Eligibility for Medicaid
What is Medicaid?
Medicaid was created in 1965 as a joint federal-state
program providing medical assistance to aged, disabled, or
blind individuals (or to needy, dependent children) who
could not otherwise afford necessary medical care. Medicaid
covers a number of medical costs, including hospital bills,
physician services, and long-term nursing home care. For
details, see Medicaid. Each state administers its own
programs based on broad federal guidelines and regulations.
Within these guidelines, each state:
Determines its own eligibility requirements
Prescribes the amount, duration, and types of services
Chooses the rate of payment for services
Oversees its own program
General Medicaid eligibility requirements will be presented
here first. Then, because long-term nursing home care is of
individual interest in financial planning, the discussion
will be tailored to specific Medicaid eligibility rules for
nursing home residents.
The Deficit Reduction Act of 2005 made several changes to
Medicaid eligibility, many of which are effective as of
February 8, 2006. Seniors and their families should take no
action without consulting a knowledgeable elder law
How do states determine Medicaid eligibility?
To qualify for Medicaid, individuals generally must meet two
basic eligibility requirements. First, the individual must
be considered categorically needy because of blindness,
disability, or old age, or by virtue of being the parent of
a minor child. Next, the individual must be financially
needy, which is determined by income and asset limitation
States have a great deal of discretion in determining which
groups their Medicaid programs will cover. However, a state
participating in Medicaid must provide coverage for all of
its state residents who can be considered categorically
needy. Essentially, categorically needy may be defined as
people who receive benefits under Supplemental Security
Income (SSI) for the aged, blind, and disabled. It also
includes families who qualified for Aid to Families with
Dependent Children (AFDC) under rules in effect on July 16,
In order to enable more people to qualify for Medicaid,
federal law gives states the discretion to offer Medicaid
benefits to other groups as well. For example, states may
provide coverage under a medically needy program that
extends eligibility to those individuals with incomes
exceeding the applicable SSI or AFDC limits but who still
can't afford certain medical care, such as the cost of
monthly nursing home bills.
States may allow all medically needy persons in one or more
of the following groups to qualify for Medicaid:
The blind or disabled under 1973 standards
Individuals under age 21
These states require medically needy individuals to spend
down their excess income on the cost of medical bills;
Medicaid makes up the difference.
How may a nursing home resident qualify for Medicaid?
With ever-increasing life expectancies and a steady climb in
the cost of long-term nursing home care, Medicaid planning
may well be an important part of your overall financial
plan. The following discussion, therefore, is tailored with
a view toward long-term nursing home care.
If you foresee a need for nursing home care, you must
satisfy three tests in order to be eligible for financial
assistance from Medicaid:
Age, disability, or blindness
First test for nursing home residents: age, disability, or
If you need nursing home care, you must be either age 65 (or
older), disabled (physically or mentally), or blind in order
to qualify for Medicaid benefits from the state in which you
have your domicile (place of permanent residence). Hence, a
30-year-old blind woman in need of long-term care could
qualify for benefits (assuming she also satisfied the income
and asset requirements). Likewise, an 85-year-old man (not
disabled), needing only custodial care, could also qualify.
Although the age requirement is straightforward, each state
has its own definition of disabled. It is essential to
review your state's rules, therefore, to find out whether
you meet the applicable definition of disabled. Nonetheless,
most states follow SSI eligibility criteria; in other words,
you must be considered permanently and totally disabled.
What is meant by permanently and totally disabled?
You are considered permanently and totally disabled if you
cannot engage in any substantial gainful activity because of
your physical or mental condition. A physician must certify
that the condition has lasted or can be expected to last
continuously for 12 months or more, or that the condition
can be expected to result in death.
Substantial gainful activity is defined as the performance
of significant duties over a reasonable period of time,
while working for pay or profit or in work generally done
for pay or profit. Full-time work (or part-time work done at
your employer's convenience) in a competitive work
situation, for at least the minimum wage, conclusively shows
that you are able to engage in substantial gainful activity.
Assume that Trisha, a salesclerk, retired because of a
physical disability that prevented her from performing her
normal duties. She now works full-time as a baby-sitter for
the minimum wage. Although Trisha must work in a different
occupation, she is able to perform her duties in a
full-time, competitive work situation for the minimum wage.
Therefore, because she is engaging in substantial gainful
activity, she is not considered permanently and totally
For more information about SSI and disability, see Social
Security Disability Benefits.
When is one considered blind?
With respect to blindness, you are considered blind under
the SSI definition if your vision is no better than 20/200,
or you have a visual field of 20 degrees or less in your
better eye, with the use of eyeglasses. Each state, however,
may have more strict standards for determining blindness.
Second test: income (countable, exempt income)
Each state sets a monthly income level for Medicaid
applicants. Ordinarily, you would not qualify for Medicaid
if your monthly income exceeded the allowable limit.
However, most states are spend-down states, which means that
you may qualify for Medicaid if you spend your monthly
income (less a small personal allowance) on medical or
nursing home expenses and Medicaid will pay the balance (if
any) of such bills.
Assume George is 80 years old and receives $800 per month
from Social Security. After entering a nursing home that
charges $3,000 per month, George applies for Medicaid. The
allowable income limit in his state is $700 per month.
Although George's income exceeds the allowable limit by
$100, he may still qualify for Medicaid by spending his
income (less a small personal allowance) on his monthly
nursing home bills. Medicaid will pick up the tab on the
remainder of the nursing home bill.
What about income-cap states?
It is important to note, however, that some states, called
income-cap states, do not allow a spend-down of income.
Rather, you are disqualified from receiving Medicaid
benefits if your monthly income exceeds the threshold amount
by even one dollar, regardless of your medical condition.
With respect to income-cap states, the amount of monthly
income you can receive in order to qualify for Medicaid is
limited to three times the monthly SSI benefit level under
the federal rules. States can set a threshold of less (but
not more) than this figure. This means that in 2007, the
income cap is $1,869 (3 x $623 SSI benefit level). In 1993,
the federal government recognized the hardship created in
income-cap states when a person with few assets received
monthly income just over the cap. In income-cap states only,
therefore, applicants may (under certain conditions)
establish Miller trusts in order to become eligible for
Medicaid. Miller trusts provide that at the death of the
applicant, the state must be reimbursed from the remainder
of the trust (what's left) for Medicaid payments expended on
the applicant's behalf.
Income, under Medicaid, can generally be broken down into
two categories, countable and exempt.
All income is countable unless specifically exempted
All of your income, whether taxable or not, is countable
under the Medicaid eligibility formula. This means that your
income from all sources will be totaled to determine both
your eligibility for Medicaid and the amount of your
spend-down, if any. Before income is applied to nursing home
bills, however, a resident may exempt certain portions
(discussed later). Income, for Medicaid purposes, is defined
in the SSI regulations and includes any cash, goods, or
services used for your daily living expenses. Income
includes (but is not limited to):
Interest and dividends
IRA, Keogh, and other retirement plan distributions
Gifts from family members and others
Wages and earnings
Contact your state Medicaid office to ascertain your state's
monthly income limit.
Exempt income need not be spent on nursing home bills
Exempt income refers to cash that need not be spent on
nursing home bills. A nursing home resident is allowed to
retain a small personal needs allowance, a monthly income
allowance (if applicable) for his or her
noninstitutionalized spouse, and money to pay for certain
medical expenses not covered by Medicaid or Medicare (such
as a Medigap policy)
Personal needs allowance: Most states allow you to keep a
small amount of monthly income for your personal needs, such
as haircut expenses, toiletries, and the like. While this
amount varies from state to state, it averages approximately
Spousal income allowance: In general, the income rules are
inapplicable to the noninstitutionalized (at-home) spouse;
this spouse is entitled to keep all of his or her periodic
income and is under no obligation to contribute to the
institutionalized partner's care. Therefore, if the terms of
a trust direct the trustee to pay income to Alice only, then
the income belongs to Alice only. If a dividend check names
Alice as the sole payee, then the income is hers alone. With
respect to joint income such as a joint bank account, most
states allow the at-home spouse to keep one-half. A problem
arises, however, when most of the income is in the name of
the institutionalized spouse. For this reason, federal law
requires that the states set a minimum monthly maintenance
needs allowance for the at-home spouse within prescribed
federal limits. For 2007, the federal minimum monthly needs
allowance is $1,711 (effective July 1, 2007 through June 30,
2008). However, states could set higher limits, up to a
maximum of $2,541 (federal maximum for 2007). The spousal
income allowance is granted from the income of the
institutionalized spouse before consideration of any nursing
home bills. Naturally, if the at-home spouse's monthly
income exceeds the minimum monthly maintenance needs
allowance, he or she will not be entitled to a spousal
Assume Ralph and Alice are married and live on Ralph's
monthly pension and Social Security check (totaling $3,300),
and Alice's monthly Social Security check of $400. The
personal needs allowance in their state is $40 per month,
and the spousal income allowance is $1,900.
If Ralph enters a nursing home and applies for Medicaid, he
will make the following monthly deductions from his $3,300
A personal needs allowance of $40, and$1,500 to
supplement Alice's $400 income ($1,500 + $400 =
$1,900 spousal income allowance)
Thus, Alice will have a monthly income of $1,900, Ralph will
pay $1,760 toward his monthly nursing home bill, and
Medicaid will subsidize the balance of the nursing home
It is important to note, however, that if Ralph and Alice
lived in an income-cap state, Ralph's remaining $1,760 could
not exceed the applicable cap; otherwise, he would be
ineligible to receive Medicaid.
Medical expenses: A nursing home resident is also allowed to
deduct money to pay for certain medical expenses not covered
by Medicaid or Medicare, such as the premiums on a
Third test: assets (countable, exempt, inaccessible assets)
Value of your countable assets will determine your Medicaid
The term "countable assets" refers to anything valuable that
you own that is not exempt by law or otherwise made
inaccessible; the total value of your countable assets will
determine your eligibility for Medicaid. A Medicaid
applicant is allowed to retain a small amount of countable
assets, but the amount varies from state to state. However,
most states set a $2,000 asset limit.
Countable assets include (but are not limited to):
Savings and checking accounts
Certificates of deposit
Investment property and vacation homes
Individual retirement accounts
Precious metals and coins
Whole life insurance (above a certain surrender value, often
Home equity if it is over $500,000 or at the state's option
$750,000 (equity is noncountable if you, your spouse, or
your minor, blind, or disabled child lives there)
To be eligible for Medicaid, most states provide that you
may not have more than $2,000 of countable assets if you're
single. For a married couple living together (applying for
benefits at the same time), the limit is usually $3,000 of
countable assets. Because spouses are treated as individuals
one month after either of them enters a nursing home,
however, the $2,000 limit will usually apply.
A nursing home resident, therefore, may usually keep $2,000
in countable assets. If you have more than that, the
additional amount must be spent down on nursing home bills
until you reach the allowable level.
If you don't know your state's countable asset allowance
figure, be sure to call your state Medicaid office.
Spouse is given some assets prior to any spend-down
When a spouse enters a nursing home and applies for
Medicaid, the couple's assets must be pooled together and
totaled to determine what portion the noninstitutionalized
("at-home") spouse may keep. This is called the spousal
resource allowance. Each year, the federal government sets a
minimum and maximum asset amount for the community spouse;
the states set their own parameters within the federal
In 2007, under federal guidelines, the at-home spouse could
receive one-half of the family assets or a minimum of
$20,328 (whichever is larger), but no more than $101,640.
After the spousal resource allowance has been determined by
the state, the Medicaid applicant must transfer assets
representing the amount of the spousal resource allowance to
the community spouse within 90 days (depending on the state)
of the state's determination of eligibility for Medicaid.
Bear in mind that a married couple's assets will be pooled
together--it makes no difference, for example, whether the
source of the asset can be traced back to one spouse or the
other (e.g., inherited funds, a bank account established by
one spouse prior to the marriage, or the like).
Exempt assets do not affect your Medicaid eligibility
Exempt assets are assets that do not affect your Medicaid
eligibility. Under federal guidelines, each state composes a
list of exempt assets, which include the following:
Principal home, regardless of value (so long as you, your
spouse, or your minor, disabled, or blind child resides
Household furnishings, jewelry, and personal effects (though
some states limit these items)
Burial funds of approximately $1,500, depending on the state
Burial plots for the applicant and immediate members of
Prepaid, noncancelable burial contracts
One automobile (for use by you and your family)
Term life insurance policies
Cash value of life insurance policies, provided the face
value does not exceed $1,500
If Medicaid applicant George and his wife, Martha, own
$24,000 of countable assets, a principal home, one car, and
a term life insurance policy of $300,000, then only George's
portion of the $24,000 of countable assets can be reached by
the state during the couple's lifetime; the other assets
will be exempt. At George's death, however, state
authorities could seek reimbursement for Medicaid payments
under a theory of estate recovery.
Simply stated, Medicaid authorities may be granted a lien
against the home, collectible after the death of the
Medicaid recipient (and the death of his or her spouse or
other specified relatives living in the home). For more
information, see Medicaid Liens and Estate Recoveries.
Inaccessible assets will not be counted
As with exempt assets, the state will not consider
inaccessible assets when determining your Medicaid
eligibility. These assets are otherwise countable ones that
have been made unavailable to you and, hence, unavailable to
Medicaid. You can make assets unavailable by giving them
away or by holding them in certain trusts. Although a proper
transfer of assets will preserve these assets for your loved
ones, the transfer may also create a period of ineligibility
before you can collect Medicaid benefits. It is vital,
therefore, to become familiar with the transfer rules. For
details, see Look-Back Period for Medicaid.
To learn more about long
term care insurance, call
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