Did the sale of the house cause the taxable income?  Generally Medicaid recipients are nonfilers because they would not qualify if they had enough income to owe tax.  How long since they moved out of the house?  In any case, I don't think Medicaid pays any expenses that do not qualify as medical, so yes it would be deductible.  In some states the amount is based on a pro-rata amount, so everyone pays the same amount regardless of how little or how much is spent on them, but that would still keep it in the nature of an insurance policy.