How to Pay for Adult Day Care: 7 Funding Sources Explained

Adult day care costs an average of $85 per day nationally, but many families pay far less — or nothing at all — by tapping into public benefits, insurance, and tax advantages. Here are the seven most common funding sources and how to access each one.

1. Medicaid Home and Community-Based Services (HCBS) Waivers

Medicaid is the most common funding source for adult day care in the United States. Most states offer Medicaid waiver programs that cover adult day services for individuals who meet financial and functional eligibility requirements.

These waivers — authorized under Section 1915(c) of the Social Security Act — allow states to pay for community-based services like adult day care instead of more expensive nursing home care. Eligibility typically requires that the participant:

Meets the state's Medicaid income and asset limits
Requires a nursing-facility level of care (as determined by a functional assessment)
Chooses to receive services in the community rather than in a facility

Every state has its own waiver program with different names, eligibility rules, and covered services. Contact your state's Medicaid office or your local Area Agency on Aging to find out what programs are available and how to apply. High-enrollment states like New York, California, and Florida have multiple waiver programs covering adult day care.

2. Private Pay (Out-of-Pocket)

Many families pay for adult day care directly until they qualify for other benefits or until a long-term care insurance policy's elimination period has passed. Private-pay rates are set by each center and typically range from $70–$165 per day depending on location and program type.

Some centers — particularly nonprofit and community-based organizations — offer sliding-scale fees based on income. Always ask about financial assistance when you first contact a center.

3. Long-Term Care Insurance

If your loved one purchased a long-term care (LTC) insurance policy before needing care, it may cover adult day services. Most LTC policies issued after 2000 include adult day care as a covered benefit, but the specific terms vary by policy.

Key things to check in the policy:

Benefit triggers: Most policies pay out when the person cannot perform 2 of 6 Activities of Daily Living (ADLs) or has cognitive impairment.
Elimination period: Most policies have a waiting period (often 30–90 days) before benefits begin.
Daily or monthly benefit amount: Confirms the maximum the policy will pay per day or month for adult day care.
Inflation protection: Older policies without this rider may not keep up with today's costs.

Contact the insurance company to initiate a claim and ask about their approved provider requirements.

4. VA Benefits for Veterans

The Department of Veterans Affairs operates the Adult Day Health Care (ADHC) program, which provides medically-oriented adult day services to eligible veterans at VA-contracted centers — often at no cost to the veteran.

Veterans who do not qualify for VA ADHC directly may be able to use the Aid and Attendance pension benefit to help pay for adult day care. Aid and Attendance is available to veterans and surviving spouses who need assistance with daily activities and meet income and asset criteria.

See our full guide to VA benefits for adult day care for enrollment steps and eligibility details.

5. Area Agency on Aging (AAA) Assistance Programs

Every region of the United States has an Area Agency on Aging, funded through the Older Americans Act. AAAs often administer local subsidy programs that help lower-income older adults pay for adult day care — even if they don't qualify for Medicaid.

Services and eligibility vary by region, but assistance programs commonly provide:

Partial subsidies or vouchers for adult day services
Caregiver respite funding through the National Family Caregiver Support Program
Case management to connect families with appropriate programs

Find your local AAA at eldercare.acl.gov or by calling the Eldercare Locator at 1-800-677-1116.

6. PACE (Program of All-Inclusive Care for the Elderly)

PACE is a comprehensive Medicare and Medicaid program that covers virtually all care needs — including adult day services — for eligible participants. If your loved one qualifies for PACE, the program covers adult day care as part of a broader care package that includes medical visits, hospital care, medications, and home care.

PACE is available in most states but only in specific service areas. Eligible participants are 55 or older, require nursing-home level of care, and live in a PACE service area. For those who qualify, PACE can eliminate out-of-pocket adult day care costs entirely.

Learn more in our complete guide to the PACE program.

7. Tax Deductions and Pre-Tax Benefits

Adult day care expenses may generate significant tax savings for families through two federal provisions:

Medical Expense Deduction

If the adult day care is medically necessary (as determined by a physician) and your total medical expenses exceed 7.5% of your adjusted gross income, the excess is deductible on Schedule A. This applies to medical adult day programs specifically.

Dependent Care FSA

If you are employed and your loved one qualifies as your tax dependent, you may pay adult day care expenses from a pre-tax Dependent Care Flexible Spending Account (up to $5,000/year). This effectively reduces costs by your marginal tax rate.

Tax tip: The Dependent Care Tax Credit and the FSA cannot both be used for the same expenses. Consult a tax professional to determine which option provides greater savings in your situation.