poor

residents to $149 for highincome residents

. . .

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.

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Agency for Healthcare Research and Quality

28

Medical Expenditure Panel Survey

Low income $0

$5

$10

$15

$20

$25

$30

$35

$11.2 $9.7

$4.5

$15.9

Annual expenses in billions

Poor

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$13,967

$24,060

$13,929

$23,378

Annual expense per resident

1987

1996

$17.4

$30.3

$2.8

$6.3

High

income

Middle

income

$13,391

$21,629

$14,141

$18,310

Poor Low income High

income

Middle

income

Do nursing home expenses vary by

residents’ income?•
. .

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.

. . .

Agency for Healthcare Research and Quality

29

Medical Expenditure Panel Survey

$0

$20

$40

$60

$80

$100

$120

$140

$160

$56

$103

$116

$56

Expense per resident day

$134

$54

$149

$55

Poor Low income High

income

Middle

income

1987

1996

Do nursing home expenses vary by

residents’ income? (continued)
. . .

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.

.

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. . .

Agency for Healthcare Research and Quality

30

Medical Expenditure Panel Survey

• People who were admitted and

died during the year and those

who were discharged during the

year, especially in 1996, had

Medicare as a major payer for

nursing home care. In 1996,

54.7% of annual expenses for

residents who were admitted

and died during the year and

62.8% of expenses for residents

who were admitted and

discharged during the year were

paid for by Medicare.

See the “Definitions of Terms” section for more

information on the institutional status categories

Medicaid

Medicare

Self-payment

Private insurance

Other

54.7%

24.6%

8.9%

3.8% 8.1%

14.7%

52.8%

4.8% 5.5%

22.1%

1987 1996

Admitted and died during year

62.8%

13.6%

8.9%

6.6% 4.8%

23.8%

46.5%

10.7%

7.4%

12.2%

1987 1996

Admitted and discharged during year

11.7%

How does Medicare figure as a source of

payment for residents with shorter stays?
. .

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.

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.

. . .

• Residents with the highest

income relied the most heavily

on Medicare as a source of

payment, indicating that they

may have received the most

concentrated nursing home

services. Nursing home residents

having care reimbursed by

Medicare are the most likely to

be recovering from conditions

that require a greater intensity of

service (Shaughnessy and

Kramer, 1990).

• The proportion of annual

expenses per resident paid for by

Medicare was markedly higher in

1996 than in 1987 for each

income category, and the

increase from 1987 to 1996 was

greater with higher income.

• The proportion of annual

nursing home expenses per

resident paid for by Medicaid

(data not shown) fell for the two

highest income categories.

Agency for Healthcare Research and Quality

31

Medical Expenditure Panel Survey

0%

5%

10%

15%

20%

25%

30%

35%

2.0%

Poor

10.4%

High

income

18.3%

1.8%

32.2%

1987

1996

Medicare payments as a percent of total nursing home payments

Low income

1.6%

24.0%

2.0%

Middle

income

What trends can be seen in Medicare

payments for various income levels?
. . .

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.

. . .

• In both 1987 and 1996,

residents who did not

own a home had higher

annual nursing home

expenses per resident than

residents who did own a

home. In 1996 only,

residents who did not

own a home had lower

annual expenses per

resident day than

residents who did own a

home. Non-homeowners

tended to have longer

lengths of stay than

homeowners (data not

shown) and possibly

received care of a more

custodial nature. This

relationship appears to be

more pronounced in

1996 than in 1987.

• From 1987 to 1996,

annual expenses per

resident day increased

141% for homeowners

and 105% for nonhomeowners. Annual

expenses per resident

increased by 39% for

homeowners and by 69%

for non-homeowners.

Agency for Healthcare Research and Quality

32

Medical Expenditure Panel Survey

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$13,002

Own home

$18,096

Do not own home

$14,568

$24,673

1987

1996

$0

$20

$40

$60

$80

$100

$120

$140

$56

Own home

$135

Do not own home

$55

$113

Annual expense per resident

Expense per resident day

Do nursing home expenses vary by

whether residents own a home?
. .

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.

.

.

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.

.

.

.

.

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.

. . .

• In 1987 and 1996, residents

covered by Medicaid had higher

annual nursing home expenses

per resident but, at the same

time, lower annual expenses per

resident day, than residents not

covered by Medicaid. This

relationship appears to be more

pronounced in 1996. Residents

with Medicaid tended to have

longer lengths of stay (data not

shown).

• From 1987 to 1996, annual

expenses per resident day

increased 94% for those with

Medicaid and 159% for those not

covered by Medicaid. Annual

expenses per resident increased

for both groups, but they

increased more for those with

Medicaid (74%) than for those

without Medicaid (53%).

Agency for Healthcare Research and Quality

33

Medical Expenditure Panel Survey

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$15,217

Medicaid

$26,549

No Medicaid

$11,750

$18,026

1987

1996

$0

$20

$40

$60

$80

$100

$120

$140

$160

$53

Medicaid

$103

No Medicaid

$61

$158

Annual expense per resident

Expense per resident day

How do nursing home expenses vary by

residents’ Medicaid status?
. . .

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.

. . .

Functional disability was

measured by whether residents

received help with activities of daily

living (ADLs)—bathing, dressing,

walking, transferring, feeding, and

toileting. See the “Definitions of

Terms” section for more

information.

• Residents with the most ADL

limitations had the greatest total

annual expenses in both 1987

and 1996.

• The annual cost of nursing home

care per resident was significantly

greater in 1996 than in 1987 for

all levels of functional disability,

but not for residents with no

ADL limitations.

• In both 1987 and 1996, there

was a general trend upward in

annual expenses per resident day

as the number of ADL

limitations increased. However,

in 1996, residents with no ADL

limitations had expenses per

resident day of $141, the highest

of any category.

Agency for Healthcare Research and Quality

34

Medical Expenditure Panel Survey

What are the nursing home expenses for residents

with different levels of functional disability?
. .

.

.

.

.

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.

. . .

Agency for Healthcare Research and Quality

35

Medical Expenditure Panel Survey

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$1.5

$3.9 $3.8

$8.7

Annual expenses in billions

1987

None

1-2

3-4

5 or more

$4.3

$18.5

$11.7

$45.7

1996

Number of activities of daily

living in which help received:

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$11,664

$13,883$14,917$13,862

Annual expense per resident

$0

$20

$40

$60

$80

$100

$120

$140

$160

$46 $49

$56 $59

Expense per resident day

$13,170

$21,863

$23,640 $23,834

$99

$141

$122 $114

1987 1996

1987 1996

What are the nursing home expenses for residents

with different levels of functional disability?

(continued)
. . .

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.

. . .

Functional disability was

measured by whether residents

received help with activities of daily

living (ADLs)—bathing, dressing,

walking, transferring, feeding, and

toileting. See the “Definitions of

Terms” section for more

information.

• In 1996, residents with no ADLs

tended to rely more heavily on

Medicare and private insurance as

sources of payment and less on

Medicaid and self-payment when

compared to residents with ADL

limitations (private insurance and

self-payment data not shown).

This population was also more

likely than the functionally

disabled population to reside in

hospital-based nursing homes as

opposed to other types of

nursing homes (data not shown).

• Medicare paid a significant

portion of the nursing home bill

in 1996, although it played only

a minor role in 1987. In

particular, residents with no

ADLs or with three or more

ADLs had approximately onefifth to one-quarter of their bill

paid for by Medicare in 1996.

The proportion of annual

expenses per resident paid by

Medicaid was generally relatively

stable.

• In both years Medicaid paid for

approximately half of the

expenses for all functional

limitation categories with one

exception. In 1996, Medicaid

paid for only 29.1% of expenses

for residents with no ADLs, a

decrease from 43.6% in 1987.

Agency for Healthcare Research and Quality

36

Medical Expenditure Panel Survey

Has the share of expenses paid by public

funding changed for residents with different

levels of functional disability?
. .

.

.

.

.

.

.

.

.

.

.

.

.

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.

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.

. . .

Agency for Healthcare Research and Quality

37

Medical Expenditure Panel Survey

Has the share of expenses paid by public

funding changed for residents with different

levels of functional disability? (continued)

0%

10%

20%

30%

40%

50%

60%

1.3%

None

25.8%

3-4

0.8%

10.6%

1987

1996

Medicare payments as a percent of total nursing home payments

1.3%

20.6%

2.3%

19.4%

1-2 5 or more

Number of activities of daily living in which help received

0%

10%

20%

30%

40%

50%

60%

29.1%

49.5%

43.6%

48.9%

Medicaid payments as a percent of total nursing home payments

None 1-2 3-4 5 or more

Number of activities of daily living in which help received

43.6%

50.1% 49.8%

44.2%
. . .

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. . .

• Total annual expenses for

residents having either no mental

conditions or dementia increased

from 1987 to 1996. Residents

with other mental conditions had

the lowest total annual expenses

for both years.

• Annual expenses per resident

increased by over $10,000 from

1987 to 1996 for both residents

with dementia and those with

other mental conditions, and

annual expenses per resident day

increased by approximately $55

for these two groups. While

annual expenses per resident for

those with no mental conditions

increased by 55% (slightly less

than $7,000), annual expenses

per resident day for this group

increased at a much higher rate,

by more than 130% (almost

$75).

• Residents with no mental

conditions had the lowest annual

nursing home expenses per

resident of any group for both

years, but their 1996 annual

expenses per resident day were

the highest of any category in

either year ($129). This

relationship is consistent with

such residents receiving nursing

home services of a greater

intensity than other residents.

Agency for Healthcare Research and Quality

38

Medical Expenditure Panel Survey

Do nursing home expenses vary by

residents’ mental health status?
. .

.

.

.

.

.

.

.

.

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.

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.

.

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.

. . .

Agency for Healthcare Research and Quality

39

Medical Expenditure Panel Survey

Do nursing home expenses vary by residents’

mental health status? (continued)

$0

$5

$10

$15

$20

$25

$30

$35

$11.7 $12.4

$30.2

$28.4

Annual expenses in billions

1987

None

Dementia

Other

$4.1

$11.3

1996

Mental conditions:

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$12,193

$15,600 $14,668

Annual expense per resident

$0

$20

$40

$60

$80

$100

$120

$140

$55 $57

Expense per resident day

$18,951

$27,098

$24,747

$54

$129

$116

$109

1987 1996

1987 1996
. . .

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.

.

. . .

• In 1996, Medicare paid a greater

portion (28.9%) of annual nursing

home expenses per resident for

those with no mental conditions

than it paid for residents with

dementia or other mental

conditions in either year.

Reimbursement by Medicare is

indicative of nursing home

residents who are more likely

than those whose care is

reimbursed by other sources to be

recovering from conditions

requiring a greater intensity of

services: acute illness, trauma, or

surgery (Shaughnessy and

Kramer, 1990).

• The share of annual nursing

home expenses that Medicaid

paid for residents with no mental

conditions declined from 45.2%

in 1987 to 35.9% in 1996.

Agency for Healthcare Research and Quality

40

Medical Expenditure Panel Survey

Does the share of expenses paid by public

funding vary by residents’ mental health status?

0%

10%

20%

30%

40%

50%

60%

2.9%

No mental conditions

28.9%

1.2%

1987

1996

0%

10%

20%

30%

40%

50%

60%

35.9%

54.9%

Medicare payments as a percent of total nursing home payments

Medicaid payments as a percent of total nursing home payments

9.8%

1.4%

15.0%

Other conditions

45.2%

50.3% 52.0%

45.9%

Dementia

No mental conditions Dementia Other conditions
The data presented

in this report show

the following:

Medical Expenditure Panel Survey Agency for Healthcare Research and Quality

.

.

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.

. . . . .

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.

conclusions

41

Total annual expenses increased by

150% from 1987 to 1996 ($28 billion

to $70 billion) and annual expenses

per resident day increased by a little

over 111% ($56 to $118).

The share of total annual nursing

home expenses paid for by Medicare

rose from 1.9% in 1987 to 18.9% in

1996.

Minorities relied more heavily on

public sources of funding for nursing

home care than the group of whites

and others did. Medicare increased

as a source of funding for all ethnic

and racial groups, especially

Hispanics, in 1996.

Annual expenses per resident day

were greatest in hospital-based

nursing homes and smaller nursing

homes. Nursing homes in the

Northeast and West had higher

annual expenses per resident day

than nursing homes in the South and

Midwest in both 1987 and 1996.

Residents with higher annual

expenses per person tended to have

lower annual expenses per resident

day and longer lengths of stay. This

may indicate that such residents

received nursing home care of a

lesser intensity, and of a more

custodial nature, than other

residents. These residents include

women and residents who are not

married, do not own a home, or are

covered by Medicaid.

Residents with no functional

limitations and those with no mental

conditions tended to have higher

annual expenses per resident day

and lower annual expenses per

resident, as well as shorter lengths of

stay. Such residents may have

received a greater intensity and

concentration of nursing home

services than others did. Medicare

was a major source of payment for

these residents.
Congressional Budget Office (US). Policy

choices for long-term care. Washington:

Congressional Budget Office; 1991.

Laliberte L, Mor V, Berg K, et al. Impact

of the Medicare Catastrophic Coverage

Act on nursing homes. The Milbank

Quarterly 1997; 75(2):203-33.

Levit K, Lazenby H, Braden B, et al.

National Health Expenditures, 1996.

Health Care Financing Review 1997

Fall; 19(1):161-200.

Porter M, Witek J. The nursing home

industry: past, present, and future.

Topics in Health Care Finance 1991;

17(4):42-8.

Shaughnessy P, Kramer A. The increased

needs of patients in nursing homes and

patients receiving home health care.

The New England Journal of Medicine

1990; 322(1):21-7.

Strahan B. Nursing home characteristics:

preliminary data from the 1985 National

Nursing Home Survey. Hyattsville

(MD): National Center for Health

Statistics, 1987. Advance Data From

Vital and Health Statistics, No. 131.

DHHS Pub. No. (PHS) 87-1250.

Strahan B. An overview of nursing homes

and their current residents: data from

the 1995 National Nursing Home

Survey. Hyattsville (MD): National

Center for Health Statistics, 1997.

Advance Data From Vital and Health

Statistics, No. 280. DHHS Pub. No.

(PHS) 97-1250.

Please consult the MEPS Web site at

http://www.meps.ahrq.gov/

for an updated publications list or

additional copies of this publication.

Contact the MEPS information

coordinator at AHRQ (301-594-3075)

for additional information.

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references

Agency for Healthcare Research and Quality

42
Note 1: Annual expenses per resident day

increased 111% from 1987 to 1996. This

increase from $56 to $118 represents an

average annual increase of 8.6%. Annual price

inflation accounts for 6.4 percentage points of

the increase in annual expenses per resident

day. According to the Bureau of Labor

Statistics, the Medical Care Consumer Price

Index for all urban consumers was 130.1 for

1987 and 228.2 for 1996, with the 36-month

period between 1982 and 1984 serving as a

baseline. The 2.2 percentage point difference

between the rate of increase of annual

expenses per resident day (8.6%) and the

inflation rate (6.4%) over the same period may

reflect, in part, an increase in the intensity and

concentration of nursing home services

delivered to residents. This is supported by

the observation that while the number of

residents increased by 53.7%, from 2.0 million

in 1987 to 3.1 million in 1996 (and

concurrently the population 65 and over

increased 13.7%), the average length of stay

declined by 23.0% (from 248 days to 191

days). At the same time, the number of

hospital-based nursing home beds increased

by 85.5%, and beds in freestanding nursing

homes increased 8.0%. In 1996, daily

expenses in hospital-based nursing homes

were $212 and daily expenses in freestanding

nursing homes were $111.

Note 2: The MEPS estimate of national

expenses for services in nursing homes is $70

billion, considerably less than the $89 billion

estimate for 1996 expenses from the National

Health Expenditures (NHE) of the Health

Care Financing Administration (HCFA). The

NHE figure includes approximately $1.5

billion in nonpatient revenues, including

philanthropic expenses, and $9 billion in

Medicaid payments to intermediate care

facilities for the mentally retarded (ICF-MR

expenses). These are excluded from the

MEPS estimate of nursing home expenses.

Thus the NHE estimate most comparable to

the MEPS estimate would be about $78.5

billion, or $8.5 billion more than the MEPS

estimate.

One must consider the following as

possible sources of the observed discrepancy

in expenditure estimates. • NHE estimates are facility-based

estimates. If a facility is defined as

providing nursing care, then all

revenues/receipts to that facility are

included in NHE expenditure estimates.

Expenses for unlicensed nursing home

beds (e.g., assisted living beds in an

assisted living unit) that are contained

within or associated with the nursing

home might be included in NHE

expenditure estimates. For MEPS,

approximately 10% of beds contained

within sampled nursing homes or

associated with them as part of a larger

facility were excluded from expenditure

estimates because they were identified as

unlicensed nursing home beds.

• The NHE estimates are more inclusive

with respect to how a nursing home is

defined. The following facilities were

included in the NHE but not in MEPS:

establishments primarily engaged in

providing some (but not continuous)

nursing and/or health-related care, such

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technical notes

43
as convalescent homes with health care

for psychiatric patients; convalescent

homes with health care; domiciliary care

with health care; personal care facilities

with health care; personal care homes

with health care; and rest homes with

health care. NHE estimates do not

provide expenditure totals for such

facilities separately.

• MEPS excludes nursing homes with fewer

than three beds, while NHE estimates

have no limitation specifically related to

the number of nursing home beds.

• MEPS estimates are based on 16,760

facilities, while NHE estimates are based

on 18,600—an additional 1,840 facilities. 

There are also differences in expense

estimate methodology. The MEPS estimate of

nursing home expenses is based on

information obtained from the billing records

of each facility used by a sampled person.

Total expenses for each person and the

amounts paid out of pocket and by third

parties were obtained from these records.

HCFA-generated NHE estimates involve

several steps: • The Census Bureau collects information

on State-level receipt/revenue for taxable

and tax-exempt private nursing and

personal care facilities from the 1992

Census of Service Industries.

• Expenses for 1996 are then generated

from the 1992 data by applying the

Census Bureau’s estimated annual growth

in taxable and tax-exempt

receipts/revenues for nursing and

personal care facilities. The Census

estimate is based on data obtained from

the Service Annual Survey.

• An estimate of expenses for government

facilities is added to the estimated

expenses for private facilities. Expenses

for government facilities were estimated

from Bureau of Labor Statistics wage data

for government nursing homes.

Government nursing home wages were

inflated to revenues based on wage-torevenue ratios for private nursing homes

that were developed from data collected

by the National Center for Health

Statistics in the 1977 National Nursing

Home Survey.

Note 3:“Other” sources of payment for

1987 are Supplemental Security Income,

Department of Veterans Affairs, other State or

local governments, and charity. “Other”

sources of payment for 1996 consist of

Department of Veterans Affairs, health

maintenance organization contracts, and

others.

Note 4: There are several possible reasons for

the observed shift in the major sources of

payment for total annual nursing home

expenses from 1987 to 1996 (almost a 900%

increase in Medicare). The Medicare

Catastrophic Coverage Act (MCCA) of 1988

(later repealed) altered eligibility and coverage

for skilled nursing facility (SNF) care. The

relaxed SNF eligibility criteria clearly allowed

for a substantial increase in Medicare coverage

of nursing home care. Other factors may

have contributed to Medicare’s increased role

in financing nursing home care beyond the

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Agency for Healthcare Research and Quality

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MCCA period. First, the 1988 clarification of

the definition of skilled care under the

Medicare SNF benefit may have resulted in

more covered services and fewer payment

denials by fiscal intermediaries. Second, the

1987 Omnibus Budget Reconciliation Act

(OBRA) mandated assessments of residents,

which went into effect in 1990, and required

that SNFs provide services to maintain the “highest practicable level of physical, mental,

and psycho-social well-being” for residents.

The mandated Resident Assessment System

may have helped facilities to better document

Medicare SNF eligibility and to increase the

number of resident days for which they

received Medicare reimbursement. Third,

OBRA also equalized staffing requirements

for Medicare and Medicaid. This eliminated

the incentive to remain a Medicaid-only

nursing facility because the same conditions of

participation applied to both programs,

providing a catalyst for bringing more

Medicare SNFs into the market. Fourth,

nursing homes, having geared up to provide

Medicare services to a larger proportion of

residents because of the MCCA, may have

had an incentive to continue providing those

services even after its repeal. Finally, these

data may reflect what has been described as an

increase in the number of individuals

requiring subacute and post-acute treatment

settings in response to hospitals’ continuing

efforts to reduce length of stay (Laliberte,

Mor, Berg, et al., 1997).

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Expenses

Expenses for nursing home care refer to

payments received for both basic services

(room and board) and ancillary services

(special supplies and services). Total annual

expenses are the sum of all sources of

payment received from or on behalf of

individuals who resided in a nursing home for

at least 1 day during 1987 or 1996.

Annual expenses per resident are derived by

dividing total annual nursing home expenses

by the total number of nursing home

residents. For example, annual expenses per

resident of $22,561 in 1996 were derived

(using unrounded values) by dividing the

approximately $70 billion in total annual

expenses by the approximately 3.1 million

total number of nursing home residents for

1996. 

Annual expenses per resident day were

derived by dividing total annual expenses by

the total number of resident days. For

example, annual expenses per resident day of

$118 in 1996 were derived by dividing the

approximately $70 billion in total annual

expenses by approximately 592 million

resident days.

Self-payment refers to total out-of-pocket

payments made by nursing home residents or

their families.

Type of nursing home

Freestanding nursing homes consist of

nursing homes with only nursing home beds.

Nursing homes with multiple levels of care

include continuing care retirement

communities and retirement centers that have

independent living and/or personal care units

in addition to nursing home beds.

Hospital-based nursing homes are nursing

homes that are part of a hospital or are a

hospital-based Medicare skilled nursing

facility.

Institutional status

Institutional status consists of six mutually

exclusive groups: • Sample persons residing in the nursing

home at midnight December 31, 1986 or

1995 who died by December 31, 1987 or

1996, respectively.

• Sample persons residing in the nursing

home at midnight December 31, 1986 or

1995 who remained in the nursing home

the entire year other than for short-term

hospital stays.

• Sample persons residing in the nursing

home at midnight December 31, 1986 or

1995 who were discharged from the

nursing home during 1987 or 1996,

respectively.

• Sample persons admitted to the nursing

home during either 1987 or 1996 who

died by December 31, 1987 or 1996,

respectively.

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definitions of terms

Agency for Healthcare Research and Quality

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• Sample persons admitted to the nursing

home during either 1987 or 1996 who

remained in the nursing home for the

remainder of the year other than for

short-term hospital stays.

• Sample persons admitted to the nursing

home during either 1987 or 1996 who

were discharged from the nursing home

during 1987 or 1996, respectively.

Income

Poverty status is the ratio of family income to

Federal poverty thresholds, which vary by

family size and age of the head of the family.

The categories are:

• Poor—This category refers to persons in

families with income less than 100% of the

poverty line.

• Low income—This category includes

persons in families with income from

100% through 199% of the poverty line.

• Middle income—This category includes

persons in families with income from

200% through 399% of the poverty line.

• High income—This category includes

persons in families with income of 400%

of the poverty line or more.

Activities of Daily Living

Functional disability was measured by

whether residents received help with activities

of daily living (ADLs)—bathing, dressing,

walking, transferring, feeding, and toileting.

When it was reported that an ADL did not

occur (e.g., the resident was unable to

perform the activity of daily living or was

comatose), residents were classified as

receiving assistance with the activity. In order

to be classified as independent in toileting,

residents who used wheelchairs had to be able

to transfer independently and those who did

not use wheelchairs had to be independently

mobile.

Medical Expenditure Panel Survey Agency for Healthcare Research and Quality

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47

www.ahrq.gov

AHRQ Publication No. 01-0029

June 2001

ISBN 1-58763-046-X

ISSN 1531-5649

PRSRT STD

POSTAGE & FEES PAID

PHS/AHRQ

Permit No. G-282