How to Protect Medicaid Eligibility
Medicaid provides health coverage for millions of Americans, including children, pregnant women, parents, elderly people, and people with disabilities.
Medicaid law imposes technical requirements, such as proof of residence and having a social security number, but it also imposes financial requirements that set very strict asset and income limits.
In many cases, receiving just a one-time payment of $2,000 or more can cause someone to lose their Medicaid. Some exceptions apply, but gifts, inheritances, and personal injury settlements can all cause someone to lose Medicaid.
Worse still, many Medicaid programs also impose transfer penalties, which means that giving away assets to friends or family members will not protect Medicaid eligibility. In fact, giving away assets can actually create penalty periods. However, one of the easiest and most beneficial ways to protect Medicaid eligibility is to establish a Special Needs Trust.
Ellie has lived alone since her divorce several years ago, and both of her adult children live out of state. She only receives a small pension and relies on Medicaid to meet her chronic medical needs. Because Medicaid requires that she have limited income and no more than $2,000 in countable assets, Ellie has no meaningful choice but to live a very difficult and compromised lifestyle. Ellie recently learned that she is about to receive a modest inheritance from an aunt’s estate. Understandably, this makes her hopeful because she will be able to pay off some debt and put away some savings for future needs. However, Ellie is soon disappointed when she learns that even this modest inheritance will cause her to lose her Medicaid because the inheritance will be a countable asset. In other words, the inheritance will cause Ellie to exceed the asset limit imposed by Medicaid.
What would otherwise be good news creates a quandary for Ellie. If she loses her Medicaid, she will be forced to pay privately for her chronic medical needs. This means her inheritance will be quickly dissipated because she will be forced to pay privately for her medical care. She will also be paying at significantly higher rates because she will not be able to pay at the lower rates negotiated between her State and her State’s Medicaid service providers. Ellie can reapply for Medicaid after her inheritance has been dissipated, but the application process can be difficult and time consuming. Even if Ellie can navigate the application process and begin receiving Medicaid again, she will find herself right back where she started with mounting debt and no savings for her future needs.
Eventually, Ellie solved her problem by making the decision to establish a Special Needs Trust. By establishing her Trust, Ellie is able maximize all of the resources available to her by preserving both her Medicaid and her inheritance. Because of her decision, she continues to receive the critical medical care she needs while also safe guarding her inheritance so it can be used for her current and future supplemental needs.