Pensions and Medicaid’s asset limits

The answer is that it depends. Essentially, whether or not a retirement pension plan is counted towards Medicaid’s asset limit is a question of the availability of funds to the Medicaid applicant / beneficiary.

Defined, a pension is an employer funded retirement plan that provides a monthly income upon the retirement of an employee. At the time of retirement, however, one may be given the option of taking their pension as a lump sum of cash (a single payment) instead of as monthly payments. If one takes the lump sum, it will be counted towards Medicaid’s asset limit. If one receives monthly payments, the monthly pension amount will count as income. Therefore, a pension is treated as income or assets towards one’s Medicaid long-term care eligibility and could cause one to be over Medicaid’s income or asset limit.

Being over the income and / or asset limit(s) does not mean that one cannot become Medicaid-eligible. Some states, which are called Medically Needy States, allow applicants to spend their “excess” income on care and medical expenses, and once they have reached the medically needy income limit in their state, they will qualify for benefits for the remainder of the medically needy period. Other states, called Income Cap States, allow Qualified Income Trusts (QITs), into which Medicaid applicants / beneficiaries deposit their “excess” income, no longer counting as income for Medicaid purposes. With a QIT, a trustee is named to manage it, and the funds are used for only very specific purposes, such as supplementing the care and medical costs of the applicant / beneficiary.

Assets over Medicaid’s limit can be “spent down” in a variety of ways, but one must exercise caution to avoid violating Medicaid’s 60-month Look-Back Rule. During the “look back,” which immediately precedes the date of one’s long-term care Medicaid application, the Medicaid agency checks for asset transfers under fair market value (i.e., giving money to family or selling one’s house for less than it is worth). Violating the “look back” results in a Penalty Period in the form of Medicaid disqualification. There are some exceptions to the Look-Back Rule. See state-specific rules.

Professional Medicaid Planners can assist persons in determining if their pension plan will impact their Medicaid eligibility, and if so, can help to implement Medicaid planning strategies to become Medicaid-eligible. The majority of companies no longer provide pension plans, although common alternatives are 401(k) plans and IRAs. Medicaid Planners can also assist persons in determining how their 401(k) or IRA will impact their Medicaid eligibility.