Proposed CMS Rule Upholds Exclusion of Nursing Home Custodial Care From Essential Benefits
•February 11, 2026
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Why It Matters
The proposal preserves the split between health insurance and long‑term care, shifting cost burdens to states and potentially raising out‑of‑pocket expenses for seniors. It also reflects a federal effort to curb marketplace premiums and fraud, shaping future Medicaid and long‑term‑care policy.
Key Takeaways
- •CMS proposal keeps custodial care outside essential benefits
- •ACA marketplace plans not required to cover long‑term custodial stays
- •Rule aims to lower premiums and expand plan flexibility
- •States retain authority to fund custodial care outside federal mandates
- •Public comments due March 11, 2027 proposal timeline
Pulse Analysis
The distinction between essential health benefits and long‑term custodial care has long defined the ACA marketplace’s coverage limits. By reaffirming that nursing‑home custodial services remain excluded, CMS signals that health insurers are not obligated to shoulder the rising costs of non‑medical long‑term care. This approach aligns with the agency’s broader strategy to contain premium growth while preserving state flexibility in addressing the aging population’s needs.
For insurers, the proposed rule unlocks product innovation by removing a one‑size‑fits‑all requirement, allowing carriers to design plans that focus on acute medical services and preventive care. Tighter standards for agents and brokers aim to reduce misleading sales tactics, which could further protect consumers and lower administrative overhead. States, however, may face increased fiscal pressure as they become the primary financiers of custodial care, especially as Medicaid’s share of nursing‑home reimbursement—62.2% in 2024—faces potential cuts under the One Big Beautiful Bill Act.
The policy shift arrives amid broader debates over Medicaid reform and the sustainability of long‑term‑care financing. As federal subsidies for state‑mandated benefits shrink, the burden on state budgets and private payers could rise, prompting calls for innovative financing models such as hybrid Medicare‑Advantage plans or private long‑term‑care insurance. Stakeholders must monitor the public‑comment period and prepare for a landscape where health‑insurance products are more streamlined, but the responsibility for custodial care increasingly rests with state programs and individual consumers.
Proposed CMS Rule Upholds Exclusion of Nursing Home Custodial Care From Essential Benefits
Proposed regulations to lower health care costs announced this week by the Centers for Medicare and Medicaid Services (CMS) appear to reinforce the existing boundary between health insurance and long-term care: that long-term nursing home care isn’t a required health benefit.
The Notice of Benefit and Payment Parameters for 2027 proposal makes it clear that long-term care, or custodial care, isn’t considered an “essential health benefit” that health plans need to cover – this applies now and under the proposed rules for future plan years, CMS said.
In other words, the proposed regulations maintain that health insurance plans sold through the Affordable Care Act marketplace don’t need to cover long-term care stays when the care is custodial rather than medical, or short-term rehabilitation.
The agency is asking for public comments on the proposed rule by March 11.
At a higher level, the proposed regulations would expand insurance plan flexibility and innovation by eliminating standardized requirements while also strengthening oversight and eligibility verification via tighter standards for insurance agents and brokers to prevent deceptive marketing, CMS said.
As for controlling costs, CMS said limiting federal subsidies for state-mandated benefits would help with rising premiums.
Health and Human Services Secretary Robert F. Kennedy Jr. said the proposed rule will promote innovative coverage prioritizing prevention and long-term health, along with lowering premiums, expanding consumer choice and cracking down on fraud.
“This proposal puts patients, taxpayers, and states first by lowering costs and reinforcing accountability for taxpayer dollars,” CMS Administrator Dr. Mehmet Oz said in a statement. “We are cracking down on improper and misleading practices while giving states and health plans more room to innovate and compete. The goal is simple: lower costs, more choice, and exchanges that work as intended.”
But states have flexibility when it comes to insurance coverage of custodial, or long-term care, covering such services outside of the essential health benefit framework, CMS said. In this case, the state, not the health plan, would absorb the added cost of long-term care.
And this state flexibility may be strained in future years, particularly when considering coverage in the context of Medicaid cuts under the One Big Beautiful Bill Act (OBBBA). The law’s roughly $1 trillion in Medicaid cuts over a decade is expected to indirectly affect the Medicaid rate for SNFs, considering reductions in federal match work requirements and eligibility tightening.
Medicaid made up 62.2% of nursing home reimbursement in 2024, according to CliftonLarsonAllen’s (CLA) December cost comparison report.
The post Proposed CMS Rule Upholds Exclusion of Nursing Home Custodial Care From Essential Benefits appeared first on Skilled Nursing News.
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