Alyssa Lane
Medicaid is a joint federal and state program that helps people with limited income and few assets cover health care costs and long-term care costs. Each state has different eligibility requirements, and there are different qualifying levels for individuals and families. Generally, a single person must have no more than $2,000 in cash assets to qualify. However, there are tools and strategies to help people protect their assets while still meeting the qualifications for Medicaid. For example, certain trusts can be used to divert excess income to maintain eligibility. Additionally, applicants can set aside up to $1,500 in a funeral arrangement or burial fund that is considered an exempt asset.
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What You'll Learn
Medicaid eligibility and asset limits
Medicaid eligibility can be a complicated issue. The government uses different factors to determine eligibility, depending on whether you fall into the MAGI (Modified Adjusted Gross Income) or non-MAGI group. MAGI is the primary tool used by the government to determine your eligibility for Medicaid or subsidized health insurance through the Health Insurance Marketplace.
When it comes to non-MAGI Medicaid eligibility, both your income and your assets are considered. Most government programs that qualify you for Medicaid use an asset test. If your income and assets are above a certain level, you will not qualify for the program. In 2024, the income limit was set at $2,829 per month and the asset limit at $2,000 for an individual. However, different states may set their own rates.
MAGI Medicaid does not cover everything. Your assets come into play when it comes to Long-Term Services and Supports (LTSS), the part of Medicaid that pays for long-term care in a nursing home. If you are on your own, in a family of two, or in a family of five, you will have different qualifying MAGI levels to become eligible for these programs. Each state will have different MAGI levels, depending on whether they have enacted Medicaid expansion.
There are ways to protect your assets when it comes to Medicaid eligibility. For example, certain income trusts can be used to divert excess income to maintain your program eligibility. Additionally, almost all states participate in the long-term care partnership program, which allows people who have purchased long-term care insurance to qualify for Medicaid while preserving some of their assets.
It's important to note that transfers of certain assets made less than five years before requiring home care or entering a nursing home may be disallowed. This means that, for Medicaid purposes, you'll still be deemed to own them and will be required to spend them before qualifying for program coverage. Additionally, Medicaid has a Look-Back Rule, which checks all past asset transfers to ensure no assets were sold or gifted under fair market value. If you violate this rule, a Penalty Period of Medicaid ineligibility will be calculated.
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Redistributing assets to meet eligibility
Redistributing assets to meet Medicaid eligibility is a complex process that requires careful consideration and planning. Here are some strategies that can help individuals and families protect their assets while qualifying for Medicaid:
Understanding MAGI and Non-MAGI Criteria:
Medicaid eligibility is determined using either MAGI (Modified Adjusted Gross Income) or non-MAGI criteria. MAGI considers your gross income, which includes all actively earned income, while non-MAGI takes into account both your income and assets. Understanding which group you fall into is crucial for navigating the eligibility process.
State-Specific Eligibility and Asset Limits:
Medicaid is a state-managed program, and each state sets its own eligibility criteria and coverage groups. It is important to familiarize yourself with the specific rules and limits of your state, as they can vary significantly. For example, some states have different MAGI levels and asset limits, and certain states have unique programs like the "spousal refusal" option.
Qualified Income Trusts (QITs) or Miller Trusts:
If your income exceeds the Medicaid eligibility threshold, you can use Qualified Income Trusts (QITs), also known as Miller Trusts. These are irrevocable trusts into which you deposit your excess income, and a trustee you select controls the funds. The money in the trust is then used for specific purposes, such as long-term care and medical expenses. Since the funds are legally owned by the trust, they no longer count against your Medicaid income eligibility.
Pooled Income Trusts:
Similar to QITs, pooled income trusts are irrevocable trusts that allow you to divert your surplus income to maintain Medicaid eligibility. These trusts can help protect your assets while ensuring you qualify for the necessary coverage.
Long-Term Care Insurance Policies:
Thirty states and the District of Columbia offer state tax incentives for residents who purchase long-term care insurance policies. Additionally, almost all states participate in the long-term care partnership program, which allows individuals who have purchased such insurance to qualify for Medicaid while preserving their assets.
Medicaid Spend Down:
If you are over the asset limit for Medicaid eligibility, you may need to spend down your excess non-exempt assets. This process requires caution, as there is a 60-month Look-Back Period during which all past transfers are reviewed. Violating the rules, such as gifting assets, can result in a Penalty Period of Medicaid ineligibility.
Spousal Transfers and Refusals:
Medicaid laws permit the transfer of assets between spouses without being subject to the five-year look-back period or any penalties. This strategy can help protect assets while making the transferring spouse immediately eligible for Medicaid services.
Redistributing Assets:
Redistributing your assets can be a way to meet Medicaid's standards. For example, instead of keeping a large sum in the bank, you can use that money to pay off your mortgage, invest in home renovations, prepay a burial plot, or upgrade household appliances.
It is important to note that Medicaid eligibility is a complex and ever-evolving topic. Seeking professional advice from a financial planner or advisor is recommended to ensure you are making informed decisions about your specific situation.
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Irrevocable trusts and protecting assets
Medicaid Asset Protection Trusts (MAPTs) are irrevocable trusts that protect a Medicaid applicant's assets from being counted for eligibility purposes. MAPTs enable people who would otherwise be ineligible for Medicaid to receive Medicaid coverage for the custodial long-term care they need, either at home or in a nursing home.
The key to an irrevocable trust is that once a client transfers ownership to the trust, they can't take it back. The trustee is not required to distribute any assets to the client, even for healthcare purposes. The day the assets are transferred into an irrevocable trust, they become non-countable for Medicaid purposes. However, those assets are seen as a gift and are subject to the Medicaid look-back period. After the five-year look-back period, as long as the trust owns the assets, Medicaid cannot count the asset and the asset cannot be seized to reimburse long-term costs.
The individual who creates the MAPT is called a grantor, trustmaker, or settlor. There is also a trustee, who manages the trust and controls the assets within it. The trustee must be someone other than the trustmaker or their spouse, such as an adult child or another relative. The trustee must adhere to trust rules, which are very specific about how trust funds can be used. For instance, it should be strictly prohibited for funds to be used on the trustee. A beneficiary is also named and is the person who will benefit from the trust after the trustmaker passes away. For the trust to be Medicaid-exempt, the beneficiary must be someone other than the trustmaker. If the trustmaker were also the beneficiary, they would have access to the assets, and Medicaid would consider them available to pay for their care and support.
While they won't have control over their assets, they'll designate a trusted individual (the trustee) to manage the assets according to the terms of the trust. This transfer allows the assets to be excluded from Medicaid's asset limits, potentially opening the door to long-term care benefits without jeopardizing their financial security.
It's important to be aware of the Medicaid look-back period: The government looks to see if you had any assets that were gifted, transferred, given away, placed in a MAPT, or sold for less than their fair market value over a specific timeframe. In most states, the look-back period is five years, but there are exceptions. For example, in California, a home, even in a revocable trust, is safe from Medicaid’s Estate Recovery Program.
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State-specific asset rules and exemptions
The asset limits for Medicaid eligibility vary from state to state, and there are different rules for single applicants and married couples. Generally, a single applicant is limited to $2,000 in countable assets, but this figure may vary based on the state and the applicant's age, health, and specific product applied for. For example, in 2025, the asset limits for a single applicant in Connecticut will be $1,600, in Mississippi $4,000, in Illinois $17,500, and in New York $32,396. Married couples are usually allowed to keep up to $3,000 of their combined countable assets. However, the rules for married couples applying for Aged, Blind, and Disabled Medicaid differ, and the couple is permitted up to $3,000 regardless of whether one or both spouses are applicants.
Some states have unique rules regarding asset limits. For instance, California, which refers to its Medicaid program as "Medi-Cal", will phase out the asset test for the elderly and disabled, increasing the asset limit from $2,000 to $130,000 for an individual applicant. California plans to completely eliminate the asset test by 2024. In New York State, a single applicant who is blind, disabled, or 65 or older is allowed to retain $16,800 in liquid assets.
Certain assets are considered exempt or "non-countable" by Medicaid, and their value does not count toward the asset limits. These include an applicant's primary residence, household goods, personal items, and one vehicle. Some states, such as Florida, exempt one vehicle regardless of its value, age, or model, while other states may have different criteria for vehicle exemption. Additionally, whole life insurance policies up to $1,500 in face value for an individual applicant are generally exempt. However, if the policy exceeds this limit, the cash value will count toward the asset limit.
It is important to note that the rules and exemptions for Medicaid eligibility can be complex and may change over time. It is always advisable to consult official state-specific guidelines or seek professional advice to determine eligibility accurately.
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Medicaid eligibility with assets for children
Medicaid is a federal and state program that provides health coverage to over 77.9 million Americans, including children, pregnant women, parents, seniors, and individuals with disabilities. The Affordable Care Act of 2010 allowed states to expand Medicaid to cover nearly all low-income Americans under 65. Eligibility for children was extended to at least 133% of the federal poverty level (FPL) in every state, with most states covering children to higher income levels.
The Modified Adjusted Gross Income (MAGI) is the primary tool used by the government to determine eligibility for Medicaid. MAGI considers taxable income and tax filing relationships to determine financial eligibility for Medicaid. MAGI replaced the former process for calculating eligibility, which was based on the methodologies of the Aid to Families with Dependent Children program that ended in 1996. MAGI does not allow for income disregards that vary by state or eligibility group and does not allow for an asset or resource test.
However, it is important to note that not all individuals fall under the MAGI-based income counting rules. Individuals whose eligibility is based on blindness, disability, or age (65 and older) are exempt from MAGI-based rules. Eligibility for these individuals is generally determined using the income methodologies of the SSI program administered by the Social Security Administration.
Additionally, there are specific provisions for foster care children, including former foster care children up to 26 years old who were on Medicaid on their 18th birthday. These children are considered a mandatory eligibility group and are eligible for Medicaid regardless of their income or assets.
While the MAGI-based methodology simplifies the application process, it has also created a loophole that allows wealthy individuals to take advantage of taxpayer dollars. Due to the absence of an asset test, individuals with significant assets, such as investments or real estate properties, may still technically meet the MAGI criteria and qualify for Medicaid.
To address this, individuals with assets exceeding the Medicaid limit can explore various planning strategies to become eligible for Medicaid. These strategies include spending down assets, purchasing an Irrevocable Funeral Trust, converting a lump sum of cash into monthly income through annuities, or utilizing Medicaid Asset Protection Trusts. However, it is important to be cautious as some of these strategies may violate Medicaid's Look-Back Rule, resulting in a Penalty Period of Medicaid ineligibility.
In conclusion, while Medicaid eligibility for children is primarily based on the MAGI-based methodology, there are specific provisions for certain groups, such as foster care children. Additionally, the absence of an asset test in the MAGI-based methodology has created a loophole that allows individuals with significant assets to potentially qualify for Medicaid. Therefore, it is advisable to consult with a professional Medicaid Planner to navigate the eligibility requirements and planning strategies effectively.
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Frequently asked questions
It depends on the type and value of your assets, as well as your income and the state you live in. Each state has different eligibility requirements and thresholds for income and assets. Generally, a single person must have no more than $2,000 in cash assets to qualify for Medicaid.
The types of assets that are considered vary by state. However, some common assets that may be considered include cash, property, vehicles, and life insurance policies.
There are several strategies you can use to protect your assets while qualifying for Medicaid, such as redistributing your assets by paying off your mortgage, prepaying for a burial plot, or setting up an irrevocable trust. You can also look into Qualified Income Trusts (QITs) or Pooled Income Trusts, which can help divert excess income to maintain Medicaid eligibility.
The income limits for Medicaid vary by state and the number of people in your family. For example, in 2024, the income limit for an individual is set at $2,829 per month, while for a family of two or more, the limit may be higher.
