This paper analyses the impact of Medicaid home care benefits on the probability of nursing home entry and the use of formal and informal home care by disabled elderly remaining in the community. Using data from the National Long‐Term Care Survey, I find evidence that Medicaid home care subsidies reduced the probability of nursing home entry among at‐risk elderly using formal home care. Among non‐in‐stitutionalized persons, the subsidy increased the use of formal home care but led to substitution of informal with formal care for services that were non‐medical