Proposed CMS Rule Upholds Exclusion of Nursing Home Custodial Care From Essential Benefits

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.