What Income Counts for Medicaid and Must Be Paid to the Nursing Home?

A nursing home resident will need to pay some or most income to the facility once Medicaid benefits have been approved. Here are some common items of income that count for Medicaid that we encounter with our clients: 

1. Social Security and Pension Income.

Social Security and pension income are the most common items of income that we encounter. The County Assistance Office will need verification of the gross income amounts, not the net. The amount reflected on a Medicaid applicant’s bank statement is not likely to be the gross amount. Normally that deposit is for a net figure, and there may be deductions that are not allowable for Medicaid purposes, and which might need to be discontinued. 

If the deductions are not stopped, then the nursing home will be billing for more income than the Medicaid recipient is receiving, notably when there is income tax being withheld from Social Security or a pension. The County Assistance Office usually has access to the applicant’s Social Security amount, but it is a best practice to provide the annual Social Security Statement of Benefits along with the other documentation being submitted during the application process. 

For pension income, it is best to contact the pension administrator to secure paperwork documenting the gross pension amount, before deductions for taxes, health insurance, insurance, or other items. 

2. Separate Income of Community Spouse.

In the case of a married applicant, the income of the spouse still living at home is exempt and may be retained by that spouse at home. The spouse at home is commonly referred to in the Medicaid application process as the “community spouse.” Normally, only the income of the spouse in the nursing facility must be paid over according to Medicaid rules. Even then, there are exceptions to the Medicaid requirement to pay income to the nursing home.

3. Interest and Dividends.

A Medicaid recipient is not likely to have significant interest and dividends and Medicaid authorization notices do not normally set forth interest and dividends as being owed to the nursing home. We saw cases years ago where the caseworkers set forth dividends and interest on the Medicaid approval notices, but in recent years we have not seen the County Assistance Offices setting forth interest and dividends on Medicaid authorization notices, even though this is income. 

However, when making the computation of a protected share of income for the spouse at home, the Medicaid caseworkers do not use specific computations of interest and dividends, but instead deem 1.5% to be earned from the spouse’s protected share of assets. The spouse at home does not need to pay this to the nursing home, rather the deemed income is used in the computation of whether the spouse at home is able to keep some of the nursing home resident’s income as a spousal allowance of income to avoid impoverishment. 

This deemed 1.5% rate of return is not always realistic or accurate, depending on the interest rates at the time. If the spouse at home is receiving less than 1.5% in dividends and interest, then this calculation of deemed income is not quite fair. However, if the spouse at home invests in a way where more than 1.5% is received, that works to his or her favor, and only 1.5% is deemed to be receive on his or her protected assets, even where more is being earned.  

4. Profit from Rental Property Income.

Non-resident rental properties are not normally protected and must often be listed for sale, but sometimes the Medicaid recipient’s home is rented out during a nursing home stay. We normally do not recommend that a nursing home resident rent out their home. Lack of money in the bank to pay for emergencies is a potential problem and the main reason we often recommend against doing so. 

Also, there might be a need to pay for repairs or capital improvements or even the need to hire a lawyer to go to court to evict a non-paying tenant. It is not normally a great idea for a Medicaid recipient to rent out his or her home. That said, sometimes real estate is rented out, and the profit from renting a property does count as income. In determining profit, deductions are allowed by the County Assistance Office for the necessary expenses paid for the production and collection of rental income, real estate insurance costs, the interest portion of a mortgage payment, and repairs. Capital expenditures, such as for a new roof or water heater replacement, are not deducted when making the calculation of profit from rental property income.  

5. Income from Trust Property.

Trust income belongs to the nursing home resident or the resident’s spouse, respectively, depending on the terms of the trust instrument. If the trust is not specific about to whom income must be paid and income is paid to one or another, then “the name on the check rule” likely applies, and income is allocated accordingly. If the trust pays income to both spouses, then income is allocable one-half to the nursing home resident and is counted, and one-half is allocable to the spouse at home and would likely not need to be paid to the nursing home. Cases involving trusts are more complicated, and an elder law attorney should be hired when applying for Medicaid long-term care benefits where a trust exists.

Disclaimer: We recommend that you have ongoing legal advice from an elder law attorney before attempting to navigate the Medicaid application process. If you have questions or wish to secure our services, please contact Gerhard & Gerhard, P.C.

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