Alyssa Lane
Medicaid is a federal and state program that helps people with limited income and assets cover healthcare and long-term care costs. To qualify for Medicaid, applicants must meet specific income and asset requirements, which vary by state. While Medicaid is intended for those with financial limitations, it's possible to have too many assets and still qualify for Medicaid. This is due to a loophole in the system, where certain assets are exempt from the limit, such as one's primary home, a car, personal effects, and household goods. Additionally, applicants can spend down their assets by purchasing exempt items or investing in Medicaid-compliant annuities. However, it's important to be cautious and understand the specific rules and eligibility criteria to avoid violating Medicaid's Look-Back Period and ensure compliance with state-specific regulations.
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What You'll Learn
Medicaid eligibility and asset limits
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. To be eligible for Medicaid, applicants have to meet two requirements: an asset limit and an income limit. The asset limit can change depending on the applicant's state of residence, their marital status, and the Medicaid program. For instance, in most states in 2025, the individual asset limit for Medicaid long-term care in a nursing home or at home is $2,000. This means applicants must have $2,000 or less in countable assets. Most assets are countable, including bank accounts, retirement accounts, stocks, bonds, vacation homes, secondary vehicles, cash, and anything else that can be easily converted into cash.
However, some assets are exempt from the asset limit. These include the applicant's primary home, one car, personal effects, household goods and furnishings, some prepaid funeral and burial arrangements, and a limited amount of cash ($2,000 for an individual if there are no other assets). The home is automatically exempt if a non-applicant spouse lives in it. If not, the Medicaid applicant must live in their home or have the intention to return home. In 2025, their home equity interest must generally be no greater than $730,000 or $1,097,000.
If an applicant is over the asset limit for Medicaid eligibility, spending down excess non-exempt assets becomes necessary. This process is known as "spending down," and it involves spending cash or selling "countable" assets, such as stocks or extra vehicles, and then spending that money. It is important to note that Medicaid has a 60-month Look-Back Period, and any assets given away within five years of a Medicaid application date still count toward eligibility. One way to reduce assets without violating the Look-Back Period is by purchasing a Medicaid Compliant Annuity, which provides a steady income stream. Another option is to set up an irrevocable trust on behalf of one's children and transfer property that way.
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Exempt assets
Primary Residence
The home you live in is usually exempt, provided it is your principal place of residence. There may be an equity limit on this exemption. For example, in 2025, the home equity interest must generally be no greater than $730,000 or $1,097,000.
One Vehicle
A single vehicle, regardless of its value, is typically exempt if it is used for transportation for you or a family member.
Household Goods and Personal Effects
Furniture, appliances, jewellery, clothing, and other personal items are usually exempt. These items are considered necessities and are not counted towards the asset limit.
Life Insurance Policies
Small life insurance policies with a limited cash value are often exempt. The specific cash value limit can vary by state, but it is generally up to $1,500. Term life insurance policies are also exempt as they do not accrue cash value while the applicant is alive.
Burial Plots and Prepaid Funeral Plans
Burial plots for the applicant and their immediate family members, as well as certain prepaid funeral arrangements, are generally exempt. This includes up to $1,500 in an irrevocable pre-need funeral arrangement and/or a revocable burial fund.
Other Exempt Assets
Other assets that may be exempt include specific types of trusts, property that generates income essential for your support, and in some cases, business assets.
It is important to note that the determination of whether any assets are exempt is made on a case-by-case basis, taking into account state laws, marital status, living arrangements, and other factors. Additionally, the process of reducing assets to qualify for Medicaid, known as "spending down," must be done carefully to avoid violating Medicaid's rules and resulting in a period of ineligibility.
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Redistributing assets
You can use your assets to buy new, exempt assets. For example, you can purchase a new home if it meets the requirements for being an exempt home. Likewise, you or your spouse can purchase a new automobile to drive. Since household goods and furnishings are ordinarily non-countable, purchasing those types of items is also allowed. A Medicaid applicant can make any needed payments to maintain or improve a non-countable asset.
You could also set up a Miller Trust for yourself. This irrevocable trust is used exclusively to satisfy Medicaid's income threshold. If your income from Social Security, pensions, and other sources is above Medicaid's limit but not enough to pay for nursing home care, the excess income can go into a Miller Trust.
You could also boost a spouse's income with a Medicaid-compliant annuity. These contracts turn your savings into a stream of future retirement income for you and a spouse and don't count as an asset. You can buy the annuity at any time, but to be Medicaid-compliant, the annuity payments must start immediately, with the state named as the beneficiary after you and your spouse pass away.
Additionally, you could prepay a burial plot, replace a vehicle, or upgrade household appliances. You can also prepay your mortgage years in advance, as you are legally obligated to pay the full amount of the loan eventually. However, keep in mind that prepaying a mortgage will give the owner "equity" in the house (market value of the house minus the mortgage). Medicaid will only ignore a certain amount of equity in a Medicaid applicant's home.
Note that transfers of certain assets made less than five years before you require home care or enter a nursing home or assisted living facility may be disallowed. This means that, for Medicaid purposes, you'll still be deemed to own them and will be required to spend them down before qualifying for program coverage.
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Spending down assets
Some common assets that are typically exempt from the asset limit for Medicaid include one's home (under certain circumstances), one car, personal effects, household goods and furnishings, some prepaid funeral and burial arrangements, and a limited amount of cash ($2,000 for an individual with no other assets). Additionally, some states allow applicants to set aside up to $1,500 in an irrevocable pre-need funeral arrangement or a revocable burial fund that is considered an exempt asset.
For those applying for Medicaid-funded long-term care, there is often a "`look-back`" period of 60 months, during which all past transfers are reviewed. If an applicant has gifted or sold assets under fair market value during this period, a penalty period of Medicaid ineligibility will be imposed. Therefore, it is crucial to be cautious when spending down assets to avoid triggering any penalty periods.
To qualify for Medicaid, applicants can consider various strategies for spending down their assets. One option is to prepay mortgages, as these are legally obligated payments. However, prepaying a mortgage will increase the owner's equity in the house, and Medicaid only ignores a certain amount of equity. Other strategies include paying off debts, purchasing assistive devices or medical equipment not covered by insurance, and making home modifications for aging in place.
It is important to note that the rules and limits for Medicaid eligibility vary across states, and some states may not offer a spend-down option. Therefore, it is advisable to consult with a professional familiar with the specific state's laws and regulations, such as an estate planning lawyer or a Medicaid planner, to ensure compliance with the applicable rules and avoid financial penalties.
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State-specific rules
Medicaid is a joint federal and state program that helps people with limited income and few assets cover healthcare and long-term care costs. Each state administers its own unique mix of Medicaid programs and sets its own financial and medical eligibility requirements.
Each state has different rules for Medicaid eligibility, and these rules are subject to change. Here are some examples of state-specific rules:
- California is the only state that doesn't have an asset limit for Medicaid, starting in 2024.
- Nebraska sets a maximum value of $5,372 for Medicaid eligibility.
- New York and Michigan are the only two states that do not consider IFTs of any value exempt for Medicaid purposes.
- New York currently has no Look-Back Period for long-term home and community-based services, but will be implementing a 30-month "look-back" period in 2025.
- Some states allow applicants to set aside up to $1,500 in an irrevocable pre-need funeral arrangement and/or a revocable burial fund that is considered an exempt asset.
- Most states' Medicaid programs count retirement accounts, like 401(k)s and IRAs, as assets. However, a spouse's retirement accounts are exempt in some states.
- Each state has different rules for how assets are allocated between spouses.
- Some states may have an upper limit of $1,071,000 for the value of an applicant's home to be protected.
- Some states may allow for higher exemption amounts for life insurance policies, while others enforce limits on a combined total of both life insurance and burial funds.
- The majority of Americans now qualify for Medicaid through MAGI, which, unless you are seeking long-term nursing home care, no longer uses the asset test.
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Frequently asked questions
MAGI (Modified Adjusted Gross Income) is the primary tool used by the government to determine eligibility for Medicaid. MAGI is calculated by deducting tax deductions from your gross income.
The income limit for Medicaid eligibility varies by state and marital status. For instance, in 2024, the income limit was set at $2,829 per month for an individual.
The asset limit for Medicaid eligibility depends on the applicant's state of residence, their marital status, and the Medicaid program. In most states, the asset limit for an individual in 2025 is $2,000.
If you have too many assets to qualify for Medicaid, you can consider "spending down" your assets. This involves spending cash or selling certain "countable" assets such as stocks or extra vehicles. Alternatively, you can consult a Certified Medicaid Planner to help you spend your assets in the right way.
Exempt assets typically include one's primary home, one car, personal effects, household goods and furnishings, some prepaid funeral and burial arrangements, and a limited amount of cash.
