Risks of Giving Money to Families on Medicaid

Introduction

Well-meaning family members may want to provide financial support to an elderly relative to help supplement the care they are currently receiving. However, when that family member receives Medicaid assistance, such as assisted living care, there is a legitimate concern that giving them money may compromise their Medicaid eligibility.

This article explores how, when, and where it is possible to help a family member financially without hurting their Medicaid eligibility. Medicaid eligibility is a complex topic. At the basic level, there are a variety of asset and income limits for eligibility. In many instances, providing additional funding could be seen as supplemental income that might result in the loss of Medicaid eligibility. Thankfully, a variety of techniques exist to provide additional support without risking the loss of Medicaid eligibility, or at the very least, minimize the effect of financial support on reportable income.

Sample Scenarios

A daughter would like to provide financial help to her elderly mother who has early onset Alzheimer’s and lives in a Medicaid-funded assisted living facility. Her mother’s Social Security and Supplemental Security Income (SSI) isn’t enough to cover the cost of a private room in the residence, much less the type of clothes she’s accustomed to, or for a computer to keep in touch with friends and family. The daughter has three options, each effecting Mom’s Medicaid eligibility differently depending on the state in which her mother resides.

1. The daughter could choose to give money directly to her mom.
2. She could pay for Mom’s clothes and a computer herself, or pay the assisted living facility directly for the difference for a private room.
3. She could establish a third party Supplemental Needs Trust (SNT) that pays Mom’s bills directly.

Impact on Medicaid Eligibility

Giving Money Directly

If the daughter decides to give the money directly to her mother and allows her mother to purchase items and pay bills herself, the money will count as unearned income. The increase in unearned income will reduce SSI payments by the same amount. Furthermore, depending how much additional money the daughter gifts her mother, she could disqualify her mother for Medicaid. This is true in all states. In short, the daughter is, at best, wasting her money, since any money she gives will lessen the public assistance her mother receives and, at worst, endangering her mother’s Medicaid eligibility.

Purchasing Items & Paying Bills on Someone’s Behalf

If the daughter pays Mom’s bills herself — for example, pays the assisted living community directly for the difference between a shared and a private room — then the money will be considered an in-kind payment. In-kind payments impact Supplemental Security Income and could lower public assistance payments made to the mother by up to one-third.

Depending on the state in which the mother resides, the daughter’s assistance could also make her mother ineligible for Medicaid. However, in some states, known as “family supplementation” states, the daughter is allowed to help her mother and her assistance has no impact on her mother’s Medicaid eligibility.

Family supplementation was created to enable families to help in these situations without jeopardizing the elderly family member’s Medicaid eligibility. What can be paid for is restricted by state. So while family supplementation is an effective way to give Mom or Dad money to help pay their bills, it could cause some problems. Furthermore, not all states allow for family supplementation. It is best to check with a Medicaid expert in your state before purchasing items or paying bills for a loved one who is receiving Medicaid-funded care.

State-by-State Rules

According to a 2016 report by MACPAC, the following states have rules allowing or prohibiting family supplementation. (Please note that at the time of this writing, more current information could not be found). While family supplementation may be permitted in Medicaid-funded nursing homes, there is, unfortunately, no good source for state by state information as to which states allow for family supplementation in this setting. Therefore, the chart below is only relevant for Medicaid-funded residential care settings, such as assisted living residences, and does not include nursing home facilities.

Furthermore, several states do not have clear laws that prohibit or allow family supplementation in residential care settings. In these states, and for family supplementation for Medicaid-funded nursing homes, it is best to err on the side of caution and limit assistance until consulting with a Medicaid professional. Persons may also want to contact their state Medicaid agency for the most up to date information on family supplementation. 

Using a Supplemental Needs Trust

If the daughter sets up a third-party Supplemental Needs Trust for her mom, then the daughter can put money into the trust, and the trust can pay for any goods or services not covered by Medicaid, such as clothing and technology, and it will have no effect on the Mom’s Medicaid eligibility. Whether the Trust can be used for the cost of a private room depends on the state, as described above.

A third-party Supplemental Needs Trust (SNT) is a legal trust created for the benefit of a disabled person, typically over 65 years old. SNTs are intended to enhance quality of life while maintaining eligibility for government benefits, which are funded by assets of a person other than the beneficiary, such as a family member. SNTs are traditionally not included as countable assets for Medicaid eligibility purposes (which, depending on each state, are limited to no more than $2,000 for an individual, or $3,000 for a couple). Thus, SNTs are an excellent option for those looking to help an elderly family member.

SNTs have a variety of limitations. Funds are distributed by a trustee (the person in charge of the trust) and are paid directly to the third parties who provide the goods or services. Funds can only be used for supplemental items for beneficiaries (those for whom the trust was created) such as clothing, transportation, technology, and travel. SNT funds cannot be used to buy food, toward shelter costs, or for medical care that Medicaid would otherwise cover. Finally, the “remainder beneficiary” (the entity that receives the remaining funds once the beneficiary passes away) must be Medicaid.