Seek Help With Medicaid Application And Spend
Medicaid is a very complex government program. Just because a seniors assets exceed the general limits listed above does not mean they are automatically ineligible for coverage. Different states implement slightly different rules and resource limits, and an elder can devise a personalized asset spend-down strategy to meet their states eligibility criteria.
In addition to asset limits, there are many other guidelines for calculating countable income and determining ones medical need for care and assistance. Furthermore, different financial rules apply for married couples. It is recommended to familiarize yourself with these eligibility requirements early on in case you ever need to help an aging loved one apply for Medicaid .
Working with a certified elder law attorney who has extensive knowledge of the unique Medicaid program in your state and is well versed in legal and financial Medicaid planning strategies is crucial. In most cases, handling the application process without any professional assistance can result in a determination of ineligibility and even a costly Medicaid penalty period.
Your Subsidies Might Go A Long Way Towards Covering The Contributions You Make To Your Ira And Hsa
To put all of this in perspective, consider a married couple, each 55 years old, with HSA-qualified health coverage and a combined household income of $80,000. Prior to the American Rescue Plan, this was well above the MAGI cap for premium subsidy eligibility . Now that the ARP has been implemented, this couple would be eligible for a subsidy even with a MAGI of $80,000. But well use this example to illustrate how their subsidy will increase if they make various pre-tax contributions.
Assuming they have earned income , they can each contribute up to $7,000 to an IRA for 2022 , and they can contribute up to$7,300 to an HSA. Contributing the maximum amounts would bring their 2022 MAGI down to $58,700.
Lets say this couple lives in Norfolk, Virginia. In 2022, with the American Rescue Plans subsidy enhancements in effect, they qualify for a monthly subsidy of $1,040 if their MAGI is $80,000. But if their income is $58,800, they qualify for a subsidy of $1,268 per month .
Thats an extra $228 per month in subsidies, amounting to $2,736 for the year, just because they opted to make the maximum contributions to their IRAs and HSA. And thats in addition to the normal tax advantage that goes along with those plans, in terms of not having to pay income tax on the contributions, and tax-free growth in the accounts.
Accounts And Iras: How They Affect Medicaid Eligibility
If your loved one plans to apply for Medicaid to cover their nursing home expenses, you are probably aware that not all assets are counted for purposes of determining their eligibility. While a Medicaid applicant may not have more than $2,000 of countable assets, there are many forms of assets that are not countable . In other words, they are simply excluded from Medicaids $2,000 asset limit.
The main exemptions are the applicants home, car, personal property and jewelry, and their pre-paid funeral and burial. Any stocks, bonds, mutual funds, additional real estate and cash in the bank are all countable, assuming they are in the applicants name only or they are listed as a joint owner of such assets.
However, depending on the rules of the particular state in which your loved one is applying for Medicaid, their retirement plan assets , 401, 403, 457, etc.) may be completely exempt. Unfortunately, there is no blanket federal rule that applies, so you need to find out the specific rules from the Medicaid bureau in your loved ones state in order to know for sure.
Learn More: Medicaid Resources by State
That being said, there are some general rules you both should be aware of. First of all, in many states if the retirement plan account is in pay out status or is paying the minimum required distribution , then such payments are treated like an annuity and counted as income in the month they are received. The total balance in the account, though, is considered exempt.
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How Is Income Counted
MNsure uses modified adjusted gross income to determine the programs and savings you are eligible for. For most people, its identical or very close to adjusted gross income , which is a line on your federal tax return. MAGI is not a line on your federal tax return but can be estimated using the information outlined under the Income Information topic below.
If an individual’s current income hasn’t changed from their most recent tax return, you can use that tax return as a guide on what types of income and income adjustments to report.
The application will compare the information you provide with information from the IRS, the Social Security Administration, the Minnesota Department of Employment and Economic Development and other sources. You will be asked to provide proof of the income if what you report is significantly different than the income from these sources.
Are Assets In An Ira Counted By Medicaid
Before we address the question that serves as the title of this blog post, we should explain why Medicaid can be relevant to you, even if you are going to qualify for Medicare as a senior citizen. The United States Department of Health and Human Services tells us that 40 percent of people that reach the age of 65 will eventually need living assistance. Many of them will require nursing home care toward the end of their lives.
The Medicare program will not pay for the custodial care that you would receive in a nursing home. These facilities are extremely expensive, so an extended stay can potentially consume everything that you intended to leave to your loved ones if you have to pay out-of-pocket.
Medicaid will pay for long-term care, and this is why many people take steps to gain Medicaid eligibility. Of course, you are probably aware of the fact that Medicaid is a program that is intended for people with very limited financial resources. In most parts of the country, the limit on countable assets is $2000, but we get a slight break here in New York. In 2018 in the Empire state, the limit is $15,150.
Clearly, that is not a lot of leeway when you are talking about all of the resources that you have been able to accumulate throughout your life. However, there is a bit of good news to pass along. Some assets are not counted, so you to get somewhat of a break from the outset.
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How To Turn A 401 Or Ira Into An Asset That Is Exempt Or Non
As a quick review, in Florida, Medicaid will not be offered to someone who has more than $2,000 in countable assets or grosses more than $2,382 per month in income as of January 2021 . Elder law attorneys who engage in Medicaid planning have a variety of strategies to choose from depending on what asset and income sources they need to protect.
âWith a 401k or IRA, there are two options to choose from:
You Have Until April To Make The Prior Years Hsa Or Ira Contributions
Another thing to keep in mind about HSA and IRA contributions: You can deposit money in those accounts at any time during the year or even in the first few months of the next year, as long as you make your contributions before the tax filing deadline.
So if you enroll in an HDHP through the exchange for 2022, you have until April 15, 2023 to contribute to an IRA and/or an HSA and reduce your MAGI for 2022 .
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There Are Some Tools You Can Use To Avoid Spending Down All Of Your Assets And Potentially Impoverishing A Spouse While Still Meeting The Qualifications For Medicaid
The bill for long-term care adds up fast. The annual median cost for a private room in a nursing home was $105,850 in 2020, according to Genworth. The government could pick up these costs if you qualify for Medicaid, but thats easier said than done. Medicaid is a welfare program, says Neel Shah, estate-planning attorney and a certified financial planner at Shah & Associates in Monroe Township, N.J. There are strict income and wealth limits to qualify.
Medicaid should not be confused with Medicare, the national health insurance program for people age 65 and over that largely doesnt cover long-term care.
If you can pay for your own care, youll have more options as not all facilities accept Medicaid. Still, even couples with ample savings risk impoverishing the other spouse to pay for a long stay in a nursing home. If thats what you fear, you may be surprised to learn that you can preserve some assets for a spouse and qualify for Medicaid using tools designed for that purpose.
Redistributing your assets can help you meet Medicaids standards. Rather than keeping $100,000 in the bank, use that money to pay off your mortgage or pay for home renovations, says Shah. Alternatively, you could prepay a burial plot, replace a vehicle or upgrade household appliances. Your spouse will keep these purchases if you need long-term care, and with fewer assets to spend down, youll qualify for Medicaid sooner.
How To Find Out If You Are Eligible For Cash Assistance
Visit the Cash Assistance website to learn more about this program. Ask for Cash Assistance. Call the HRA Infoline at 718-557-1399 for more information. Find an HRA Job Center near you. 2. Determine your eligibility This program looks at several things to decide if you are eligible. Some of them include:
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Can Medicaid Take Your Ira
April 18, 2019 by Anthony Moccia
When you plan for your retirement years, have you taken into account the possibility that you will need to pay for long-term care? If not, you should. Given the high cost of nursing home care, many seniors turn to Medicaid to help cover those expenses. Qualifying for Medicaid, however, could threaten your retirement nest egg if you failed to plan ahead. For example, if you are one of the many people who is planning for retirement by funding an Individual Retirement Account , you need to consider whether Medicaid can take the funds in your IRA and plan accordingly.
Medicaid: What Do I Count As Income
Marketplaces, Medicaid, and CHIP all use MAGI to determine a households income for eligibility. MAGI stands for Modified Adjusted Gross Income. The best way to figure it out is to work through the numbers backward.
Start with your gross income, which is your total taxable income. If you have multiple income streams, you add them all together to get your total income. Taxable income may include wages, salaries, bonuses, alimony, self-employment income, pensions, punitive damages, IRA distributions, jury duty fees, unemployment compensation, rents, royalties, severance pay, gambling winnings, interest, tips, and estate or trust income.
You may also be receiving income that is not considered taxable. You do not have to include this income when applying for Medicaid. Types of non-taxable include may include child support, gifts, veterans benefits, insurance proceeds, beneficiary payments, AFDC payments, injury payments, relocation pay, TANF payments, workers compensation, federal income tax refunds, and SSI payments.
Once you know your gross income, you can subtract IRS-approved deductions to get your adjusted gross income . For those that are self-employed, these deductions include any business related expenses. They also include alimony payments, IRA contributions, tuition and fees, student loan interest, and work-related moving expenses.
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What Is Included In Magi
Medicaid determines your eligibility based on your reported household MAGI. This is a relatively complex process that excludes some types of income while including others. In general, MAGI includes the following types of income:
- The adjusted gross income you report on your federal tax return, which may include tips, earned wages and self-employment income
- Certain types of tax-exempt interest
- Excluded foreign income
- Income from rentals and royalties
- Capital gains and investment income
- Non-taxable Social Security benefits, including disability payments
- Taxable Social Security benefits
- Retirement and pension payments
Other types of income may be included in MAGI in certain instances. For instance, unemployment compensation is usually included in this figure. The exception would be the additional $300 per week in federal payments that began in 2019 and is still in effect. Alimony that is paid on divorces and separations that were finalized before January 1, 2019, should be included in MAGI. Divorces and separations finalized on or after that date, however, are not included as part of MAGI.
Income Definitions For Marketplace And Medicaid Coverage
Financial eligibility for the premium tax credit, most categories of Medicaid, and the Childrens Health Insurance Program is determined using a tax-based measure of income called modified adjusted gross income . The following Q& A explains what income is included in MAGI.
How do marketplaces, Medicaid, and CHIP measure a persons income?
For the premium tax credit, most categories of Medicaid eligibility, and CHIP, all marketplaces and state Medicaid and CHIP agencies determine a households income using MAGI. States previous rules for counting income continue to apply to people who qualify for Medicaid based on age or disability or because they are children in foster care.
MAGI is adjusted gross income plus tax-exempt interest, Social Security benefits not included in gross income, and excluded foreign income. Each of these items has a specific tax definition in most cases they can be located on an individuals tax return .
|FIGURE 1:Formula for Calculating Modified Adjusted Gross Income|
What is adjusted gross income?
What types of income count towards MAGI?
All income is taxable unless its specifically exempted by law. Income does not only refer to cash wages. It can come in the form of money, property, or services that a person receives.
Table 1 provides examples of taxable and non-taxable income. IRS Publication 525 has a detailed discussion of many kinds of income and explains whether they are subject to taxation.
Whose income is included in household income?
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What Is The Highest Income To Qualify For Medicaid
Each state sets its own eligibility requirements for Medicaid, including income limits.
Medicaid uses the Federal Poverty Level as a benchmark to determine ones eligibility. In most states that grant Medicaid to low-income adults, individuals are eligible for Medicaid if they have an income that is at or below 150% of the FPL. The state in which you live and the type of Medicaid you are applying for may dictate a different income amount.
More From This Series Insuring Your Health
However, taking money out of an IRA before age 59 ½ would generally subject people to a 10 percent tax penalty, says Haile, unless they can sidestep it because they qualify for one of several exceptions due to financial hardship or other life events like buying a home for the first time.
Is it a good tradeoff? Its hard to say, says Haile. I just hope to never have to raid my retirement account to pay for health insurance for my family.
Please send comments or ideas for future topics for the Insuring Your Health column to .
This article was produced by Kaiser Health News with support from The SCAN Foundation.
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Cash Out The 401k Or Ira
The other way to turn the 401 or IRA into a non-countable asset â is to make the asset disappear and liquidate the account. Your elder law attorney would then be able to shelter the assets with a spenddown strategy, special needs trust, Medicaid compliant annuity .
Again, if the Medicaid applicant is looking to withdraw from the funds early, there may be a 10% penalty in addition to whatever they have to pay in income taxes on the new sources of income.
What If You Need To Increase Your Magi To Qualify For Subsidies
On the other end of the spectrum, people living in states that have not expanded Medicaid may need to increase their MAGI in order to qualify for a subsidy, since Medicaid is available in those states on a very limited basis, and premium subsidies in the exchanges are not available to households with incomes below 100% of federal poverty level . As noted above, the Build Back Better Act would temporarily fix this situation, by providing premium subsidies for people with income below the poverty level, from 2022 through 2025.
Navigators in those states recommend that residents keep track of every penny they earn, even from infrequent jobs. Some residents have been able to cobble together enough income from a variety of sources to get above 100% of poverty, even though the income from their primary job was too low to qualify for subsidies. Things like babysitting, selling extra garden produce, handyman work, and utilizing craft fairs to market a hobby like knitting or woodworking can sometimes make the difference.
If your income is very low and the marketplace is showing that youre not eligible for Medicaid or any financial assistance with your coverage, youre probably in the coverage gap. Again, the Build Back Better Act would temporarily fix this situation. But for now, this article is a good summary of how you might be able to avoid the coverage gap.
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The Medicaid Estate Recovery Program
If you do manage to get qualified for Medicaid without the loss of assets, do not make the mistake of assuming you are home free. Your initial eligibility evaluation for Medicaid is not the only time your assets could be at risk. The Medicaid Estate Recovery Program puts your assets at risk once again after your death. The purpose of MERP is to allow the individual states to try and recover some of the funds they spend on Medicaid recipients after the recipients death. The MERP rules allow the state to file a claim against the recipients estate, for the amount spent on the recipient, during the probate of the estate. Assets included in your estate after your death are, therefore, still at risk of being lost to Medicaid. There are, however, some limits to MERP. MERP cannot go after your property if any of the following apply:
- There is a spouse who is still alive.
- There is a child under 21 years of age.
- There is a child of any age who is blind or permanently and totally disabled under Social Security requirements.
- If doing so would cause an undue hardship
In addition to the legal exclusions, the individual states have considerable discretion with regard to pursuing MERP claims. Some states routinely file claims against the estates of all Medicaid recipients while other states are more selective about filing claims.
Contact a Medicaid Planning Lawyer