If I Sell My House, Will I Lose My Medicaid?

Selling your house could bring you a big check that can be used to find your next place. However, what happens if your medical benefits have asset limits? You may wonder, “If I sell my house, will I lose my Medicaid?” The short answer is that yes, this is possible. However, there are ways to handle this that allow you to more easily maintain your coverage.

Selling Your House While On Medicaid

Medicaid is a joint state and federal health insurance program designed to cover low-income families, eligible pregnant women and children and certain other groups with mandatory eligibility. Whether selling your house affects your Medicaid eligibility depends upon how much money you make from the sale. Medicaid is always means-tested, but the testing details matter.

Depending on the test, there’s an income and/or asset limit you can’t exceed and still qualify for Medicaid. If the profits from selling your home put you over that limit, you’ll lose coverage. However, you can take steps to minimize the impact on your long-term coverage.

Whether you’re subject to an income or asset test depends on the program. For its main eligibility criteria, the Affordable Care Act requires that states use modified adjusted gross income (MAGI). This is the adjusted gross income showing on your tax return plus certain things that get added back in. Under the federal formula, capital gains is one of those add backs.

While there are other eligibility factors, the one we’ll focus on here is financial eligibility. The threshold you need to fall under will depend on how you qualify. Medicaid maintains an interactive map that can be used to check state eligibility requirements. If the capital gains from your home sale put you over the income limit in your state, you’ll lose your Medicaid eligibility.

In some instances, you don’t apply for Medicaid directly, but instead you’re eligible by virtue of qualifying for other programs like supplemental security income (SSI). SSI has an asset test. Essentially, you can’t have more than $2,000 as an individual or $3,000 as a couple in assets that they count.

The primary house you live in isn’t considered an asset that they count. However, it becomes an asset when the home is sold. In this situation, if you went beyond the asset limits, you could lose eligibility for both SSI and Medicaid. If you have questions regarding your individual situation, be sure to speak to a financial advisor.

It’s important not to confuse Medicaid with Medicare, which is separate insurance coverage available to Americans, generally once they reach age 65.

How Will Medicaid Know If You Sell Your House?

As a result of COVID-19, a lot of states expanded access to Medicaid and weren’t conducting the usual annual eligibility reviews. States are or will be shortly resuming these. It’s important to note that there are similar periodic reviews for programs that also qualify you for Medicaid access, like SSI.

Medicaid has a look-back period of 5 years, meaning you’ll be asked if you made any transfers of assets to anyone else over that timeframe. This includes reviewing any home sales.

How To Sell Your Home And Keep Medicaid

Unless you sell your home for a very small profit (or even infinitesimal, depending on how you qualify), you’ll likely temporarily lose access to Medicaid. However, as long as you follow certain rules we’ll get into a little later on, it’s certainly possible for you to get back on Medicaid and keep your benefits moving forward.

The way this is accomplished is through spend-down provisions in federal and state Medicaid laws. The basic idea here is that if you can show you spent down your income or assets on certain eligible categories, you can come in under the limits for eligibility. Every state is different in application of policy, but here are some common categories that may apply:

• Medical expenses not otherwise covered by insurance: These could include things like deductibles and coinsurance as well as any expenses you may pay for care that’s out of network. You could also include vision or dental work.
• Vehicle repairs: This one may vary quite a bit in terms of the rules, so speak to a financial advisor in your area. However, the general idea is that you need functional transportation to go to medical appointments, so your car needs to work. Depending on the state, you may be able to count an engine or a new car as part of your spend down.
• Irrevocable funeral trusts: Certain states allow you to spend down your income on prepaid funeral planning.

It’s very important to undertake any spend down plan only after carefully going over the rules and consulting a financial advisor. The guidelines can vary greatly from state to state. In addition, violating any of the rules can lead to a penalty barring you from being eligible for Medicaid for a period of time regardless of your income or assets.

Medicaid Rules For Selling Your Home

It’s important to note that if you sell your home while on Medicaid, there are certain rules you’ll need to follow.

Don’t Gift The Home

Generally, gifting a home to someone is frowned upon under Medicaid rules and would result in an eligibility penalty. The idea is that you can’t just give the property to someone so that you don’t make any money on it and can stay on Medicaid. The policy typically applies even if you’re giving the home to a relative. Certain transfers may be permitted, but speak with an advisor.

Don’t Sell At Below Market Value

Since you typically can’t gift the home, you may be tempted to sell at all market value. Doing this would avoid a capital gain and allow you to stay on Medicaid. However, that also will come up in the 5-year look back.

If the state finds you did this, they can penalize you with a period of ineligibility proportional to the amount the property was sold below market value. Although states can waive the penalty in limited circumstances, trying this scheme isn’t a good idea.

The Bottom Line: Consider All Options Before Selling

Selling your home while trying to maintain eligibility for Medicaid can be complicated to say the least due to limits around income, assets or both. Spending down your assets in eligible categories after the sale may enable you to get back on Medicaid, but a false step here could result in a penalty barring you from applying for some time. Consult a financial and/or Medicaid advisor before moving forward with any decisions.

If you do decide a home sale makes the most sense, a Verified Partner Agent from Rocket Homes^SM can help.