What Is Medicaid Surplus and How Do You Address It?

Medicaid is a joint federal and state program designed to provide health coverage to individuals and families with limited incomes and resources. Eligibility for this program is determined by specific financial criteria, focusing on an applicant’s income and assets. Sometimes, an applicant’s income might exceed the established limits, leading to a “Medicaid surplus.” This scenario requires specific actions to ensure continued eligibility for necessary medical benefits.

Understanding Medicaid Income Limits

Medicaid eligibility depends on income thresholds set by each state. These limits are frequently tied to a percentage of the Federal Poverty Level (FPL), an income measure updated annually by the U.S. Department of Health and Human Services. The FPL varies based on household size, meaning the income limit for a single individual differs from that for a family of four.

Income limits also vary significantly by the specific Medicaid program an individual applies for, such as those for families, pregnant women, children, or aged, blind, and disabled individuals. For instance, in states that expanded Medicaid under the Affordable Care Act, adults under 65 may qualify if their income is up to 138% of the FPL. States that have not expanded Medicaid often have stricter income requirements.

Medicaid considers “countable income,” which is not always the same as an individual’s gross income. Certain deductions or disregards might apply before determining eligibility, reducing the amount of income considered when assessing eligibility against the state’s limits.

Defining Medicaid Surplus

A Medicaid surplus occurs when an applicant’s countable income exceeds the state’s established Medicaid income eligibility limit for their specific program. This excess income is often referred to as a “spend-down” amount. Having a surplus does not automatically disqualify an individual from receiving Medicaid benefits. Instead, specific actions are required to address this excess income.

States often use “Medically Needy” programs or “Spend Down” programs to allow individuals with a surplus to qualify for Medicaid. These programs provide a mechanism for individuals whose income is too high for regular Medicaid, but who have substantial medical expenses, to still receive coverage. A Medicaid income surplus differs from an asset surplus, which involves accumulated resources rather than income.

The spend-down amount is calculated as the difference between the applicant’s countable income and the state’s medically needy income limit. For example, if the income limit is $1,732 per month and an individual’s countable income is $2,200 per month, the surplus would be $468 per month. This amount represents the income portion that must be “spent down” before Medicaid benefits can begin for a given period.

Addressing a Medicaid Surplus

Individuals facing a Medicaid income surplus have several mechanisms available to help them qualify for benefits. These strategies aim to reduce the countable income to within the eligibility limits. The choice of strategy often depends on the state’s specific rules and the applicant’s circumstances.

Spend-Down Program

One common mechanism is the Spend-Down Program, also known as a Medically Needy Program. Under this program, an individual must incur medical expenses equal to their surplus amount within a defined period before Medicaid benefits become active. Eligible expenses include doctor visits, prescriptions, and nursing home costs. Incurring these expenses effectively reduces the individual’s income to the eligibility limit, allowing them to qualify. Some states may require submitting receipts, while others allow a direct monthly payment of the surplus.

Pooled Income Trusts

Pooled Income Trusts, also referred to as Supplemental Needs Trusts, offer another solution, particularly for individuals with disabilities. In this arrangement, surplus income is deposited into a trust managed by a non-profit organization. Funds within the trust can then be used for approved expenses Medicaid does not cover, such as housing, utilities, or personal care items. These trusts preserve eligibility for government benefits like Medicaid by ensuring funds are not considered available income. Individuals must typically have a qualifying disability to use a pooled income trust.

Miller Trusts

Miller Trusts, also known as Qualified Income Trusts (QITs), are used in “income cap” states with strict income limits for Medicaid long-term care. In these states, individuals cannot “spend down” their income through medical expenses. Instead, surplus income is directed into an irrevocable trust, making the individual’s countable income fall below the eligibility cap. Funds within a Miller Trust can only be used for specific purposes, such as paying a personal needs allowance for the Medicaid recipient and contributing to the cost of care. Upon the recipient’s death, any remaining funds typically reimburse the state for Medicaid services.

Due to the complexity and state-specific nature of Medicaid rules and surplus mechanisms, consulting a qualified professional, such as a Medicaid planning attorney or financial advisor, is often beneficial. These professionals provide guidance tailored to individual circumstances, ensuring compliance with regulations and maximizing eligibility. They can help navigate the requirements for establishing and managing trusts or participating in spend-down programs.