March 2023

Cost Savings from Home Care Relative to Nursing Homes

by Emily Eisner, Ph.D

Key Findings
- Home care for older adults receiving 40 hours of care per week costs $28,705 less, or
30% less, than a nursing home

- For older adults who require fewer hours of personal support (20 hours/week), home care
costs $33,280 less, or 65% less, than a nursing home

- 6% of New York’s nursing home residents are considered “low-care” — the state could
save as much as $500 million simply by expanding home care to better serve these older
adults at home

- By allowing for flexibility in the number of hours of care, and the services provided,
home care offers the state a more cost-effective approach than nursing homes

Introduction
Efficiently allocating resources to effectively and equitably take care of those in need is one of
the great challenges faced by the state of New York. Medicaid makes up one of the largest pools
of spending by the state of New York each year, and continues to grow due in large part to a
rapidly aging population of New Yorkers. Older adults in New York have a growing need for
care and assistance on daily tasks, while maintaining a preference for staying in their homes.
Home care provides a solution to the care needs of these New Yorkers while also representing a
cost-effective solution that will optimize Medicaid spending.

The current shortage of home care workers and nursing care workers has created insufficiencies
and inefficiencies in the care for older adults in New York state over recent years. This shortage
is due in large part to insufficient wages and benefits paid to home care workers.1 In New York,
home care workers are employed primarily by fiscal intermediaries that pay workers a wage that
varies depending on the number of hours they work, the precise nature of the work, and the
region in which they are employed. These home care agencies then are reimbursed by the state’s
Medicaid system, which pays for the vast majority of home care services. The Home Care
Association of New York State reported in 2019 that 87 percent of home care and personal care
services were covered by the New York Medicaid system.2 If the Medicaid reimbursement rates

1
Eisner, 2023.
2
HCA, 2019.

Association on Aging in New York | 515 Broadway STE 402 | Albany, NY 12207 1
do not adjust sufficiently to meet demand for home care workers, there will not be enough
workers to care for those in need. Similarly, a large proportion of nursing care is paid for via
Medicaid expenditures, and in the most recent state budgets, additional funds have been
allocated to improve nursing home care.

To fully evaluate the relative costs of care, one must compare the full cost of living in a nursing
home to the cost of living at home with home care workers. Additionally, one must consider that
there is a large range of needs for individuals over the age of 65 which calls for differentiation in
the amount of care needed. Finally, recent work by the AARP has demonstrated that older adults
overwhelmingly prefer staying in their homes and communities as they age.3 These preferences
should also be considered when considering the budget and efficient allocation of resources for
the care of older adults.

According to this analysis, the cost of home care for older adults receiving 40 hours of care
per week costs 30% less than the nursing care. Home care is more affordable, in particular, for
older adults whose needs are not so high as to require full-time medical assistance in a nursing
home. While nursing care may still be needed for some who require a high level of care, the
state would save significantly by building pathways through which older adults can access
care from their own homes and communities, rather than moving to a nursing home.

New York Medicaid Costs for Older Adult Care

Currently, the Medicaid reimbursement rate for nursing care in the state of New York averages
$261 per day.4 If an individual is residing in the average facility for an entire year, this costs the
state $95,265 per year. The per-day cost of nursing care in the state varies by facility and region
and ranges from $145 to $636, which means that at a minimum, the state is paying $53,000 per
year to take care of a single older adult in a nursing home and at maximum the state is paying
$232,000 per year to take care of a single older adult.

We can use the New York Department of Health’s listings of the approved hourly reimbursement
rate for personal care services (which makes up a large proportion of the home care workforce)
to approximate the cost of home care for the state.5 A cost comparison between home care and
nursing care is shown in Table 1. Taking into consideration the fact that many people receive less
than 40 hours of home care per week, nursing home care is approximately two times as
expensive as home care across the population. While nursing care costs on average $95,265
annually, home care for an individual receiving 40 hours of care each week costs $66,560/year,
or 30% less than nursing care. For the many individuals who require fewer hours of personal
support, home care costs $33,280 (for 20 hours), 65% less than the cost of nursing care. It is only
in the rare instance of an individual getting more than 60 hours per week of one-on-one home
care that the cost of home care becomes less cost effective than nursing care.

3
Binette, Joanne, 2021
4
New York Department of Health, Long-Term Care Medicaid Reimbursement documentation. Accessed March 24, 2023.
https://www.health.ny.gov/facilities/long_term_care/reimbursement/nhr/
5
The question of whether having fiscal intermediaries between the state and home care workers is cost efficient is outside the scope of this article.
However, it is worth considering in future work how to best curtail administrative bloat that is costly to the state, workers, and care recipients.

Association on Aging in New York | 515 Broadway STE 402 | Albany, NY 12207 2
Table 1. Cost comparison of home care versus nursing care.
Type of Care Average Medicaid Rate Savings ($$) Savings (%)

Nursing Care $95,265/year — —

Home Care (20 hrs per week of $33,280/year $61,985/year 65%

personalized assistance)

Home Care (30 hrs per week of $49,920/year $45,345/year 48%

personalized assistance)

Home Care (40 hrs per week of $66,560/year $28,705/year 30%

personalized assistance)

To understand the large discrepancies in cost, one must consider the full set of services being
provided by each type of care, summarized in Table 2. Nursing care not only provides skilled
medical care but also includes housing, meals, electricity, and other basic needs. Home care
provides home-making services and hands-on help in doing tasks like getting dressed, going to
the bathroom, and bathing. Home care frequently does not provide specialized medical care,
though home care workers are trained to help with medication regimens and basic safety and first
aid. These differences in services provided account for the majority of the cost difference
between nursing homes and home care.

For most families of older adults, home care represents a cost effective solution. Fully assessing
the costs of home care versus a nursing home requires individual-specific information about the
cost of living if the individual stays in their home. In New York, 64% of individuals over the age
of 60 own their own homes and have no mortgage.6 Thus for the majority of older adults, moving
to a nursing home dramatically increases the cost of housing for these individuals and depletes
their assets. By offering expanded home care services without forcing individuals onto Medicaid,
the state would save families from heightened costs.

From the perspective of the state budget, having individuals stay in their homes saves the state an
immense amount of funds by removing the total cost of housing and food from the state’s
budget. Many individuals do end up participating in subsidized meal delivery programs, but by
offering services in an “a la carte” fashion, the state avoids over-spending on costs that can be
borne by the family in question. Further, providing flexibility in the number of hours that a home
care worker provides for an older adult adds another layer of cost efficiency; by better targeting
the needs of an older adult, the state can save money by not having the cost of 24-hr care for
those who do not need that level of assistance.

6
Binette, Joanne, 2021

Association on Aging in New York | 515 Broadway STE 402 | Albany, NY 12207 3
Table 2. Comparison of services provided by home care versus nursing care.
Home Care Nursing Home Care

Hands-on care Included Included

Food preparation Included Included

Other home-making tasks (eg. laundry, Included Included

cleaning, etc)

Basic medication management support Included Included

24-hour care Depending on need Included

Food costs Not included Included

Shelter/Housing costs Not included Included

Utility costs Not included Included

Skilled nursing care Not included Included

By allowing for flexibility in the number of hours of care, and the services provided, home
care offers a more cost-effective approach for the state to fund, particularly for individuals
who do not need round-the-clock care. Further, because aging in place is highly desirable
amongst older adults, it represents a welfare-maximizing choice that improves quality of life for
older adults in addition to being cost effective.

Variation in needs across the older adult population.

As described in the previous section, the care-taking needs of older adults vary dramatically and
change over time. Figure 1 illustrates that there are a large spectrum of care needs among older
adults. In Figure 1, individuals represented between the dashed-orange and dashed-red lines
would be capable of staying in their homes, were home care workers available. However, due to
a severe shortage in the state, these individuals are forced to enter nursing homes at a very high
cost relative to what they would be spending on home care. According to the Association on
Aging, a review of outcomes for 2,200 New York case files for people on waiting lists, 10% of
adults on waiting lists for home care go directly to nursing care. These individuals would cost
the state less in Medicaid funds and would sustain a higher level of independence for longer in
their lives.

Association on Aging in New York | 515 Broadway STE 402 | Albany, NY 12207 4
Figure 1. Not all individuals need to be in a full-time nursing home, but many have entered one
due to the lack of available home care.

Data from LTC Focus, a research group collecting data on long term care in the US, shows that
in many New York counties, 6% - 9.5% of nursing home residents are considered to be “low
care,” meaning that they do not necessarily need all of the services available to them at the
nursing home. It is possible that some of these individuals chose nursing care intentionally.
However, given that about 75% of older adults state that they’d prefer to stay in their homes, it is
likely that many of these individuals did not have a sufficient home care option.7 If New York
were to expand programs to pay for home care, the state would avoid the more expensive cost of
housing and caring for adults in nursing homes who are not in need of that level of care.
Figure 2. The percentage of residents of nursing homes considered to be “low care”.8

7
Binette, 2021.
8
Data from the LTCFocus, 2018.

Association on Aging in New York | 515 Broadway STE 402 | Albany, NY 12207 5
Additionally, previous research has found that the expansion of home care resulted in a drop in
the number of low-care residents in nursing homes. The research demonstrates that for every
additional 1% of people accessing home care services, there was a 0.8% decline in the low-care
nursing home population.9 This result demonstrates the fact that many of the low-care
individuals in nursing homes would substitute home care for nursing care were it an option.

Estimating Potential Cost Savings from Home Care Expansion.

Based on the cost differential between nursing homes and home care, and the data from the
previous section regarding how many low-care individuals are currently occupying nursing
homes, we can construct an estimate of the savings from expanding home care. Previous research
has found that when home care is expanded, for every 1% increase in the number of individuals
receiving home care, there is a 0.8% decline in the number of individuals receiving nursing care.
There are an estimated 113,000 people currently in nursing homes in New York, and data
suggests that about 6% of these individuals are considered “low-care.” Taken together, these
statistics suggest that the state could save as much as $500 million simply by expanding home
care to better serve older adults in need. This comes from the fact that for each individual that
receives home care, we expect a decrease in the nursing home population by about one
individual. Assuming that all of the “low care” individuals could be served as well or even
better by home care at a lower cost, we find that the state could save as much as $500
million by expanding home care services.

Figure 3 illustrates the current path for most older adults in New York, which requires
individuals and families to spend down their family’s savings and assets before qualifying for
Medicaid. This path is costly for both the state and for families because it requires families to
spend down all savings, and increases the number of individuals who are reliant on the state’s
Medicaid system. Recent piloted programs around the state show that costs can be dramatically
reduced by an “early intervention” model that provides home care to older adults before full
nursing care is needed and before they spend down assets to the point of becoming Medicaid
eligible. In an effort to reduce wait lists for home care and better serve older adults, ten counties
in New York implemented a county-run home care program in which home care workers were
hired by the county directly to meet the needs of older adults before requiring Medicaid
eligibility. Eleven other counties established an exclusive arrangement with a licensed home care
agency and also provided care to individuals who were not eligible under Medicaid. A survey by
the Association on Aging in New York found that wait lists for home care were dramatically
reduced or even eliminated under these two programs. Figure 4 shows that of the 21 New York
counties that established either a direct hiring system or an exclusive arrangement with a licensed
home care agency, 19 were able to reduce or eliminate their waitlists for home care. Of the ten
remaining counties that answered the survey, only 3 were able to reduce their waitlists, a much

9
Thomas KS. The relationship between older Americans act in-home services and low-care residents in nursing
homes. J Aging Health. 2014 Mar;26(2):250-60. doi: 10.1177/0898264313513611. Epub 2013 Dec 10. PMID:
24336233; PMCID: PMC4112387.

Association on Aging in New York | 515 Broadway STE 402 | Albany, NY 12207 6
lower proportion than those that implemented a direct hiring program. Overall, this survey
provides evidence that expanded home care services can improve service provisions for older
adults across the state at a low cost.

Figure 3. An early intervention model of meeting home care needs would save both the state and
families money and would result in more individuals getting the care they require.

Figure 4. An early intervention model of meeting home care needs would save both the state and
families money and would result in more individuals getting the care they require.

Association on Aging in New York | 515 Broadway STE 402 | Albany, NY 12207 7
Conclusion.
Current allocations of care across older adults are failing to meet the needs of the aging
population and also fail to meet efficient cost standards. Without investment in a strong,
high-quality workforce of home care workers, many older adults will continue being forced into
nursing care, a higher cost and less favorable choice. Because of the market structure, many
older adults will also find themselves needing to spend down their assets fully until they are on
Medicaid and the state is providing the full cost of the care. This is costly both for individuals as
well as for the state, but it does not have to be so common. In fact, the New York Association for
the Aging reports that in the past couple of years, a handful of counties around the state have
implemented programs to directly employ home care workers at higher wages, with benefits, and
with transportation assistance. By providing home care at a relatively low cost to individuals
who are not yet Medicaid eligible, the state circumvents needing to provide the full cost of
nursing care. Under these programs, waitlists for home care have been reduced dramatically at a
relatively small cost. To better understand these models and whether they can effectively be
expanded to the state more generally, one would have to do a more in-depth study. Nonetheless,
they provide a promising direction for the state to use to reduce costs and improve care and
quality of life for older adults.

References.

Binette, Joanne. 2021 Home and Community Preference Survey: A National Survey of Adults Age
18-Plus. Washington, DC: AARP Research, November 2021. https://doi.org/10.26419/res.00479.001

Division of Research and Statistics, New York Department of Labor, “The Health Care Sector in New
York State.” June 2016. Accessed Feb. 2023.

Eisner, E. “​​Workforce Report: Labor Shortage Mitigation in New York’s Home Care Sector,” Fiscal
Policy Institute. March 2023.
https://fiscalpolicy.org/wp-content/uploads/2023/03/Fiscal-Policy-Institute-March-2023-Workforce-Repor
t-Labor-Shortage-Mitigation-in-New-Yorks-Home-Care-Sector.pdf

Home Care Association of New York State (HCA), “State of the Industry 2019: Financial Condition and
Trends in Home and Community-based Care.” February, 2019. Accessed February, 2023.

Long Term Care: Facts on Care in the US. Brown University. Accessed March 23, 2023.
https://ltcfocus.org/

Thomas KS. The relationship between older Americans act in-home services and low-care residents in
nursing homes. J Aging Health. 2014 Mar;26(2):250-60. doi: 10.1177/0898264313513611. Epub 2013
Dec 10. PMID: 24336233; PMCID: PMC4112387.

Association on Aging in New York | 515 Broadway STE 402 | Albany, NY 12207 8