Medicaid Long-Term Care: How Does Medicaid Treat Income?

Nursing home residents on Medicaid generally must pay all their income, minus certain deductions, to the nursing home.

These deductions include the following:

• a monthly personal needs allowance (this amount varies by state, currently ranging anywhere from $30 to more than $100 per month),
• a deduction for any uncovered medical costs (including medical insurance premiums), and
• a monthly allowance for the applicant’s spouse who continues to live at home (if they need income support).
• A deduction may also be allowed for a dependent child living at home.

Spend Down vs. Income Cap States

Medicaid is a government program providing health care coverage for individuals who have limited resources. There are many Medicaid programs, even within the same state, with each having distinct qualification rules. Most states require that you have $2,000 or less in assets in order to qualify for Medicaid.

The program includes coverage of long-term care costs for millions of qualifying individuals across the country. Typically, you must be aged 65 or older, have a permanent disability, or be blind, in addition to having limited assets and income. Medicaid’s long-term care benefits can vary depending on where you live.

Each state will look at a Medicaid applicant’s income to help determine whether they will qualify for the nursing home coverage benefits. (Keep in mind that the financial criteria you must meet to be eligible can also shift from year to year.) Many states provide supplementary standards that may allow you to qualify for Medicaid, ensuring that income alone is not a barrier to your receiving long-term care.

Most states use the so-called "medically needy" or "spend-down" approach. The general rule is that an applicant’s income must be less than the private cost of care.

These states allow applicants to spend down their money on their care until they reach the state's income standard for eligibility. At that point, Medicaid begins covering their long-term care. This can be helpful for applicants whose income exceeds Medicaid’s thresholds. Assuming they meet Medicaid’s other requirements, these applicants can still qualify if they have high medical expenses.

Other states set a hard limit on the income permissible to qualify for Medicaid nursing home care coverage. These “income cap” states do not allow a spend down.

Most income cap states restrict nursing home residents’ income to $2,742 a month (for 2023). If your monthly income exceeds the state’s cap, you may still be able to qualify for Medicaid’s long-term care benefits.

For example, you may have the option of paying your excess income into a special type of trust. Often called a  Miller trust, this type of trust may have different names, depending on your state. Other names for this type of trust include Qualified Income Trust, (d)(4)(b) trust, or Income Cap Trust.

If you live in an income cap state and want to set up a trust, contact a local elder law attorney. They will have knowledge specific to your state’s regulations.

The income cap states, as of this writing, are as follows:

• Alabama
• Alaska
• Arizona
• Arkansas
• Colorado
• Delaware
• Florida
• Georgia
• Idaho
• Indiana
• Iowa
• Kentucky
• Mississippi
• Nevada
• New Hampshire
• New Jersey
• New Mexico
• Ohio
• Oklahoma
• Oregon
• Rhode Island
• South Carolina
• South Dakota
• Tennessee
• Texas
• Wyoming

Applying for Medicaid Long-Term Care Benefits When You’re Married

If you are married and applying for Medicaid’s long term care coverage, your spouse may still be living at home. The income of your “community spouse” will not affect whether you will be eligible for Medicaid’s long-term care benefits. The only income used when determining whether you qualify for this type of coverage is income that is in your name.

Your spouse might still be working and earning an income. If you qualify for long-term care Medicaid, your spouse will not have to contribute their income to your nursing home care costs.

Connect With a Professional

The rules around Medicaid, including its long-term care benefits, can be quite complex. Be sure to work closely with a qualified elder law attorney in your area when exploring your options. To learn more, search for Medicaid information by state or find further details on Medicaid's asset rules.