Three weeks ago, we looked at the different levels of long-term care. Two weeks ago, we explored how long-term care is paid for, including private pay, long-term care insurance, and Medicare. Last week we discussed “From Nursing Home Medicare to Medicaid.” This week: More to help you spot the issues and know when you need help

First, it is important to understand which program you are dealing with. Although often confused, Medicare and Medicaid are very different programs and have very different missions and purposes:

Medicare is a federal health insurance program that is uniform throughout the United States. While some disabled individuals may qualify earlier, Medicare, generally speaking, was established for those aged 65 or older. Unlike Medicaid, the recipient’s financial need is not considered by Medicare, which operates much like private insurance with covered individuals responsible for premiums, deductibles, and co-payments. Medicare is primarily funded through payroll tax deductions.

Medicaid, on the other hand, is a joint federal and state program that varies from state to state and is means-tested, that is, financial need is a major consideration. Primarily designed to serve indigent individuals, emphasis is placed on pregnant women, children, disabled individuals, and the elderly. Medicaid is financed with state tax revenues and federal matching funds that also vary from state to state.

Because Medicaid is a “means-tested” program, all eligibility categories have income limits, and most have resources limits. But the definition of “income” for the purpose of Medicaid eligibility can be tricky and does not necessarily equate to the definition of “income” contained in the tax laws.

For example, while receipt of an inheritance may not be taxable income, it can be counted as income for Medicaid eligibility purposes. Income limits are expressed in monthly term limits and are based on federal benefit rates that change annually. Whether or not funds received are considered to be income is determined by the rules of the most closely associated program.

Most Medicaid eligibility categories look at gross monthly income. This means that from Medicaid’s standpoint, deductions are generally not allowed for taxes or other expenses.

Payments are generally considered to be income in the month in which the payment is received and, if kept into the next month, the payment then becomes a “resource” that can cause disqualification from Medicaid benefits. For example, if John Smith receives $1,000 in pension payments and $800 in Social Security benefits in March, his total countable income would be $1,800 for March. But if Mr. Smith spends only $1,200 in March, for Medicaid eligibility purposes, the remaining and unspent $600 will be carried over into April and become a resource for April. Items that are considered income in a month are not also considered to be resources in the same month.


Subject to certain exceptions too complicated to detail here, any item received in cash or “in-kind” during a month is evaluated under the applicable income rules of that particular program, and may be counted as income. Since Medicaid is so complicated and covers so many programs, a determination of which rules apply to which programs is essential to beginning to unravel the puzzle.

For these reasons alone, professional assistance is often warranted because Medicaid can become very complicated and varies from state to state.

Next Week: Resources.and Penalties