Medicaid has an enormous number of complicated rules, and reading convoluted life insurance policies can make lawyers want to weep. How are you supposed to plan for the future in the midst of this quagmire? This blog provides insight on Medicaid and life insurance policies – what you need to know.
People typically have two primary concerns about the intersection of Medicaid and life insurance:
- Will life insurance prevent me from being eligible for Medicaid?
- Will Medicaid take life insurance proceeds away from my estate after I die?
Will life insurance make me ineligible for Medicaid?
This issue has two components: assets and income.
- If I own life insurance, does that count as an asset that could disqualify me from Medicaid eligibility? That depends on what kind of life insurance you own. Term life insurance has no cash value, so it will not count as an asset. Whole life insurance, on the other hand, has cash value that can count as an asset. If the cash value puts your total assets over the Medicaid resource limit, you could be ineligible for Medicaid.
- If I receive life insurance proceeds, will that make me ineligible for Medicaid benefits? In the past, receiving life insurance proceeds could have made you ineligible for Medicaid benefits, if the proceeds took you over the income limit. Although many types of non-taxable income did count toward Medicaid/CHIP eligibility before MAGI (modified adjusted gross income), MAGI does not count most non-taxable income, including life insurance proceeds. Note: With the ever growing demand for public benefits like Medicaid and ever shrinking government budgets to provide those benefits we are entering uncharted waters when it comes to what is or will be considered when planning for Medicaid eligibility.
Please be aware that the new MAGI calculation is part of the Affordable Care Act, which is currently a hot topic in politics. The rules on life insurance and Medicaid are in a state of flux.
Can Medicaid take away life insurance proceeds from my estate after I pass away?
Yes. If you are 55 or older, your state Medicaid program is required to go after money from your estate to pay back the Medicaid program for benefits you received during your lifetime. This is known as estate recovery. If Medicaid paid for you to be in a nursing home, the state program will require your estate to pay back those funds. Other Medicaid services the state program will try to recover from your estate include:
- Hospital bills
- Home and community-based services
How can I protect my life insurance policy proceeds from being taken by Medicaid after I die?
The best advice is to not make your estate the beneficiary of your life insurance policy. Your state Medicaid program will try to take away money in your estate. However, if your life insurance proceeds do not go into your estate, most state Medicaid programs cannot get those proceeds. Instead of naming your estate as your life insurance beneficiary, designate the person or persons you want to receive the life insurance proceeds as the beneficiary.
There are limitations on what your state Medicaid program can take from your estate. A state can elect not to take money from your estate, if it determines that taking from the estate would create an undue hardship on your survivors, or if it is not cost-effective to pursue benefits reimbursement from your estate.
Your state Medicaid program may handle life insurance issues in a different way. Always talk with a local elder law attorney before making any decisions about Medicaid or life insurance.
Centers for Medicare & Medicaid Services. “MAGI 2.0: Building MAGI Knowledge.” (accessed July 11, 2017) https://www.medicaid.gov/state-resource-center/mac-learning-collaboratives/downloads/part-2-income.pdf
AgingCare.com. “How Life Insurance Policies Affect Medicaid Eligibility.” (accessed July 11, 2017) https://www.agingcare.com/articles/life-insurance-medicaid-eligibility-150880.htm
ElderLawAnswers. “Medicaid’s Power to Recoup Benefits Paid: Estate Recovery and Liens.” (accessed July 11, 2017) https://www.elderlawanswers.com/medicaids-power-to-recoup-benefits-paid-estate-recovery-and-liens-12018
Nolo. “How Medicaid Recovers the Cost of Long-Term Care From Your Estate After You Die.” (accessed July 11, 2017) https://www.nolo.com/legal-encyclopedia/how-medicaid-recovers-the-cost-long-term-care-from-your-estate-after-you-die.html
Centers for Medicare & Medicaid Services. “Estate Recovery and Liens.” (accessed July 11, 2017) https://www.medicaid.gov/medicaid/eligibility/estate-recovery/index.html