Treatment of Income

Perhaps the most well-known requirement to qualify for Medicaid is the limitation on assets. If you’re familiar with the Medicaid program you’ll know that to be eligible for benefits in most states, single individuals must have less than $2,000 in countable assets. Aside from assets limitations however, eligibility also has requirements related to income.  

The Nursing Home Medicaid program covers a broad array of medical expenses such as prescriptions, medical appointments and long-term care in a skilled nursing facility. Although Medicaid will cover the majority of medical expenses, in most cases the Medicaid recipient is required to contribute a portion of their income to the nursing home.

For single individuals, states require that most of the income is paid to the nursing home; this is called the Share-of-Cost or Resident Contribution. But before paying the nursing home, Medicaid recipients are allowed to pay a few bills, specifically premiums for any health or prescription insurance. Once those are paid, one is allowed to keep a nominal amount of income as a personal needs allowance, somewhere in the neighborhood of $40 – $60, depending on the state.

Here’s how it works:

1. Medicaid uses the total gross income to determine an applicant’s Share of Cost. Let’s say in this example, the gross income is $1,750.
2. The bills Medicaid allows to be deducted from income are health and prescription insurance premiums. This doesn’t include the Medicare premium because Medicaid will pay that premium once someone is approved. In this example, the health insurance premium is $100 and the prescription insurance is $25.
3. Next is the Personal Needs Allowance. For this example, we’ll use $45.
4. Last is the Share of Cost or Resident Contribution to the nursing home. Let’s do the math to determine how much the person in this example will pay to the nursing home.

$1,750       (Gross income)

-$125         (Insurance premiums)

-$45           (Personal Needs Allowance)

———————————————————-

$1,580      (Total)

This person will pay $1,580 to the nursing home as their portion of the total cost. Medicaid will pay the difference between $1,580 and the Medicaid Reimbursement Rate, which varies per facility.

It’s important to note that Medicaid doesn’t ‘take’ income, the Share of Cost is paid to the nursing home each month, not to Medicaid.

For a married applicant, the calculation is a little more complicated. This is due to the Community Spouse Resource Allowance (CSRA). The CSRA is in place to make sure that the spouse still living at home doesn’t become impoverished. Essentially, Medicaid policy allows the spouse in the nursing home to divert a portion of their income to the spouse at home, up to a certain limit.

Let’s look at another example. Let’s say the institutionalized spouse is Bob, and his wife Mary is the community spouse.

In this case, we’ll use the limits according to the Medicaid program in Utah. As of the date of this writing, the most income a spouse can receive between their own income and a diversion of the institutionalized spouse’s income is $3,260.

If Mary already earns that much on her own, then Bob will not be able to divert any of his income. If Mary earns less than that limit, the difference can be diverted from Bob’s income.

$3,260 (Maximum income)

-$1,200 (Mary’s gross income)

______________________________________

$2,060 (Total)

$2,060 is the most income Mary can receive from Bob. Bob’s gross income is $2,450, and his health and prescription insurance is $200 per month. Let’s do the math:

$2,450       (Gross income)

-$2,060      (Spousal diversion)

-$200         (Insurance premiums)

-$45           (Personal needs allowance)

________________________________________

$145 (Total)

Mary now receives a portion of Bob’s income, and Bob only has to pay $145 as his Share of Cost to the nursing home.

Lastly, the discussion of income as it relates to Medicaid eligibility is not complete without mentioning Qualified Income Trusts (QIT), also known as Miller Trusts. A full, detailed description of QITs is outside the scope of this article, but let’s take a quick look.

Essentially there are 25 states that require these trusts. In those states, Medicaid has an income limit for the institutionalized spouse. Any income exceeding the limit is deposited to a QIT account and therefore not counted as income, which allows the applicant to become eligible.

Medicaid is a complex program with many restrictions and requirements. Understanding how the Share of Cost is calculated and making sure it’s paid to the nursing home every month are essential to qualifying and remaining eligible for Medicaid benefits. Feel free to reach out to Sensible Senior Planning with any questions about income or any other topic related to Medicaid.