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Medicaid Eligibility Fact Sheet

What is Medicaid?

Medicaid is health insurance that helps many people who can’t afford medical care pay for some or all of their medical bills. Medicaid is available only to people with limited income. You must meet certain requirements in order to be eligible for Medicaid.

Who qualifies for Medicaid?
Many groups of people are covered by Medicaid. Even within these groups, though, certain requirements must be met. These may include your age, whether you are pregnant, disabled, blind, or aged; your income and resources (like bank accounts, real property, life insurance, or other items that can be sold for cash); and whether you are a U.S. citizen or a lawfully admitted immigrant. The rules for counting your income and resources vary from state to state and from group to group. There are special rules for those who live in nursing homes and for disabled children living at home.

Who qualifies for Long Term Care to be covered by Medicaid?
In addition to financial eligibility, states determine if an individual meets the functional criteria by assessing the limitations in an individual’s ability to carry out activities of daily living (ADLs) and instrumental activities of daily living (IADL). The Medicaid statute requires states to use specific income and resource standards in determining eligibility; these standards differ based on whether an individual is married or single. If a state determines that an individual has transferred assets for less than “fair market value” (FMV), the individual may be ineligible for Medicaid coverage for long term care for a period of time.
Individuals who incur high medical costs may “spend down” into Medicaid eligibility because these expenses are deducted from their income. Spending down may bring their income below the state determined income eligibility limit.

What type of assets count against Medicaid eligibility
Income and Assets are both calculated to determine Medicaid eligibility. Income from work, investments, and entitlements such as Social Security all need to be reported by the applicant. Assets such as cash, stocks, bonds, trusts, annuities, real estate, vehicles and life insurance all must be reported and are calculated for eligibility. States determine their own specific eligibility standards within federally mandated parameters.

How is life insurance counted as an unqualified asset?
Ownership of any in-force life insurance policies must be reported by the applicant when determining eligibility for Medicaid and failure to report is fraudulent. Specific limitations vary by state, but any policy with cash value in the range of $1,500 to $2,500 must be liquidated and the proceeds spent down on care before eligibility is approved. Exemptions are allowed for final expense policies if the entire policy is assigned to a funeral home. Term policies that do not have cash value are also exempt, but the death benefit and estate is subject to legal action and liens by the Medicaid department to recover all money spent on care for the deceased.
Life insurance is an unqualified asset and counts against the Medicaid applicant’s eligibility to qualify. Any amount of money derived from ownership of a life insurance policy must be either spent down on care (cash value or monetary value available while alive) or the death benefit is subject to legal action against the estate as part of Medicaid’s required asset recovery procedures.

What are the rules for Medicaid Recovery actions?
The Omnibus Budget Reconciliation Act (OBRA) of 1993 defines estate and requires each state to seek adjustment or recovery of amounts correctly paid by the state for certain people with Medicaid. The state must, at a minimum, seek recovery for services provided to a person of any age in a nursing facility, intermediate care facility for the mentally retarded, or other medical institution. The State may at its option recover amounts up to the total amount spent on the individual’s behalf for medical assistance for other services under the state’s plan. For individuals age 55 or older, States are required to seek recovery of payments from the individual’s estate for nursing facility services, home and community-based services, and related hospital and prescription drug services. States have the option of recovering payments for all other Medicaid services provided to these individuals.
People with Medicare are notified of the Medicaid estate recovery program during their initial application for Medicaid eligibility and annual redetermination process. Individuals in medical facilities (who do not return home) are sent a notice of action by their county Department of Social Services informing them of any intent to place a lien/claim on their real property.  The notice also informs them of their appeal rights. Estate recovery procedures are initiated after the beneficiary’s death.

Can ownership of a life insurance policy be transferred to keep the policy in the family?
When an individual applies for Medicaid, the State conducts a “look back” to find transfers of assets for 60 months prior to the date the individual is institutionalized or, if later, the date he or she applies for Medicaid. All transfers made by the applicant or the applicant’s spouse subsequent to January 1, 2010, whether from an individual or to an individual or from a trust or to a trust, have a five-year look-back period.
These provisions apply when assets are transferred by individuals in long-term care facilities or receiving home and community-based waiver services, or by their spouses, or someone else acting on their behalf. At the state’s option, these provisions can also apply to various other eligibility groups.
Transferring ownership of a life insurance policy for less than its fair market value would be a violation of Medicaid’s asset transfer and look back requirements. A policy can be surrendered for its cash value to be spent down on care or a policy can be converted for its market value and the benefit of that conversion can be used to pay for long term care as a qualified spend down.

Are there penalties or delays to qualify for Medicaid based on violations of asset transfers and reporting?
If a transfer of assets for less than fair market value is found, the State must withhold payment for nursing facility care (and certain other long-term care services) for a period of time referred to as the penalty period.
The length of the penalty period is determined by dividing the value of the transferred asset by the average monthly private-pay rate for nursing facility care in the State. Example: A transferred asset worth $90,000, divided by a $3,000 average monthly private-pay rate, results in a 30-month penalty period. There is no limit to the length of the penalty period.
(Section 1917(c) of the Social Security Act; U.S. Code Reference 42 U.S.C. 1396p(c))


Health and Human Services (HHS) Center for Medicare and Medicaid Services (CMS) (
United States Government Accountability Office (GAO) report to the United States Congress, “Medicaid Long Term Care” report, March, 2007

About Chris Orestis

Chris Orestis
Chris Orestis is president and founder of Life Care Funding Group; a 15-year veteran of both the life insurance and long term care industries, and a frequent speaker, featured columnist, and contributor to a number of industry publications. His blog on senior living issues can be found at He can be reached at 888-670-7773 or

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