The Medicaid system (also called Welfare, Medical Assistance, Medi-Cal, and a variety of other names) was also developed in 1965, and is intended to provide comprehensive health care to people who have no income or assets to cover the costs of their own care. It is funded half by the federal government and half by the states, and each state has broad flexibility to establish payment rates, determine eligibility, and decide what services they will cover under the program. This is the only government program that provides for long term care, including nursing home stays of any length, prescription drugs, and some in-home and assisted living services.
The current regulations do not consider the value of a personal residence in calculating whether someone is poor enough to qualify for Medicaid, even though the equity in their home is the largest asset that most older people have. Since that value is excluded in the Medicaid eligibility determination, someone with significant equity in a home might be able to qualify for Medicaid. Nursing home residents may be on Medicaid because they had no assets prior to entering a nursing home, or because they exhausted their assets paying for the care once they got there. In addition, many attorneys provide information to people who would otherwise not qualify for Medicaid on how they can gift or re-structure their income and assets so that the government will pay for the cost of their nursing home stay. For one or another of these reasons, about 70% of the people in nursing homes today are on the Medicaid rolls.
The future of Medicaid is much less clear than the future of Medicare. Unlike Medicare and Social Security, there is no "trust fund" for Medicaid expenses, it's a strictly pay-as-you-go system. Because the states provide half the funding, the program is subject to fiscal pressures when either the federal government or the states have budget problems. There have already been a number of crisis situations in various states when they were forced to make major changes in Medicaid services or reimbursement in order to balance their budgets. Those pressures are likely to increase as more and more people get old enough to require expensive services like nursing home care.