Medicaid is a joint state and federally funded health insurance program intended for people with low income and a critical need for medical care. Those whose non-exempt assets are above the state-mandated amount cannot qualify for assistance until their assets are drained by health care costs. This can be devastating for a family that has saved diligently over the years, especially if a spouse or dependent child is involved.

Fortunately, there are certain ways to reduce non-exempt assets or to “spend down” assets in very specific ways so that they are excluded—and thus protected—from the total assets considered to qualify for Medicaid.

Who Qualifies for Medicaid?

Generally, seniors aged 65 or older, low-income adults with or without children, pregnant women, and disabled individuals can qualify for Medicaid depending on their income and assets. The limit on how many assets and how much income a person is allowed are determined at the state level. If your assets are more than allowed, you will be required to either spend them down or move them into types of assets that are considered exempt before Medicaid coverage is approved. Depending on the transfer of assets, this may need to be done up to 5 years before your application is made to Medicaid, so planning ahead, if at all possible, is extremely helpful.

Non-exempt Assets

Non-exempt assets are those that Medicaid considers as part of your accessible, countable assets when you apply for assistance. Non-exempt assets will be considered as available to you to use toward paying the cost of your medical care. This includes money and a variety of real and personal property which can be valued and turned into cash. These include (but are not limited to):

  • Cash
  • Checking and savings accounts
  • CDs, stocks, bonds, or mutual funds
  • Retirement accounts including IRAs, 401(k)s, 403(b)s
  • Prepaid funeral contracts that are not irrevocable (can be cancelled)
  • Trusts (depending on how they are set up and your access to them)
  • Property other than the primary residence
  • Jewelry and valuable art or collections
  • More than one vehicle, boats, RVs, etc.
  • Cash surrender of life insurance with a face value of $1,500 or more

Exempt Assets

Exempt assets are assets that are protected, at least for the time-being, from being included in your non-exempt or countable assets. This is not an exhaustive list, but indicates the types of assets that are generally excluded. Rules will vary from state to state, but generally exempt assets include:

  • Your principal residence (subject to equity limits in some states) if you, your spouse, or dependent child still live in the house, or if you intend to return to the house.
  • Personal property and effects, such as furnishings, belongings, appliances, and household goods. Some states place a cap on the allowable amount.
  • Life insurance with a cash value up to $1,500. Term life insurance is generally excluded as an asset.
  • A designated revocable account for burial funds with a value of up to $1,500 per spouse. Other burial funds, irrevocable burial contracts, and cash surrender value from life insurance will reduce this allowable amount.
  • An irrevocable contract for burial space items (with no limitation on the amount) for you and your immediate family members including your spouse, your children (including adoptive and stepchildren), their spouses, your siblings and their spouses, and your parents. Burial space items include caskets, urns, vaults, burial plots, cremation niches, headstones, opening and closing of the grave, and perpetual care. Burial space items are counted as separate from burial funds.
  • A larger irrevocable contract for burial funds for you and your spouse that includes funeral service costs such as transportation of the body, embalming, cremation, flowers, clothing, services of the funeral director and staff, etc.
  • One automobile (in some cases there is a limit on the market value) for spouse or child if used to visit the person who is ill.
  • One wedding and engagement ring.
  • A married couple can keep considerably more if one spouse is still well, and does not need Medicaid, in most cases half the assets up to a certain amount.

What Is the Difference Between Burial Funds and Burial Space Items?

Medicaid allows for burial funds and burial space items to be set aside within an irrevocable contract as two separate categories. “Irrevocable” means that there is no option available to cancel the contract for its cash value, which excludes it from being counted as an asset. Medicaid differentiates between the services of a funeral home, called “burial funds,” and items associated with the burial of a body, called “burial space items.”

Burial funds may include everything that may be needed for a funeral service for both the Medicaid applicant and his or her spouse, including funeral goods and services, embalming, cosmetics, clothing, cremation fees, flowers, honorariums, limousines, police escort, obituaries, and so on. The burial funds must be placed in an irrevocable prepaid funeral contract (maximum value determined by state), or they must be less than $1,500 if the funds are in a revocable account. An irrevocable contract allows more burial funds to be set aside and protects your assets so that those funds are not lost to nursing home care and can be used for funeral and burial expenses.

Burial space items can be purchased for the applicant, his or her spouse, and the applicant’s immediate family members and their spouses, allowing some of the family’s assets to be preserved for children. Burial space items must be placed within an irrevocable contract and may include items such as caskets, urns, grave liners, vaults, opening & closing of grave, burial plots, cremation niches, family crypt, grave markers, and perpetual care. Properly structured burial space contracts may be excluded as an asset regardless of value.

Be sure to consult a professional tribute planner or a licensed funeral director to ensure that your contract meets all of your state’s requirements for Medicaid spend down.

Important Notice about Medicaid Eligibility Rules

Please be aware that Medicaid rules vary greatly from state to state and are constantly changing. The listed examples of exempt and non-exempt assets may vary from state to state and will often depend on a variety of individual factors. Most states follow the Social Security Administration’s (SSA) Supplemental Security Income (SSI) guidelines to establish Medicaid eligibility. The following states use their own rules to establish eligibility for Medicaid which are different from SSA’s SSI rules: Connecticut, Hawaii, Illinois, Indiana, Minnesota, Missouri, New Hampshire, North Dakota, Ohio, Oklahoma, Virginia. An attorney can assist you in designing a Medicaid plan that preserves as many assets as possible under the laws and eligibility requirements of your state. Always speak to a qualified attorney who is knowledgeable in elder law before spending down or transferring assets to qualify for Medicaid. The purchase of a prepaid funeral contract is an important part of your complete Medicaid plan, so be sure to consult a licensed funeral prearrangement specialist or licensed funeral director who can assist you in creating a properly structured prepaid funeral plan.