This blog is the third chapter of a series entitled “How to Qualify for Medicaid in Pennsylvania” that focuses specifically on its long-term care program. Qualifying for Medicaid can be complicated and time-consuming, but this guide explains the process in plain English. If you would like to order a copy of the complete guide click here.
Some assets won’t count (they are exempt) because Medicaid rules exclude them:
Real property used as the principal place of residence by the applicant, a spouse, or dependent relatives is excluded, regardless of value, as long as the applicant, spouse or relatives live in the property. This exclusion also covers land and related outbuildings necessary to the operation of the home. In addition to a house, a mobile home, condominium, co-op, or apartment can also count as an exempt residence.
If an applicant with no spouse or dependents is institutionalized, the residence will remain excluded if the applicant states in writing that he or she intends to return to the residence. The statement can be provided by a person with authority to act on the applicant’s behalf, if the applicant is incapable of providing the information.
An applicant with no spouse or dependents has a restriction on the excludable value of the applicant’s equity interest in the residence. If the equity interest exceeds the limit, the surplus value is countable. For 2020, the excess home equity limit is $595,000. That figure adjusts annually for inflation. (Appendix A at the back of this book contains relevant Medicaid numbers in effect on publication date.)
Household goods and personal effects.
Household goods such as furnishings and equipment commonly found in a household are excluded. So are personal effects, including (but not limited to) clothing, jewelry, items of personal care, recreational equipment, musical instruments, and hobby items. Items required because of a person’s physical condition, such as prosthetic devices, dialysis machines, motorized wheelchairs, hospital beds, and similar items are excluded.
Pennsylvania regulations exclude only one motor vehicle for the applicant. If the applicant is married, the exclusion remains at one vehicle for the couple. Other motor vehicles are counted at their equity value. The vehicle with the highest value may count as the exempt one.
Life insurance that does not accumulate a cash value, such as term insurance, is excluded.
As for life insurance that does accumulate a cash value, Pennsylvania regulations exclude up to a maximum face value of $1,500 for each insured person. According to the regulations, “If the life insurance of an insured person has a total face value in excess of $1,500, only the cash surrender value in excess of $1,000 shall be considered a resource to the owner.”
An Operations Memorandum issued by the Department of Human Services in November 2003 provides that the value of all burial plots owned by Medicaid applicants will be excluded. The regulations specify that the burial space exclusion covers conventional gravesites, crypts, burial drawers, mausoleums, urns and similar repositories.
Irrevocable burial reserve.
Burial reserves (also known as funeral reserves, funeral agreements, pre-paid funeral agreements, and burial funds) are excluded if they are deposited with a funeral director or financial institution under a written agreement providing that the funds cannot be withdrawn before the death of the named beneficiary.
The agreement may include such items and services as casket, cemetery plot, flowers, and obituary. Regulations exclude an amount that is not exorbitant. The Pennsylvania Department of Human Services (DHS) may consider a reserve exorbitant if it exceeds average local costs by more than 25%.
If the amount in the burial reserve exceeds this amount, the excess amount may be considered reasonable if the applicant can demonstrate that the amount is not exorbitant for the person’s situation, and that the higher amount is needed for such things as cost of transportation for the body, certain costs for a priest, minister or rabbi who is a close friend or relative, and a reasonable gift to a church or a synagogue for use of facilities for services.
At the beginning of each year, DHS publishes a list of the allowable limits of irrevocable burial reserves for all counties in Pennsylvania. The list for 2020 is in Appendix B at the back of this book.
Trade or business property.
Real property or personal property is excluded if used in a trade or business, or by the recipient as an employee and is essential to self-support. These resources are excluded regardless of value.
Non-business property essential to self-support.
Property not used in a trade or a business is excluded if it is: (1) used exclusively to produce items for home consumption (such as cows supplying milk, chickens supplying eggs, or a garden plot used for fruits or vegetables); and (2) tools, equipment, uniforms and similar items required by an employer.
Revocable burial reserve.
If the burial reserve is revocable, an applicant may exclude up to $1,500, reduced by the cash value of certain life insurance policies.
Community spouse pension funds.
IRAs, 401(k)s and other deferred compensation funds are excluded if owned by a community spouse (the spouse of an applicant).
Agent Orange settlement payments.
Under Pennsylvania’s regulations, “Payments made from the Agent Orange Settlement Fund or another fund established pursuant to the settlement in the Agent Orange product liability litigation are excluded.” Such payments are made to certain Vietnam War veterans, or their survivors, as a result of exposure to a chemical known as “Agent Orange.”
German reparation payments.
German government payments as compensation to certain Holocaust survivors are excluded.
Japanese-American and Aleutian restitution payments.
U.S. government payments to Japanese-Americans and Aleuts who were interned or relocated during World War II, or to their survivors, are excluded.
LIHEAP benefits and certain home energy assistance.
Benefits received from the low income home energy assistance program (LIHEAP) are excluded, as are certain other types of home energy assistance or benefits.
Long-Term Care Partnership Program assets.
Pennsylvania participates in the Long-Term Care Partnership Program, which allows someone who has purchased a qualifying long-term care insurance policy to exclude a certain amount of assets from being spent down. The Pennsylvania Insurance Department has published a free guide on this program called Long-Term Care Partnership Policies, available at www.insurance.pa.gov.
Temporarily excluded assets.
Some assets are excluded only for a certain period of time, including certain retroactive SSI and Social Security payments (6 months); proceeds from the sale of an exempt residence (3 months); disaster relief assistance (9 months); and cash assistance to replace an excluded asset that is lost, damaged or stolen (9 months). A federal tax refund is excluded for 12 months, and may also be gifted away without penalty (see the discussion of Exempt Transfers in the “How to ‘Spend Down’ to Qualify” section).
Other miscellaneous items.
Federal Medicaid provisions contain other exclusions that apply only on rare occasions, including certain funds and payments made to Native American Indian tribe members; payments under the Alaska Native Claims Settlement Act; federal surplus food donations; relocation assistance payments; payments under the Domestic Volunteer Services Act; federal undergraduate student loans and grants; assistance under the National School Lunch Act, Child Nutrition Act, and Food Stamp Act; and assistance under the United States Housing Act.
Understanding life insurance values
To understand Pennsylvania’s rules about countable life insurance, it helps to know the difference between the face value and cash surrender value.
Face value: the amount of money an insurance company will pay, from the time the policy is first purchased, on a valid claim. It is the death benefit at the time the policy first goes into effect. The death benefit may increase if the policy increases in value, but the face value always remains the same.
Cash surrender value: the amount of money the policy owner can receive upon immediate surrender of the policy. If the policy is cashed in, the company will not pay any death benefit.
Pennsylvania’s rule on life insurance countability can be confusing. Keep in mind these two rules:
Face Value (all policies) – $1,500 or less: totally exempt
Face Value (all policies) – exceeds $1,500: only $1,000 is exempt
In the case of a married couple, these rules apply per person. In other words, if the first spouse has life insurance policies whose combined values are $1,500 or less, the combined cash surrender values of that spouse’s policies will be totally exempt. The other spouse’s policies will be considered separately.
Example: Marion is applying for Medicaid. She owns the following two life insurance policies:
#1: -Face value $1,000
-Cash surrender value $2,500
#2 -Face value $500
-Cash surrender value $1,500
Marion’s combined cash surrender value of her life insurance policies, $4,000, is totally exempt because the combined face values do not exceed $1,500.
Marion’s husband Ted owns one life insurance policy with a face value of $5,000, and a cash surrender value of
$3,000. Because the face value of Ted’s policy exceeds
$1,500, only $1,000 of his cash surrender value is exempt. The remaining $2,000 is countable.