Orlando Harmon
Life insurance policies are a common feature of financial planning, especially for the elderly, and can impact Medicaid eligibility. In Ohio, Medicaid eligibility is determined by financial requirements, including an asset limit. Depending on the type and value of the life insurance policy, it can be counted towards this asset limit. For example, term insurance policies have no cash value and are exempt from Medicaid, while permanent life insurance policies with a face value exceeding $1,500 are considered countable resources. This means that the cash value of these policies can be counted towards the asset limit, potentially affecting eligibility for Medicaid. Proper Medicaid estate planning is crucial to avoid eligibility issues, especially when considering the potential impact of life insurance policies on an individual's financial situation.
| Characteristics | Values |
|---|---|
| Medicaid eligibility | May be threatened if the applicant owns too much life insurance |
| Group or individual term insurance policies | Exempt from Medicaid |
| Permanent life insurance policy with a face value of $1,500 or less | Exempt as a countable resource |
| Permanent life insurance policy with a face value of more than $1,500 | Counted as a countable resource |
| Medicaid Estate Recovery | Medicaid may take the proceeds of the death benefit to recover costs it paid for one's long-term care |
| Whole life insurance policies | Exempt up to $1,500 in face value in most states |
| Life insurance policies owned by someone other than the applicant | Do not count against the applicant's eligibility |
| Simplified Eligibility Criteria for a single Nursing Home Applicant in 2025 | Income under $2,901/month, assets under $2,000, and require a Nursing Home Level of Care |
| SSI recipients | Automatically approved for Medicaid |
| Medicaid long-term care programs in Ohio | Institutional/Nursing Home Medicaid, Medicaid Waivers/Home and Community-Based Services (HCBS), and Regular Medicaid/Aged, Blind, or Disabled (ABD) |
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What You'll Learn
Life insurance and eligibility for Medicaid long-term care programs
Life insurance policies can impact eligibility for Medicaid long-term care programs as these programs require applicants to meet specific financial requirements, including an asset limit. Depending on their type and value, life insurance policies can be counted toward this asset limit, which can vary depending on the specific Medicaid Long-Term Care program, the applicant's state of residence, and their marital status.
In the context of Ohio, where persons found eligible for SSI are automatically approved for Medicaid, life insurance policies can affect eligibility if owned by the applicant. This applies regardless of whether the applicant is the insured person or the beneficiary. Any permanent life insurance policy with a face value of $1,500 or less is exempt as a countable resource, regardless of its cash value. However, once the face amount exceeds this threshold, the policy's cash value becomes a countable resource. If the cash value of all qualifying life insurance policies brings an applicant's total assets above the allowable limit when applying for Medicaid, they may be expected to cash in those policies.
To prepare for the possibility of needing Medicaid, it is essential to engage in estate planning with the assistance of an elder law lawyer. This planning should include a strategy for transferring ownership of any life insurance policies out of the individual's name, as irrevocable trusts can be an effective tool in this regard. Additionally, it is worth noting that while an individual's home is generally exempt from Medicaid's asset limit, it may be subject to the program's Estate Recovery Program following the beneficiary's death.
Medicaid long-term care programs in Ohio include Institutional/Nursing Home Medicaid, Medicaid Waivers/Home and Community-Based Services (HCBS), and Regular Medicaid/Aged, Blind, or Disabled (ABD). Each of these programs has different eligibility requirements and benefits. For instance, Institutional/Nursing Home Medicaid is an entitlement, while Medicaid Waivers are not and have limited participants. ABD Medicaid requires applicants to meet financial requirements and demonstrate a need for long-term care services but does not mandate medical requirements.
Compared to long-term care insurance, Medicaid offers certain advantages and disadvantages. Medicaid covers the costs of staying in a facility for as long as the individual needs care and does not impose an elimination period. Additionally, it covers in-home care, which is often the preferred option for individuals who wish to remain in their homes for as long as possible. However, not all nursing homes accept Medicaid patients, and Medicaid does not cover non-medical forms of care or certain amenities like private rooms. Long-term care insurance, on the other hand, offers more flexibility in choosing the type of care and facility but may be more costly and require a benefit level high enough to cover a lifetime of expenses.
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Cash value and face value of life insurance policies
Life insurance is a complicated product, and it is important to understand the terms used in your policy. Two such terms are "face value" and "cash value".
The face value of a life insurance policy is the amount paid to your beneficiaries when you die. It is also known as the death benefit, face amount, or coverage amount. This value is usually listed on your policy, likely under "policy benefits", and remains constant for term insurance policies. However, the face value for a permanent life insurance policy may change as the policy matures. For example, the face value can increase if you buy additional insurance or allow dividends to accumulate within the policy. Conversely, withdrawals from the policy will reduce the face value. Face value is one of the most important factors in determining the cost of a life insurance policy.
Cash value, on the other hand, is an amount of money that can be withdrawn or borrowed from a life insurance policy while the policyholder is still alive. Whole or permanent life insurance policies build cash value over time, similar to a savings or investment account, while term life insurance policies do not. The cash value of a permanent policy will not add to its face value, but it can be useful in other ways. For example, it can be borrowed against, used to pay premiums, or withdrawn in a lump sum if the policy is surrendered. However, withdrawing cash value can reduce the face value of the policy and, thus, the death benefit.
In the context of Ohio Medicaid, life insurance policies only count against eligibility if they are owned by the applicant. Proper Medicaid estate planning with an Ohio elder law lawyer can help to avoid eligibility issues. Any permanent life insurance policy with a face value of $1,500 or less is exempt as a countable resource, regardless of the amount of cash value. However, once the face amount exceeds this threshold, all of the cash value is considered a countable resource.
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Medicaid Estate Recovery
In the United States, Medicaid Estate Recovery is a process that allows states to recover certain Medicaid costs from the estate of a deceased enrollee. This process was established to provide an additional source of funding for Medicaid and to ensure that individuals contribute to the costs of their healthcare. The 1993 Omnibus Budget Reconciliation Act made it mandatory for state Medicaid programs to recover the costs of specific Medicaid benefits through estate recovery.
In Ohio, persons eligible for SSI are automatically approved for Medicaid. When determining Medicaid eligibility in Ohio, certain types of life insurance policies are considered exempt. For example, group or individual term insurance policies have no cash value and are therefore exempt. Additionally, permanent life insurance policies with a face value of $1,500 or less are exempt regardless of their cash value. However, once the face amount exceeds $1,500, the entire cash value becomes a countable resource. Proper Medicaid estate planning is crucial to avoid eligibility issues related to life insurance policies.
It is important to note that estate recovery laws vary across states. While federal law mandates states to establish procedures for waiving estate recovery in cases of undue hardship, the specific criteria for such waivers differ. For instance, 49 states waive estate recovery when the individual meets state-defined hardship requirements, while 35 states waive it if the estate is the sole income-producing asset of survivors. Additionally, states are not permitted to recover from the estate of a deceased enrollee who is survived by a spouse, child under 21, or blind or disabled child of any age.
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Strategies to avoid losing your home
Ohio's Medicaid agency attempts reimbursement of care costs through whatever estate of the deceased still remains, which is often their home. Without proper planning strategies in place, the home will be used to reimburse Medicaid rather than going to family as inheritance. Here are some strategies to avoid losing your home:
Understand the Rules
Firstly, it is important to understand the rules and regulations around Medicaid and how they may apply to your personal circumstances. For example, in Ohio, Medicaid eligibility may be threatened if you own too much life insurance. Any permanent life insurance policy with a face value of $1,500 or less is exempt as a countable resource, regardless of the amount of cash value. However, once the face amount exceeds $1,500, all of the cash value is a countable resource.
Seek Professional Advice
It is strongly advised to seek the counsel of a professional Medicaid planner, as incorrectly implementing a planning strategy or improperly transferring your home can result in Medicaid ineligibility. For example, a life estate used to be a good strategy for protecting your home and is still an option in some other states, but when Ohio expanded its Estate Recovery rules, it offered a new strategy.
Plan Ahead
Planning ahead is an essential step in protecting your home. A Medicaid planning attorney can help determine whether you can lawfully transfer your house to a family member. For example, if a child has moved in with you and provided care to prevent you from needing nursing home care for two or more years immediately prior to your stay, or if a sibling owns a portion of the home.
Implement Strategies
There are several strategies that can be implemented to protect your home. One option is to set up a life estate, where two or more people jointly own a property for different periods. You can set up the estate so that you have an ownership interest in the property for the rest of your life, and the other owner will have an ownership interest but cannot take possession until you die. Once you pass away and the house is transferred, the state will not be able to recover the property for Medicaid expenses. Another option is to transfer the life insurance policy to a non-applicant spouse, also known as the community spouse, and the cash value of the policy will count towards their Community Spouse Resource Allowance.
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How to differentiate between countable and non-countable income
In the context of Ohio Medicaid, it is important to understand the difference between countable and non-countable income to ensure eligibility. While there is no federal definition of income, states generally take into account four factors when defining and counting income:
Countable Income:
- Wages, salaries, and tips earned by all household members.
- Means-tested benefits such as SSI, Social Security, and veteran's benefits.
- Employment wages, alimony payments, pension payments, Social Security Disability Income, Social Security Income, IRA withdrawals, and stock dividends.
- Any permanent life insurance policy with a face value of $1,500 or more is considered a countable resource, and the cash value is included in the total assets.
Non-Countable Income:
- Value of SNAP benefits or benefits from certain other federal programs.
- Cash income over which the household has no control.
- Group or individual term insurance policies are exempt from Medicaid and do not affect eligibility.
- Life insurance policies do not count against eligibility if they are owned by someone other than the applicant, even if the applicant is the insured or beneficiary.
- Holocaust restitution payments are not counted as income.
- In Ohio, the Veteran's Aid & Attendance benefit, which is above and beyond the Basic VA Pension, is not counted.
Additionally, when only one spouse of a married couple applies for Nursing Home Medicaid or a Medicaid Waiver, only the income of the applicant is considered; the income of the non-applicant spouse is disregarded. The non-applicant spouse may also be entitled to a Minimum Monthly Maintenance Needs Allowance (MMMNA) from their applicant spouse.
It is important to note that proper Medicaid estate planning is crucial to ensuring eligibility and avoiding issues. Consulting with an Ohio elder law lawyer can help individuals navigate the complex legal language and strategies to protect their assets, such as transferring ownership of life insurance policies out of their name.
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Frequently asked questions
Life insurance policies can impact eligibility for all three Medicaid programs because all three require applicants to meet an asset limit to qualify, and life insurance policies can count toward Medicaid’s asset limit.
Depending on their type and value, life insurance policies can be counted toward the asset limit, which can vary depending on which Medicaid Long-Term Care program you’re applying for, your state of residence, and your marital status.
In 2025, a single Nursing Home Medicaid applicant must have assets under $2,000. The individual asset limit for all three types of Medicaid Long-Term Care is $2,000.
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