Nursing homes represent the fastest growing component of health care expenditures, over half of which come from public funds. This paper reviews research on nursing home utilization with regard to several policy issues concerning the subsidization of long-term care by Medicaid. As a background, the paper defines and contrasts three concepts; need, demand, and utilization. It then indicates how Medicaid policies regarding reimbursement of homes and eligibility for support can result in a chronic shortage of beds and describes the estimated effects on utilization of eight variables: Medicaid generosity, age structure, family resources, racial composition, residence, financial capability of the elderly, price of nursing home care and alternative sources of care. The paper concludes that there is a need for: subsidization of a more comprehensive set of long-term care services, a review of reimbursement policies, and improved methods of allocating existing nursing home beds among persons desiring care.