Having Your Cake and Eating It Too
Good to Know
“She cannot eat her cake and have her cake.”
Jonathan Swift, Polite Conversation
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What does this quote from almost 3 centuries ago have to do with Medicaid eligibility? Conventional wisdom tells us that no one can qualify for nursing home care under Medicaid insurance and simultaneously have assets or income in excess of restrictive limits. Candidly, conventional wisdom may be right for unmarried individuals and some married couples. But surprisingly, certain married couples can exceed these abysmally low limits and get Medicaid insurance coverage at the same time.
We’ll unpack how this works, beginning with general Medicaid limits.
General Medicaid Limits
An individual applicant for Medicaid insurance generally cannot have more than $2,0001 in countable assets or more than about $2,8001 in monthly income. These limits may vary by state but these are common limits.
Let’s understand the difference between an applicant’s “countable” and “non-countable assets:”
Countable assets include:
- Cash,
- Accounts such as bank (or credit union) checking, savings, and money market, and
- Investments, including stocks, bonds, and most other investments.
Non-countable assets include:
- Clothing and other personal belongings,
- Household furnishings,
- An automobile,
- A primary residence, and
- Retirement assets that are in distribution mode, that is, the applicant is receiving required minimum distributions from IRAs or 401(k)’s.
Now, how much of the applicant’s monthly income is counted for Medicaid purposes? Regrettably, almost all income is counted, including compensation, alimony payments, pension payments, Social Security Income, 401(k) distributions, IRA distributions, stock dividends, and more.
Exceptions to General Medicaid Limits
Married clients in which only one spouse is applying for benefits may be able to exceed the general limits,2 despite the “look back rules.” The look-back rule counts an applicant’s gifts and most asset transfers within the last 5 years as countable assets.
However, a Medicaid Annuity can preserve assets without increasing countable assets. The annuity would be funded with an applicant’s countable assets in excess of the $2,000 limit ($3,000 for married couples). But to whom is the annuity paid?
If the annuity payments go only to the applicant, the income is the applicant’s countable income. But if the annuity payments go to the other spouse (the non-applicant spouse) the annuity payments are excluded from both the applicant’s and other spouse’s income. Perhaps Jonathan Smith’s quote above doesn’t apply universally, because in this exception, the couple can have both income from excess assets and qualify for Medicaid insurance.
Caveat—this article is a summary. Other conditions and requirements may apply. Your client should consult with a credentialed Financial Advisor experienced in your state’s Medicaid requirements.
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The material contained in this article is to raise awareness—it is informational, general in nature and does not constitute financial advice. It should not be relied upon or used without consulting a credentialed financial professional to consider your specific circumstances. This communication was published on the date specified and may not include any future changes in the topics, laws, rules or regulations covered.
1 These limits may vary by state. The limits expressed herein are the most common ones.
2 This strategy may not work for married clients in which both spouses are applying for benefits.
