How Is Income Treated When Applying For Medicaid?

by James Henry Lockwood on Sep. 04, 2019

Health Care Medicare & Medicaid 

Summary: We previously discussed the differences between assets and income in regards to applying for Medicaid. Now we will examine how Medicaid treats income.

We previously discussed the differences between assets and income in regards to applying for Medicaid. Now we will examine how Medicaid treats income.

The information below is an abbreviated overview of individual income taken into account for eligibility under Medicaid.

For married couples, both incomes are considered when determining Medicaid eligibility.  When the income is distributed jointly to both spouses, it is assumed that each spouse shares an equal interest.  Actual income contributions to the cost of care for the Medicaid eligible spouse, however, depend on the personal income of each spouse.

What is Income?

Total monthly income is the gross amount received by the individual or generated by his/her assets.  This includes but is not limited to:

  • Pensions
  • Social Security Payments
  • Income from Annuities/IRAs
  • Net income from rental property
  • Interest on loans and mortgages
  • Dividends and/or interest from stocks or bonds
  • Capital gain distributions, (e.g., from mutual funds, other regulated investment companies, or real estate investment trusts), noted on “Internal Revenue Form 1099-DIV, Dividends and Distributions,” whether paid as cash or reinvested.
  • Life Insurance:  When a person becomes the beneficiary of benefits under a life insurance policy, the monies are considered income in the month in which they are received.  Dividends from life insurance are NOT considered income, but interest on dividends from a life insurance policy IS considered income.

What is otherwise available income?

The income of the spouse at home (the community spouse), may be adjusted by certain permissible deductions.  The net result of this calculation is called “otherwise available income”.

Although other specialized deductions exist, the most common permissible deductions from the spouse at home’s gross income are:

  1. Health insurance premiums (including premiums for long term care insurance);
  2. Incapacitated adult/child care costs (actual);
  3. Court ordered support (Paid Out).

How is income treated in the Medicaid eligibility determination process?

Income eligibility for Medicaid is determined on a monthly basis.  Because of this, Medicaid differentiates between periodic income and non-periodic income.

Periodic income is received on a regular schedule, for example, once a month, once a quarter, once a year, etc. Some examples of periodic income are pensions, annuities, and IRA withdrawals.

Non-periodic income is income received on an irregular schedule such as an inheritance, or an award. Non-periodic income is counted in the month in which it becomes available.  After that, it is considered a resource.

This means that if the individual were to receive monies that would cause his/her income to exceed the cost of his/her care, he/she would be ineligible for Medicaid for that month only, regardless of whether the money is all spent by the end of the month.

For example, needed care is $5,000/month and a CD matures, when the CD’s interest is combined with regular monthly income, it gives the individual $7,000 that month.  In this instance, the individual would be ineligible for Medicaid in that month but eligible in the following month even if he/she merely deposits the extra amount.

Periodic income is applied on a monthly basis regardless of how often it is received during the year.

For example, if an annuity paid out once a year, the amount paid would be divided by twelve (12) to establish total monthly income.

How are annuity and IRA payments treated?

All monies received on a periodic basis from an annuity or IRA, whether received monthly, quarterly, semi-annually, or annually, are considered income regardless of whether such monies represent a payout of interest or principal. However, if the total principal were to be withdrawn in a lump sum, the money would be considered a resource.

May I transfer income?

It depends upon the facts of your situation. When the transfer or conversion of protected resources results in the transfer or loss of income that was earned by those protected assets, no transfer penalty shall apply.  For example, if you were to sell a rental properly, previously providing your income.

However, income transfers other than through the transfer of income attached to protected resources may result in penalties. For example, if you began transferring stock dividends to another person, this would be considered an improper transfer and result in a Medicaid penalty period being applied.

It is crucial you obtain competent counsel to navigate the complexities of the Medicaid eligibility process. Attorneys at Lockwood Legal Services have previously represented the state Medicaid Agency as their former counsel. Thus, we have the experience to fight for your successful enrollment.

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