Unlocking Medicaid Benefits: What You Need to Know

Medicaid Overview

Medicaid is a federal program administered and managed by individual states. It provides low-cost or free healthcare to qualifying individuals. Since health insurance typically does not cover long-term nursing home care, Medicaid is often essential for individuals and families with loved ones in nursing homes. Without proper planning, nursing home residents may be required to pay for care out of pocket until their funds are depleted.

Federal law sets baseline requirements for Medicaid eligibility, but each state establishes its own specific rules. Medicaid eligibility is complex, and even minor mistakes can lead to a denied application. This article provides an overview of the basic Medicaid eligibility requirements.

Basic Eligibility Requirements for Applicants

To qualify for Medicaid, an applicant must meet at least one of the following criteria:

• Be pregnant or responsible for a child under 18 years old.

• Be blind.

• Be disabled or have a disabled family member in the household.

• Be 65 years of age or older.

Income Requirements

Applicants must meet strict income and asset limits to qualify for and maintain Medicaid benefits. Medicaid defines income broadly, including wages, annuity payments, retirement income, and Social Security benefits.

Some states, like South Carolina, impose an income cap, disqualifying applicants whose monthly income exceeds the limit unless additional planning addresses the excess. West Virginia and Maryland are not income-cap states. However, an applicant's monthly income must still be less than the monthly cost of long-term nursing home care.

Once eligible for Medicaid, recipients must pay their monthly income to the nursing home, minus allowable deductions. Generally, this is limited to a small "personal needs allowance" and deductions to allow recipients to continue to pay Medicare and/or private health insurance premiums.

For married couples where one spouse receives Medicaid, the community spouse (the spouse not on Medicaid) is allowed to keep all of their income.  Further, the community spouse is entitled to a minimum monthly income to prevent financial hardship.  If the community spouse's income is below this amount, they may receive a portion of the Medicaid spouse's income to meet the threshold.

Asset Requirements

Medicaid considers nearly all property and possessions as assets, with some exceptions. Certain assets are excluded from the calculation of total countable assets, including:

• A primary residence.

• One vehicle per spouse.

• Tangible household items.

Countable assets typically include bank accounts, stocks, retirement accounts, real property (other than a primary residence), and life insurance policies with a cash value exceeding $1,500.

While these numbers vary by state, Federal Guidelines state the following asset limits:

• A single applicant cannot have more than $2,000 in countable assets.

• For a married couple where only one spouse applies, the Medicaid applicant is limited to $2,000, while the community spouse may retain between around $40,000 and $155,000, depending on the couple’s total countable assets.

Many people are advised to spend down their assets by paying nursing home bills until they reach the $2,000 limit before applying for Medicaid. However, an elder law attorney can help protect most or all assets while also ensuring immediate Medicaid eligibility.

Medicaid Look-Back Period

A common challenge in qualifying for Medicaid is the look-back period, designed to prevent individuals from gifting away excess assets to gain eligibility. Medicaid reviews any uncompensated transfers or gifts made within five years before the application.

If gifts were made during this period, Medicaid imposes a penalty period during which the applicant is ineligible for benefits. The penalty duration is calculated using the states "penalty period divisor." For example, if $30,000 in gifts were made within five years of applying, and the state’s penalty period divisor is $10,000, the applicant would face a 3-month penalty period ($30,000 ÷ $10,000 = 3 months).

Penalty periods can be part of an asset preservation strategy, especially in crisis planning situations. Whether penalties arise from prior gifting or are planned to protect assets, careful preparation is necessary to manage payments during the penalty period effectively.

Medicaid planning is often complex, making it easy to make mistakes. Additionally, there is a great deal of misinformation about what can and cannot be done to protect assets. An elder law attorney can help ensure that the maximum amount of assets are preserved while making the process less stressful.

Want to learn more? Start by booking a Medicaid Asset Protection Planning Session. We can meet in person or via Zoom. You’ll share your concerns, and we’ll present your options and potential solutions. Then, if we decide we are a good fit to work together, we’ll take next steps.  You can book your Planning Session here: https://calendly.com/warner-law/asset-protection

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*Estate planning rules change frequently and content in this article may no longer be up to date.  This article is for informational purposes only and is not legal advice.

Disclaimer: Medicaid rules change frequently. This article is for informational purposes only and does not constitute legal advice.