BURLINGTON, Vt. -- While a patient at a nursing home here, Albert Blow picked up the phone one day in 2004 and called his ex-wife. "If I had a gun," he said, "I would shoot myself."

Mr. Blow, a former security guard felled by a heart attack and stroke, had gone to the nursing home for what he hoped would be a few months of rehabilitation. Paralyzed in an arm and a leg, his stay grew to more than a year. He feared he would never live independently again.

Now Mr. Blow, 71 years old, is back in his own place, thanks to an unusual Vermont experiment that seeks to shift government money from nursing homes into private homes. The state pays for his ex-wife to care for him.

In an effort being watched around the nation, Vermont is trying to give elderly people a choice of where they want to be cared for: in an institution or at home. To create more home-care workers, the state has been paying for family members to care for aging relatives, at about $10 an hour. If Vermont's program works, it could influence a wider change in the multibillion-dollar industry that cares for the aged.

"We are never going to build another nursing home," says Patrick Flood, commissioner of Vermont's Department of Disabilities, Aging and Independent Living. "It is an outdated model."

As the number of older Americans -- and the cost of caring for them -- soars, the federal government is pushing efforts like the one in Vermont. Advocates say in-home care could improve the lives of many seniors, while saving the government money. But the idea faces huge hurdles, including opposition from the nursing-home industry and a culture of dispersed, busy families that has become accustomed to having others care for their loved ones.

In July, the federal Centers for Medicare & Medicaid Services announced grants totaling $1.75 billion to states to encourage them to do what Vermont is doing -- find alternatives to institutional care. Besides home care, Vermont is encouraging assisted-living facilities, privately run boarding homes for seniors and elder day-care centers. All this would be a big change from the last four decades, during which nursing homes became the dominant, and often only, option for a frail senior dependent on federal programs.

For more than 40 years, federal law has said that poor seniors are automatically entitled to nursing-home care. That has sent hundreds of billions of dollars to nursing homes. But in-home care hasn't been considered an entitlement equally eligible for government funds.

"It is a crazy situation," says Vermont's Commissioner Flood. "The service that people don't want and is more expensive" is guaranteed by the government, while "the service people prefer and is cheaper, isn't."

According to a 2002 Vermont study, it cost the state $122 a day for a senior to be institutionalized versus $80 a day to receive care at home.

Vermont is one of the first states to get federal approval to offer home care as an option equal to nursing-home care under Medicaid, the government program that subsidizes health care for the poor. The state is calling home care an "entitlement." Under Vermont's "Choices for Care" program, Medicaid sets a budget limit for the state to care for seniors and people with disabilities. Vermont then uses a combination of federal and state money to reimburse in-home caregivers.

Mr. Blow says he found nursing-home life regimented and monotonous -- "all the same stuff, morning, noon and night," he says. While he once had a passion for poker, he says he lost interest in cards and other activities. He says he couldn't afford to hold on to his apartment or his car.

Medicaid allows nursing homes to use the income of patients -- such as Social Security or pension payments -- to help pay for their care. But that can add to the finality of their stay, says John Barbour, executive director of the Champlain Valley Agency on Aging, the nonprofit group that helped Mr. Blow get his own place. "It makes it impossible for people to go back home because for the most part they don't have the ability to maintain another residence."

Karen Gissendanner, a social worker with the agency, met Mr. Blow by chance. Her father-in-law was Mr. Blow's roommate. She recalls being struck by how despondent he seemed. "I saw him wilting and withering," she says. At the nursing home, "all they saw was a man who needed a lot of care," she says, "They didn't see the possibilities."

Kindred Healthcare Inc., a Louisville, Ky.-based for-profit chain that, through a subsidiary, manages and is part-owner of the nursing home where Mr. Blow lived, wouldn't discuss his case in detail, citing privacy concerns. A spokesman for Burlington, Vt.-based Fletcher Allen Health Care, a not-for-profit academic medical center that owns 50 percent of the nursing home, noted the "stressful" circumstances Mr. Blow found himself in and said "it is understandable that he would feel very distressed about his situation and his future." The spokesman added: "I am pleased to learn this patient is now in an appropriate residential situation that is far more satisfactory to him.'"'

In a statement, the nursing home itself, called Starr Farm Nursing Center, said it "is proud of the quality of care that was provided to Mr. Blow while a resident of our facility." Due to resident confidentiality, the facility said it can't comment on specifics of individual cases. It called the Choices for Care program a "forward-thinking initiative" and said it is "working with the state to find appropriate discharge options for our residents."

With help from the nonprofit agency, Mr. Blow moved out of the nursing home. His Social Security and pension money now go to pay for a one-bedroom apartment geared to the disabled. The state uses Medicaid funds, distributed through a home-health agency, to pay Charlene Anair, 56, his ex-wife, to care for him.

Their current arrangement, coming 16 years after their divorce, works better than their marriage did, both say. "I wasn't that good of a husband," Mr. Blow says. "I was never true to any woman."

"He put me through hell," says Ms. Anair, who was his third wife.

Yet, as a former licensed nurse, she was moved to see the man she had known as tough reduced to helplessness and despair. She now earns $9.27 an hour caring for him. Ms. Anair helps him dress, escorts him to cardiac therapy twice a week, shops for groceries, and even takes him to visit his parents' graves. Asked why she devotes herself to his recovery, she laughs: "I really don't know -- the nurse in me." She adds: "It is like this is where I am supposed to be."

Mr. Blow says he is making progress. Before, he could neither deal nor hold a hand of poker. Now he can at least hold the cards. He eats what he likes, when he likes. He recently took a bus trip to see the fall foliage. For his birthday last month, Ms. Anair got him a puppy named Odie.

On a sunny afternoon, Mr. Blow left his apartment in his motorized wheelchair, maneuvering streets on his way to his favorite destination: the Veterans of Foreign Wars hall. Inside a large dimly lit room with a bar, a pool table and a jukebox, friends gathered to play pinochle. Mr. Blow was greeted like a hero. "We deal for him," said Larry Clark, one of his buddies. "He's good -- very good."

Mr. Blow picked up his cards and began to play.

Nationwide, most of the billions in government money spent each year to care for the elderly go to nursing homes. In 2005, Medicaid spent $38 billion on institutional care for the elderly, or 82 percent of its long-term care budget. It spent $8 billion, or 18 percent of the total, for home or community-based care.

That balance has been slowly shifting, according to an analysis of the last five years by the Centers for Medicare & Medicaid Services. In 2002, 87 percent went to institutional care, while 13 percent went to home or community care.

The nursing-home industry has voiced opposition to Vermont's initiative, saying it will hurt its business and isn't in the best interests of all seniors.

"We knew that this was probably the death knell for some of our nursing homes," says Mary Shriver, executive director of the Vermont Health Care Association, which represents nursing homes.

She says home care may not be suitable for everyone. "Is the infrastructure there for the people who may need 24-hour, seven-day-a-week care?" she asks. In a letter to Medicaid, Ms. Shriver challenged whether home care is really more cost-effective than institutional care, as Vermont contends.

Under the Vermont program, elderly people typically receive 25 to 30 hours of care a week. If caretakers live with an elderly relative, they aren't compensated beyond a set number of hours. Seniors who live on their own may be unattended for significant stretches, including nights or weekends, because of limits on the number of hours of care they can receive or because of a shortage of available home-care workers.

The state says that not every elderly person needs 24-hour care. Officials contend that even in a nursing home, residents don't get around-the-clock attention. A state analysis found that nursing homes provide one-on-one care only a couple of hours day, if that, says Bard Hill, a state official who works closely with the Vermont commissioner.

"Someone may not be sitting by your side 24 hours a day," says Ms. Shriver, "but there is someone there at 3 in the morning, midnight, 2 in the afternoon, you name it." The industry also argues that private homes may not be as safe as nursing homes. In a letter to Mr. Flood, state legislators, and the governor, Ms. Shriver noted, for instance, that "all nursing homes in Vermont must have sprinkler systems," as well as fire drills.

Finally, the state's plan "is relying on families and I am not sure that is possible," she says. "This is a very mobile society."

The American Health Care Association, which represents more than 10,000 nursing homes and care facilities around the U.S., has voiced "significant concerns" to Medicaid about Vermont's program, says Janice Zalen, senior director of special programs. The group is "concerned that people would not be getting the care that they needed -- both amount and quality," she says.

Vermont is a "laboratory" and what happens there has implications for the country, Ms. Zalen says. But other states may not be able copy Vermont's effort, she says, because it's a small, "homogeneous" state with a strong infrastructure for home and community care that other states lack.

The home-care option doesn't work for everyone. A nurse working on behalf of Vermont's program went to the bedside of 101-year-old Rose Cadieux in July. Ms. Cadieux had lived independently until a fall weeks earlier landed her in the hospital. As with many seniors, she was sent to a nursing home for rehabilitation.

"What do you think will be your next step?" the nurse asked.

Ms. Cadieux seemed flustered. "I don't know," she said. "At my age, you never know."

"As much as possible, we would like people to have a choice," said the nurse, Toni Morgan, handing her information about the new initiative.

"I was living on my own," said Ms. Cadieux. "I was happy."

The nurse told her that under the Choices for Care program, she could potentially obtain care in her own home. "Oh my God, I'd love it," she said.

But if the family isn't able to provide home care, it is difficult for the state to step in. Ms. Cadieux's son died years ago. The person who has looked after her is her daughter-in-law. "I am the only one she has," says Peggy Cadieux, her 72-year-old daughter-in-law. But she is frail herself, and says she can no longer handle the responsibility.

Weeks later, Rose Cadieux lost her apartment. She is now a permanent resident of the nursing home. Her daughter-in-law says she visits often.

For people who really need full-time care, "there are only two ways to get it," says Mr. Barbour, of the nonprofit agency on aging. "You pay privately -- which virtually no one can afford -- or you have a family or other support network that is able to provide it." Sometimes, he says, "nursing homes are the only choice."

Some in the nursing-home industry say the business is ready to change. "There is an old proverb, if the horse on which you are riding has died, get off," says Larry Minnix, president of the American Association of Homes and Services for the Aging, which represents 5,600 not-for-profit long-term care providers. "Nobody has told any industry that they are guaranteed to exist in their current form."

At a summit in Baltimore this summer, a group of executives from 65 nursing homes and long-term care facilities around the nation discussed ways to deliver care at home. Traditional nursing homes may have to convert to assisted- or independent-living facilities, Mr. Minnix says. Some already are.

The Vermont program has also been funding other types of living arrangements, such as small boarding houses for the elderly. These privately run homes are an alternative that state officials often view as better and more cost-effective than large institutions.

To make housing alternatives work, advocates say there needs to be more community support available. Joanne Corbett runs Project Independence, a nonprofit elder day-care center in Middlebury. The center, open six days a week, 12 hours a day, offers classes, a putting green, concerts, movies and a glee club. It even cares for many seniors with Alzheimer's disease. Ms. Corbett hopes the center will soon be open Sundays too, providing seniors with activities and giving caretakers a break.

"We are not anti-nursing home," she says. "We simply try to stall it and in most cases we can prevent it."

Vermont's program is a model for other states, says Wendy Fox-Grage, senior policy adviser with the AARP's Public Policy Institute. "It is turning the ship around."

Still, America's system for caring for the aged is a very big ship, which for more than 40 years has sailed in the direction of subsidizing hospitals and nursing homes and the thousands of jobs they create.

So far, Vermont has found it isn't easy to change the flow of dollars. One year into its "Choices for Care" program, Vermont has achieved incremental results: There are 2,131 residents in nursing homes, 155 fewer than in October 2005. There are 1,111 people receiving home care, or 123 more than last year at this time. Another 500 or so Medicaid patients -- who aren't quite eligible for nursing homes yet need help -- were able to get care at home under this program, according to the state.

Nursing homes have become such an intrinsic part of the way Americans care for the elderly that it may be exceedingly hard to go back to an older, family-based system of care. The advent of nursing homes coincided with a rise in two-income families, more women going to work and people living much longer.

Kathryn Lawler, who heads Aging Atlanta, a project focusing on ways to help the elderly live at home, says nursing homes fulfilled a need. "To be completely crass, you can send your mother there and all would be taken care of -- it is a one-stop shop. You would come, bring her flowers, but your responsibilities would be pretty limited."

The U.S. health-care system, she says, also fuels the use of nursing homes. Hospitals, under pressure to keep stays as short as possible, often discharge patients to nursing homes. Life-altering changes sometimes are made quickly. Family members, unsure of what to do with ailing, aged relatives may go along with the move to an institution, because the government will pay for the care. "Life is so busy, and at the moment where a decision is made, it seems easier to go to a nursing home," says Ms. Lawler.

"It is a direct chute from hospitals to the nursing homes," says Jackie Majoros, Vermont's nursing-home and long-term care ombudsman.

In Vermont, the government subsidies for home care have allowed some families to get closer to aging relatives.

Winona Greaves' children and grandchildren were pained to see what happened to the 96-year-old matriarch after her nursing-home admission. Unhappy and lonely, she stopped eating.

Fearing they were about to lose her, the family resolved to bring "Gram" home. Her granddaughter, Laurie Bailey, 49, left her job to look after her grandmother. Vermont's program has made it economically feasible by letting her earn $9.25 an hour, about what she earned part-time at the local Price Chopper grocery store, she says.The state approved about 40 hours of work a week for her, increasing her earnings.

"Gram took care of me," says Ms. Bailey, recalling a period years back when she was ill and her grandmother ministered to her. "When time came that Gram needed the help, I quit my job and here I am."

On Sept. 27, 2005, Mrs. Greaves came home, after being in the nursing home for several months. She made the trip to her daughter's home in East Montpelier lying on an ambulance gurney.

When she went to sleep that first night, her 69-year-old daughter, Pauline Coburn, recalls, "I was afraid my mother wasn't going to be alive in the morning."

Instead, Mrs. Greaves stunned everyone by staging a recovery. Within two days, she was alert and eating ice cream. "I'm so glad to be here," she said, according to her case manager's notes for Sept. 29. With her granddaughter helping her, she began taking steps with a walker. Home cooking helped restore her appetite. Sitting in the sunroom cheered her up.

By Thanksgiving, Mrs. Greaves was chipper enough to iron the napkins and mix the cookie dough.

"It is the love," says Ms. Bailey, who gives her grandmother medicines, bathes her, dresses her and files daily reports to the Central Vermont Home Health and Hospice agency, which supervises the care.

State officials believe there is an untapped pool of workers like Ms. Bailey who may want to care for a family member. Sheer necessity has forced Vermont to think creatively. In many states, home-attendant jobs are often held by minority or immigrant women who earn as little as $6 to $8 an hour. Vermont has an educated labor force and many people tend to leave the state for higher-paying jobs. There is a severe shortage of caregivers, so hiring relatives can be ideal. "Our system of long-term care has to find a way to support the natural caregiver," says Commissioner Flood. "The nursing homes broke that."

Next, state officials want Medicaid to pay spouses to be caregivers. That's not allowed under current Medicaid rules, although hiring an ex-spouse is permitted.

The idea of paying relatives is controversial. There is concern that family members may not be qualified to care for seniors, or that the caregivers are being overtaxed. Mrs. Coburn says that even with the support the family receives, it is still hard. There is constant pressure, and any holiday or weekend away must be coordinated so that someone is home to watch over her mother.

Mrs. Greaves, elegantly dressed and coiffed, sat in an armchair in her small ground-floor bedroom. The former teacher, who once taught in a one-room schoolhouse, still devours a good novel. Her great-grandson, Cyrus, 8, who lives up the hill, is constantly over. She loves watching him play.

"I guess that I surprised everyone," Mrs. Greaves said with a smile. "I was a lot of trouble, wasn't I?"

Her daughter cautions: "Don't make it sound too wonderful. There are four generations in this house. I don't want people to think it is too easy."