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Medicaid eligibility requirements

Medicaid provides skilled nursing home care to those who qualify. To be eligible for Medicaid, you need to meet asset, income and medical needs requirements.

First, you will not be eligible to receive Medicaid coverage if the value of your assets is above a certain threshold limit. Generally, the limit is $2,000 for a single person and $4,000 for a married couple, if they are both in a care facility.

Second, there are also limits on how much income you can receive and still qualify for Medicaid coverage. The income limit is set by the states, based on a percentage of the federal poverty level. The income limit is about $18,754 in 2022 for a single individual in many states.

Finally, you will need to show a medical need. This means that you must have a valid and properly documented reason to seek skilled nursing care or memory care.

Medicaid's transfer penalty

The Medicaid program is intended for those with very minimal assets. As a result, it has provisions to penalize giving assets away just before a Medicaid application is submitted. For this reason, giving your assets to your family to meet the asset threshold when you need long-term care coverage is not a successful strategy.

When applying for Medicaid coverage, you need to be aware of what's called a “look-back period” when the government can examine the transfers made to see if a penalty period should be imposed. The look-back period is generally 60 months (five years) from the date of application. This means that the government reviews all transfers you made during the 60 months before you applied for Medicaid coverage to see if any are “uncompensated.” Uncompensated transfers are simply assets that you gave away (gifts).

If you made gifts within that 60-month look-back period, you could be subjected to a penalty period. There is no time limit on a penalty period, but it is typically calculated by dividing the uncompensated transfer by the average cost of nursing home care in your state. The penalty period runs from the date of application. During the penalty period, Medicaid will not pay the cost of the skilled nursing or memory care facility.

Medicaid asset eligibility strategies

The asset limit is usually the major stumbling block with Medicaid eligibility. A number of strategies exist to reduce your assets to the applicable limit.

01

Asset conversion

Medicaid divides assets into exempt and countable categories. Exempt assets do not count for eligibility purposes. Asset conversion involves converting assets that would be counted against you for Medicaid purposes into assets that are exempt. Asset conversions are not subject to the five-year look-back period or transfer penalty. These are a few of the most common examples of asset conversion:

  • Paying off mortgage on primary residence.
  • Pay off credit cards and other debts.
  • Pay for needed dental, vision or medical care.
  • Replace existing car with a more expensive car.
  • Make improvements to primary residence like a new roof, new windows or adding accessibility features.
  • Purchase a prepaid funeral or irrevocable funeral trust.
02

Spend down

You can private pay for your care until you reach the asset limit. While this would reduce any inheritance for your family, privately paying can secure placement in a preferred skilled nursing or memory care facility.

03

Gifting

A gifting strategy can both make you eligible for Medicaid and preserve some of your assets for your family. To avoid a transfer penalty, the gifts generally must be made five years before your application or admission into a care facility. This means that for real property like a vacation home, the deed transferring ownership must be recorded at least five years before filing your Medicaid application. For other assets, you must change title to the person receiving your gift at least five years before you apply for Medicaid or enter a long-term care facility.

What are some common Medicaid gifting mistakes?

  • Making gifts in the gift tax annual exclusion amount

    Although exempt from gift tax, these gifts will cause the imposition of a penalty period.

  • Excessively spreading gifts out

    Once the decision to make gifts is made, they should be done as quickly as possible to start the five-year clock running.

  • Making gifts that fail to preserve the step-up in basis

    Assets gifted directly to an individual do not receive a step-up in basis at the transferor's death.

  • Gifting too much

    Leaving the transferor with insufficient assets to pay expenses during the five-year waiting period.

  • Gifting too little

    Leaving grantor with too many assets when long-term care is needed, causing those assets to be spent down.

  • Gifting into financial uncertainty

    Once assets are gifted, they are subject to the recipient's life events including divorce and lawsuits.

A young girl giving her grandfather a present
For more information on long-term care planning, request your copy of "Medicaid Eligibility Planning and Common Gifting Mistakes" today.
Graphic of our Medicaid Eligibility Planning and Common Gifting Mistakes booklet