Impact of Selling a House While on Medicaid

Yes, if you sell your mom’s house, she most likely will lose her Medicaid coverage. This is because in order to qualify for Medicaid, there is an asset limit. Generally speaking, in most states, this asset limit is $2,000. See state-specific limits.

There are a number of higher valued assets that are exempt (not counted) from the asset limit. This generally includes one’s primary home, given the applicant (or their spouse) lives in the home or the applicant expresses an “intent” to return home. If there is not a non-applicant spouse in the home, there is also a state-specific home equity interest limit for home exemption.

If you sell your mom’s house, you are likely taking an exempt asset and turning it into a countable asset. The money from the sale of the home will count towards Medicaid’s asset limit. More often than not, this extra cash will put a Medicaid recipient over the asset limit, which is cause for Medicaid disqualification.

In this situation, it becomes necessary to “spend down” the excess assets (the profits from the sale of the home) in order to meet Medicaid’s asset limit. This can be done by paying off debt, purchasing an Irrevocable Funeral Trust, buying an annuity, paying for long-term care, and even taking a vacation. Once the excess assets have been “spent down” and the individual has assets at or under Medicaid’s asset limit, they can reapply for Medicaid.

When “spending down” assets, it is critical to be aware that Medicaid has a Look-Back Period of 60-months. During this period, Medicaid reviews all past asset transfers immediately prior to applying for long-term care Medicaid. If an applicant (or even the applicant’s spouse) has given away assets or sold them for less than they are worth during this timeframe, this violates the “look back”. This will result in a Penalty Period of Medicaid disqualification.