How the Modern Half a Loaf Strategy Helps Families Become Medicaid Eligible & Preserves Assets

Last updated: January 02, 2022


Definitions: Half a Loaf, Reverse Half a Loaf, and Modern Half a Loaf?

Half a Loaf, Reverse Half a Loaf, and Modern Half a Loaf are Medicaid gifting strategies (also called transfer strategies) that have been or are currently used for the purpose of reducing countable assets to qualify for Medicaid. These strategies can also preserve some of the Medicaid applicant’s assets for their family members.

Of the 3 strategies, the Modern Half a Loaf is the most relevant, the Reverse Half a Loaf is only relevant in a few states, and the original Half a Load strategy is obsolete.

While Medicaid has both income and asset limits to qualify for long-term care, it is not unusual for applicants to be over these limits. For this reason, there are planning strategies that lower income and assets to meet Medicaid’s financial requirements. Generally speaking, in 2022, the income limit for an elderly applicant seeking nursing home care or in-home assistance via a Medicaid waiver is $2,523 / month, and the asset limit is $2,000. Some higher valued assets are usually exempt from the asset limit and includes one’s primary home and a car. These rules are state-specific. See Your State’s Limits Here.


How the Modern Half a Loaf Strategy Works

The Modern Half a Loaf Medicaid planning strategy works as follows. The Medicaid applicant gifts approximately 50% of their assets over Medicaid’s asset limit to a family member(s) and then purchases a short-term annuity with the remaining assets. Annuities take countable assets and turn them into a stream of income, which means they no longer count as assets. Between the gifting and the purchase of the annuity, there are no longer any “excess” assets. This allows persons to apply for Medicaid since they no longer are asset ineligible. While Medicaid compliant annuities do not violate Medicaid’s look-back rule, gifting assets does violate this rule. This means an applicant will be penalized with a period of ineligibility for doing so. The income from the annuity, combined with other income sources (if applicable) pays for an applicant’s long-term care during the penalization period (for gifting assets to family).

 The Modern Half a Loaf strategy is also called a Reverse Medicaid Half a Loaf with a Medicaid Compliant Annuity or Half a Loaf and Medicaid Annuity.


Calculating the Gift & Annuity Amounts

To say that with the Modern Half a Loaf strategy, Medicaid applicants give away half of their excess assets and with the remaining excess assets, purchase an annuity, is an over-simplification of a complex calculation. There are some very important details that must be considered for this approach to work effectively and the calculation is rarely as simple as half and half. Medicaid planning professionals can assist in doing this process correctly.

Gift Versus Annuity Amount
The amount of excess assets that are gifted versus the amount used to purchase an annuity is vital. If one gifts too many assets, the income stream from the annuity will stop before the penalization period is over. This means that the Medicaid applicant will not have funds to pay for their long-term care for the remainder of the ineligibility period. A portion of the sheltered assets for family would have to be used to continue to pay for care until the care recipient is eligible for Medicaid. The goal of Half a Loaf and Medicaid Annuity is that the penalization period ends at the same time as does one’s annuity income.

Amount of One’s Income
An applicant’s income from the annuity and any other sources of income, such as Social Security or pension, should not be more than one’s long-term care cost. For instance, income should not be greater than the cost of nursing home care in the state in which one resides. If one’s income is too high, this can also be cause for Medicaid ineligibility.

Calculation of Penalty Period for Medicaid Look-Back
It is extremely important that one know how many months of Medicaid ineligibility will result from the gifting of assets. One needs to know how the penalty period is calculated in the state in which one resides, as the rules are not the same across the board. Essentially, the amount gifted will be divided by the average monthly cost of private pay nursing home, resulting in the number of months in which one is ineligible for Medicaid. For example, say a Medicaid applicant gifts $64,000 and the private pay cost of nursing home care in the state in which they reside is $8,000 / month. The penalty period would be 8 months ($8,000 / month for nursing home care x 8 months = $64,000). This would all need to be taken into account when creating an annuity, as the Medicaid applicant would need to pay for care during this 8- month penalty period. Learn more about calculating the penalty period here.

 The Modern Half a Loaf Strategy is complicated. It is generally not recommended that a family attempt this strategy without retaining professional assistance. Free consults are available to determine if this approach would be beneficial in your situation. 


Example Modern Half a Loaf

Bill is an unmarried elderly male who will require nursing home care in the near future. He has $102,000 in countable assets and lives in a state where the Medicaid asset limit is $2,000. This means he has $100,000 in “excess” assets. He has one adult daughter and would like to preserve a portion of his assets for her rather than spend everything on nursing home care. Since Medicaid has a look back period and punishes the gifting of assets, he will be penalized with a period of ineligibility for gifting money to his daughter.

Bill gifts his daughter half of his excess assets, $50,000, and with the other $50,000 he purchases a Medicaid compliant annuity. Between the gifting and the annuity, Bill no longer has assets over Medicaid’s asset limit. Therefore, he can apply for nursing home Medicaid, his penalty period will be established, and he can pay for his long-term care during the penalty period with income from the annuity.


In Which States Can Modern Half a Loaf be Used?

In 47 states a Modern Half a Loaf strategy or a variation thereof can be utilized to help a loved one qualify for Medicaid. To the best of our knowledge, at the time of this writing (February 2021), the only states in which it or a variation cannot be used are North Dakota, Oregon, and Washington. This is because these states do not permit short-term annuities for Medicaid purposes.

New York, which also prohibits short-term annuities, has a workaround. A short-term Medicaid compliant promissory note can be used in place of an annuity. In simple terms, funds are given to a friend or relative, often an adult child, and a promissory note (a loan) is established. The borrower makes monthly payments to the Medicaid applicant, which covers the cost of long-term care during the period of Medicaid ineligibility.


Is Professional Assistance Needed?

It is highly suggested that persons considering the Modern Half a Loaf and Medicaid annuity transfer strategy seek assistance from a professional Medicaid planner. This planning technique is complicated and there are a lot of moving pieces to consider, such as gift and annuity amounts, Medicaid rules in the state in which one lives, marital status, penalty period, and so forth. Incorrectly utilizing this transfer strategy can result in Medicaid disqualification or a longer delay of benefits.



The implementation of the Modern Half a Loaf gifting strategy is generally included in the price of a full Medicaid planning package. On average, experienced Medicaid planning attorneys charge clients between $7,750 and $15,000 for this type of package. Utilizing a non-attorney Medicaid planner is also a good option and their services are less costly. While the cost of Medicaid planning may seem high, this approach can help families save hundreds of thousands of dollars in nursing home costs. There may be an additional approximate fee of $1,750 – $2,000 for the creation of a short-term annuity. If promissory notes are permitted in the state in which one resides, this is desirable, as there are no fees associated with creating a promissory note.  Click here to find a professional Medicaid planner in your area.


Reverse Half a Loaf

With the Reverse Half a Loaf planning technique, Medicaid applicants give 100% of their excess assets to their family. Since this is a violation of Medicaid’s look back rule, a penalty period of Medicaid ineligibility will result. The family then returns approximately half of the gifted assets to the Medicaid applicant, the penalty period is recalculated and shortened, and the care recipient uses the returned assets to pay for care during the penalization period. This strategy is not permitted in all states, as some states will not recalculate one’s penalty period unless 100% of the assets are returned.


Original Half a Loaf

The Original Medicaid Half a Loaf, also called Classic Half a Loaf, is no longer a utilized planning technique. Regulations under the Deficit Reduction Act (DRA) of 2005 has made it impossible. With this strategy, Medicaid applicants gave away half of their excess assets (assets over Medicaid’s asset limit) and used the other half to pay for long-term care while penalized with a period of Medicaid ineligibility for gifting assets.

Medicaid has a look-back rule in which all asset transfers for 60-months immediately preceding the date of one’s Medicaid application are reviewed. If any assets were gifted or sold under fair market value during this timeframe, applicants are subject to a penalty period of Medicaid disqualification. Prior to 2005’s DRA, the penalty period would start either the month the assets were gifted or the following month. Now, the penalty period begins when one applies for Medicaid. This means applicants must spend down all excess assets prior to application, and if penalized with gifting assets, they will not have “excess” assets to pay for long-term care while ineligible for Medicaid. Therefore, this transfer strategy is obsolete.

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