Medicaid long-term care benefits are a primary source of payment of the cost of care for many seniors who need services and supports in their homes or in nursing facilities. According to the Pennsylvania Health Care Association, 47% of our nation’s $275 billion in annual spending on long-term care –excluding unpaid family caregiving—is paid for by Medicaid. See: PA Long-Term Care Statistics.

Medicaid long-term care benefits are available only to those who qualify both medically and financially. In Pennsylvania an applicant is allowed no more than $8,000 in countable assets. This means that most homeowners would be disqualified if their home equity were counted. But Medicaid has special rules that apply to your home.

Prior to the enactment of the Deficit Reduction Act of 2005 (DRA) Medicaid disregarded the full value of an Medicaid long term care applicant’s primary home as long as the home owner was residing there or evidenced an intent to return to the home.

Section 6014 of the DRA [codified at 42 U.S.C. 1396p(f)] made a fundamental change in this treatment. Now some individuals with substantial home equity are disqualified for Medicaid long-term care assistance. The idea behind the change is to force individuals with substantial equity to use that resource to pay for their care before they can get financial help from Medicaid.

The law allowed states to choose an amount between $500,000 and $750,000 as its equity interest limitation. Pennsylvania chose $500,000 as the threshold for disqualification. The law also specified that beginning in 2011 the threshold would be adjusted for inflation based on the percentage increase in the consumer price index -Urban (CPIU).

As a result of this inflation adjustment, the home equity limitation will be increased to $543,000 in Pennsylvania during 2014.  In states like New York, New Jersey, and California which elected to use the higher level, the limit in 2014 will be $814,000.

This limitation on the value of home equity does not apply if the applicant has a spouse, a child under age 21, or a child who is blind or disabled, any of whom lawfully reside in the home. The limitation is also to be waived in the case of a demonstrated hardship. [See 42 U.S.C. 1396p(f)(4). In Pennsylvania see also 55 Pa.Code § 178.62a].

The limitation applies only to Medicaid long-term care benefits provided to nursing facility residents and through home and community based services like Pennsylvania’s Aging Waiver program. It does not affect an individual’s eligibility for other medically necessary Medicaid covered services (soemtimes called “regular Medicaid”).

Individuals who are disqualified for benefits due to the equity limit may be able to reduce their equity interest through the use of a home equity line of credit or reverse mortgage.

For more information on the home equity limitation, see my December 2011 blog post here.