Medicaid Eligibility: MAGI and Your Assets

What Counts and What Doesn't?

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Qualifying for Medicaid is not as straightforward as you may think, at least not anymore. While your income plays an obvious role—Medicaid is, after all, a program for the poor and medically needy—your eligibility could also depend on your participation in other government-run programs.

How you qualify for Medicaid affects how the government looks at your finances. Understanding the difference may be essential to protecting your assets in the long run.

Two Categories of Medicaid Eligibility

Before the Affordable Care Act, aka Obamacare, Medicaid eligibility was based on how much money you earned and how much you owned, e.g., your income, your assets, and your net worth. After the law was enacted, however, eligibility was split into two distinct groups.

Some people continued to qualify for Medicaid the old fashioned way, while others qualify based on their modified adjusted gross income (MAGI).

Medicaid Eligibility
MAGINon-MAGI

Individuals meeting these criteria:

  • 19 and 20 years old living with their parents
  • Childless adults between 19 and 64 years old who live in states with Medicaid expansion
  • Individuals eligible for the Family Planning Benefit Program
  • Infants and children less than 19 years old
  • Parents/caretakers and relatives living in the same household
  • Pregnant women

Individuals meeting these criteria:

Individuals eligible for these programs:

Depending on which group you fall into, MAGI or non-MAGI, the government uses different factors to decide if you qualify for Medicaid.

How to Calculate MAGI 

MAGI is the primary tool used by the government to determine your eligibility for Medicaid or subsidized health insurance through the Health Insurance Marketplace.

Understanding MAGI is as straightforward as your tax return which means it can get confusing. This is what you need to know.

  • Your gross income is your total earned income. It is money that is actively coming in and does not take into account fixed assets like real estate or vehicles. People who live or work abroad may take advantage of a foreign income exclusion on their U.S. tax returns.
  • Your adjusted gross income (AGI) is your gross income after qualifying tax deductions. For example, you can deduct educator expenses, health savings account deductions, IRA contributions, medical expenses, moving expenses, self-employed health insurance deductions, self-employment taxes, student loan interest on your tax returns, and tuition, etc.
  • Your modified adjusted gross income (MAGI) is your AGI with excluded foreign income, non-taxable portions of your Social Security income, and tax-exempt interest. Essentially, this adds back certain deductions from the AGI. For most people, the AGI and MAGI will be the same.
Income Adjustments for MAGI
IncludesDoes Not Include
  • Alimony received
  • Capital gains
  • Farm income
  • Earned income, domestic and foreign (salary, tips, wages)
  • Interest and dividends
  • Rental income
  • Royalties
  • Self-employment profits/losses
  • Social Security benefits
  • State income tax returns
  • Unemployment benefits
  • Alimony paid
  • Child support received
  • Gifts/inheritances
  • Non-taxable American Indian income*
  • Social Security Insurance (SSI)
  • Student loans and scholarship income*
  • Veteran's benefits
  • Worker's compensation

* = Refer to your state's Medicaid requirements

When it comes to Medicaid eligibility, however, MAGI has two components. The first is your household income, and the second is the size of your household. If you are on your own, in a family of two, or in a family of five, you will have different qualifying MAGI levels to become eligible for these programs. Each state will have different MAGI levels too, depending on whether or not they enacted Medicaid expansion.

Medicaid and the Asset Test

When it comes to non-MAGI Medicaid eligibility, both your income and your assets come into play. Most of the government programs that qualify you for Medicaid use an asset test.

SSI sets the standard. If your income and assets are above a certain level, you will not qualify for the program. In 2017, the income limit is set at $2,205 per month and the asset limits at $2,000 for an individual.

MAGI Medicaid does not cover everything. Your assets come into play when it comes to Long-Term Services and Supports (LTSS), the part of Medicaid that pays for long-term care in a nursing home.

Not everything you own will count toward your assets. This is where a bit of know-how can go a long way. If you have too many assets, you will need to spend down before you will be eligible for Medicaid. How you spend down, however, is important because you can be penalized for high-value gifts or transfers made within the past 60 months.

These are the most common assets to consider, although this list is far from exclusive:

  • Bank accounts and cash: Your first $2,000 are yours and yours alone. Medicaid will only count any dollars above this amount. For example, if you have $2,500 in your bank account, only $500 will count toward your Medicaid qualifying assets.
  • Funeral and burial funds: The government allows some dignity when it comes to death and dying. Funds used to pre-arrange a funeral or memorial are excluded from your Medicaid assets. This includes pre-purchased burial plots, not only for you but your immediate family. If no preparations are made in advance, a bank account up to $1,500 can be reserved for funeral expenses and not be counted towards your Medicaid qualifying assets.
  • Insurance policies: Not all insurance policies are created equal. Term life policies pay a benefit when you die but do not accrue cash value while you are alive. Other types of policies—permanent, universal, variable, or whole life insurance policies—earn cash value over time. These are the ones Medicaid directs its attention. Medicaid will include the cash value of a life insurance policy over $1,500 in their asset test. For example, if the cash value is $2,000, only $500 would count towards your eligibility limit.
  • Property: Your home is likely your most valuable asset, but it may not count towards your Medicaid asset test. As long as your residence is in the state where you apply for Medicaid and you are planning to return to your home, it is protected up to a value of $560,000 although some states have adopted an upper limit of $840,000. Additional properties may be excluded from the asset test. It depends on whether those additional properties are essential to your support, i.e., they generate an income that is at least 6 percent of the property value each year. Consider farms, rental properties, and other real estate investments in this category.
  • Vehicles: If you own a car, you can rest assured Medicaid is not going to hold it against you, no matter how much it costs. This could even be a Lamborghini! You can also exempt a second vehicle older than seven years old, unless it is a luxury vehicle or it is an antique or classic car older than 25 years old.

If you are married, your spouse will share a certain percentage of your assets. Each state has different rules for how this can be allocated. Be sure to check with your local Medicaid office.

Taking Advantage of MAGI

The Affordable Care Act simplified Medicare eligibility and enrollment for millions of Americans. Using MAGI for eligibility simplified the application process. The administrative burden of confirming assets was put to the wayside. Unfortunately, it also allowed wealthy people to take advantage of taxpayer dollars.

Believe it or not, millionaires can qualify for Medicaid under the current system.

This loophole occurs because the majority of Americans now qualify for Medicaid through MAGI, which unless you are seeking long-term nursing home care no longer uses the asset test. People who are asset rich, particularly those who have investments or real estate properties, can still technically meet MAGI criteria.

Someone could own a home worth $840,000, a Lamborghini, a second vehicle, hundreds of acres of farm land, and still be eligible for Medicaid. These Americans would be considered wealthy by any standards but by sheltering their net worth, they are legally eligible for Medicaid or subsidized plans through the Health Insurance Marketplace. This is the case even when they could easily dip into their assets to pay for health insurance.

For a program that is geared towards the poor, this is an outright abuse of the program. It is no wonder people are seeking out Medicaid reform.

With the GOP plans to repeal Obamacare, we could be looking at a reversal of MAGI Medicaid. We would go back to a time when your income and assets determine your eligibility.

A Word From Verywell

Medicaid eligibility can be a complicated issue. Whether you qualify by MAGI or by non-MAGI criteria, your assets will be under scrutiny if you need long-term nursing home care. Understand how your assets will be counted and you can find ways to protect them in the future.

Sources:

Eligibility and Enrollment for the Non-MAGI Population. State Health Reform Assistance Network website. http://www.statenetwork.org/wp-content/uploads/2015/09/Eligibility-and-Enrollment-for-the-Non-MAGI-Population-September-2015.pdf. Published September 24, 2015.

Medicaid Eligibility. Medicaid.gov website. https://www.medicaid.gov/medicaid/eligibility/index.html.

Medicaid Income Eligibility Limits for Adults as a Percent of the Federal Poverty Level. The Henry J. Kaiser Family Foundation website. http://www.kff.org/health-reform/state-indicator/medicaid-income-eligibility-limits-for-adults-as-a-percent-of-the-federal-poverty-level/. Published January 1, 2017.

Understanding Supplemental Security Income SSI Resources - 2017 Edition. Social Security Administration website. https://www.ssa.gov/ssi/text-resources-ussi.htm.

What Is Modified Adjusted Gross Income? Internal Revenue Service website. https://www.irs.com/articles/what-modified-adjusted-gross-income.

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