The (Totally Legal) Loophole You Need to Know About Qualifying for Medicaid
Paying for our health care needs can be increasingly difficult as we enter our golden years. This especially rings true if you or your loved one needs long-term care and wishes to remain comfortably at home. At an average of $5,000 a month, the median monthly cost of in-home care is staggering!1 And many older adults are shocked to find that Medicare does not cover long-term personal care. Medicaid covers in-home care, but sadly, many older adults don’t qualify for Medicaid because their monthly income exceeds Medicaid’s strict limits.
In the right scenario, a pooled trust can be an excellent resource to support your health, protect your finances, and enhance your quality of life. If your monthly earnings are over the Medicaid limits, the pooled trust loophole helps you legally obtain Medicaid benefits without depleting your life savings. In this article, we’ll explain pooled trusts, how they work, and the important pros and cons to consider. We’ll also discuss the types of disabilities that qualify for Medicaid’s home care and key questions to ask as you explore pooled trust companies. Read on to learn more and determine if a pooled trust is the right choice for you!
What Is a Pooled Trust?
Medicaid, a joint federal and state program, is need-based. This means that individuals with income that exceed Medicaid’s federal and state poverty levels will not qualify for this valuable government benefit. Pooled trusts enable older individuals requiring long-term care to become Medicaid-eligible by setting aside excess assets.2 Essentially, pooled trusts legally shelter funds to lower a person’s countable (reportable) income level.
Traditionally, individuals who don’t qualify for Medicaid must exhaust all of their income and assets (known as Medicaid spend down) until they reach the Medicaid poverty level. However, through the pooled trust loophole, the excess money deposited into a pooled trust is not counted as income by Medicaid and can be used to pay for personal needs like rent and utilities. It’s important to note that in order to qualify to have the pooled trust funds exempt, the individual must be deemed disabled as defined by the Social Security Law. We’ll cover qualifying disabilities and the verification process later in this article.
Pro Tip: The rules and regulations surrounding pooled trusts can be complex. We highly recommend consulting a lawyer who is familiar with pooled trusts to ensure that you qualify and enroll correctly.
From a regulatory perspective, pooled trusts fall under Section 1917(d)(4)(C) of the Social Security Act. As defined by the Social Security Administration (SSA), a pooled trust is established and managed by a nonprofit organization that has been certified under a State nonprofit statute. The trust pools and manages the funds of many different individuals in separate accounts.3 Think of a pooled trust as a bank that holds the assets of individual account holders.
How Does a Pooled Trust Work?
To help you better understand how a pooled trust works and how it helps you qualify for Medicaid, let’s take a look at the example below.
Alice, aged 65, is aging in place. After suffering several strokes, Alice struggles with performing activities of daily living (ADLs) and requires long-term, in-home care. Medicare doesn’t cover this type of care, so Alice is paying $4,000 out-of-pocket each month for a home health aide. Alice is in a no-win situation as she can’t afford to continue to pay for the care she needs, but she doesn’t qualify for Medicaid because her monthly income exceeds Medicaid’s limits. This is where a pooled trust comes into play.
Each month, Alice receives $3,000 in Social Security benefits and $600 from her teacher’s pension, for a total monthly income of $3,600. Alice resides in New Jersey, where the maximum gross monthly income for Medicaid is $903.4 This means Alice is $2,697 over New Jersey’s Medicaid income cap.
In order for Alice to be eligible for Medicaid, she opens a pooled trust and deposits $2,697 into her account each month. By making this monthly deposit, Alice remains under the Medicaid maximum income allowance and is eligible to receive Medicaid benefits (and utilize Medicaid’s home care services). Alice can then request the pooled trust administrator to use the $2,697 she’s deposited into her trust to pay for personal expenses.
Again, using the bank analogy, Alice uses her pooled trust like a bank’s bill pay. Alice’s money deposit into the pooled trust can be scheduled to pay bills that are in her name, like rent, cell phone, utility, and internet services. The pooled trust administrator oversees and executes the payments.
What Disabilities Qualify for Medicaid Home Care?
Medicaid eligibility is generally determined using the same income methods as the Social Security Administration’s Supplemental Security Income (SSI).5 In addition to income-based needs, a significant piece of the Medicaid and pooled trust puzzle is proof that you or your loved one has a qualifying disability. There are several components to determining if an individual is disabled. This process includes providing required medical reports from treating doctors, releasing all related medical records, and participating in a disability interview.
Each state’s Medicaid program manages the disability qualification process, so your next steps (and the follow-up requirements to confirm your ongoing disability) may vary. Qualifying disabilities include the following:
- Endocrine disorders, including diabetes and thyroid disease
- Immune system disorders, including lupus and inflammatory arthritis
- Musculoskeletal disorders, including degenerative disc disease and skeletal spine disorders
- Respiratory disorders, including cystic fibrosis, asthma, and chronic bronchitis
- Special senses and speech disorders, including hearing loss and visual impairment
- Cardiovascular system disorders, including recurrent arrhythmias and chronic heart failure
- Cancers, including prostate, breast, and skin
- Skin disorders, including dermatitis and chronic infections of the skin or mucous membranes
- Neurological disorders, including epilepsy, Parkinson's disease, and amyotrophic lateral sclerosis (ALS)
Pro Tip: The list above is a snapshot of the types of disabilities. For an in-depth look at disability medical criteria, the Social Security Administration provides a Disability Evaluation Listing of Impairments.
What Are the Pros of a Pooled Trust?
- Lowered reportable income and assets make Medicaid qualification possible.
- Medicaid’s traditional spend down program is eliminated.
- Medicaid's look back period does not apply.
- Individual’s income and assets are protected.
- Pooled trust account fees tend to be less than individual for-profit trusts.
- It may eliminate the Medicare donut hole through the Part D Extra Help program for low-income individuals.
Did You Know? Many states have programs that enable Medicaid recipients to directly hire their in-home caregivers (like a home health aide or nurse). For example, New York has the Consumer Directed Personal Assistance Program (CDPAP). Check with your state’s Medicaid services to find out if this type of option is available to you.
What Are the Cons of a Pooled Trust?
- Money deposited into a pooled trust can never be requested as cash.
- After the beneficiary’s death, the remaining assets cannot be withdrawn. These funds are used to pay outstanding government benefits (like Medicaid expenses).
- Enrollment, administrative, and annual fees can become costly.
How To Enroll in a Pooled Trust
Qualifying for Medicaid-approved at-home care can be exhausting. It’s easy to become overwhelmed as you try to decipher income and asset limits, get approved for and enroll in Medicaid, and set up a pooled trust. The very first step in your or your loved one’s pooled trust journey is to find an attorney specializing in Medicaid and pooled trusts. The right attorney will guide you through these complex components. As Medicaid program qualification varies from state to state, make sure to select an attorney in the state in which the individual needing Medicaid resides.
Did You Know? Your local Social Security office has a list of groups that can find you a pooled trust lawyer or give you free legal services if you qualify.6
What Kinds of Excess Income Can Go Into a Pooled Trust?
If you don’t have a solid grasp of your finances, now is the time to get started! Make a list of all income sources and how much you receive monthly from each source. Next, calculate your total monthly income and compare it to your state’s Medicaid maximum earnings. This helps you pinpoint the excess funds you’ll need to deposit into a pooled trust so you can remain under the Medicaid income limit. Excess income can come from multiple categories, such as:
- Social Security
- 401(k) and IRA distributions
- Lump sum or monthly annuities
7 Important Questions to Ask Before Choosing a Pooled Trust Company
As mentioned earlier, all pooled trusts must be administered by a not-for-profit organization. However, the costs associated with a pooled trust can vary widely as each company sets its own fee schedule for managing your trust. This is why it’s crucial to shop around! Before completing a trust agreement, take time to explore multiple pooled trust companies in your state. As part of your evaluation process, be sure to ask the key questions below.
- Is there an initial enrollment fee?
- Is an opening deposit required to establish the trust?
- Is there a monthly administrative fee?
- Is there an annual renewal fee?
- What is the processing time for disbursement requests?
- What are your customer support hours?
- Is there an online client portal for easy account access?
Enrolling in a pooled trust is a very personal decision. Without a doubt, the Medicaid and pooled trust process can be daunting, so remember that you don’t have to tackle this endeavor alone! An excellent first step is to assess your healthcare needs, financial reserves, and Medicaid-qualifying factors. Enlisting the help of an expert, such as an attorney well-versed in pooled trusts, will provide much-needed guidance through the process. And as you consider your options, carefully compare multiple trust companies as fees and features will differ. If you qualify for Medicaid through a pooled trust, make a point to explore all of Medicaid’s benefits, as they are far more extensive than Medicare.
Genworth. (2022). Cost of Care Survey.
Journal of Aging & Social Policy. (2022). Special Need Pooled Trust Disbursements and the Well-being of Nursing Facility Residents Receiving Medicaid Benefits.
Social Security Administration. (2022). Program Operations Manual System (POMS).
New Jersey. (2022). NEW JERSEY MEDICAID PROGRAM ELIGIBILITY.
Medicaid.gov. (2022). Medicaid Eligibility.
Social Security Administration. (2022). SPOTLIGHT ON TRUSTS.
Medicaid.gov. (2022). Seniors & Medicare and Medicaid Enrollees.