Hospital "charges" are to be abolished, Gordon Brown announced in his Budget.
Pensioners and other patients have their pensions and benefits, such as housing and council tax benefit, cut if they are in hospital for over a year.
The move to scrap the charges comes after the threshold was raised from six weeks to a year in the 2003 Budget.
Mr Brown said thousands were affected each year by the "charges" and they were being abolished as the NHS should be "free at the point of use".
And he added: "The British National Health Service is and will remain safe in this government's hands."
The ruling will apply to around 20,000 patients in England, Scotland and Wales, and will cost the government around £60m.
Under the system, some patients had their benefits cut by three quarters.
Mervyn Kohler, head of public affairs at Help the Aged, said: "It is essentially a cleaning up exercise and that is to be welcomed.
"But in reality not that many people were affected. The thinking was that as a person was in hospital they were getting their food, shelter and care needs seen to so did not need their benefits.
"This really annoyed pensioners."