Medicaid eligibility — income, assets, and the look-back period

This article is for educational purposes only and does not constitute medical, legal, or financial advice. Every family situation is different, and you should consult with appropriate professionals about your specific circumstances.

Your parent sits down with an Elder Law attorney or calls the local Medicaid office and asks: "Do I qualify?" The person on the other end doesn't just say yes or no. They start asking questions. How much income do you have? What about savings? Have you sold any property in the last five years? Did you give any money to your kids? Suddenly, your parent realizes this isn't a simple test. It's an investigation into five years of financial history.

The complexity of Medicaid eligibility frustrates many families. It feels intrusive. It feels unfair to have to defend how you've used your own money. But the rules exist for a specific reason: the system is trying to prevent people from giving away assets right before they claim they can't afford care. That said, understanding the actual rules—what counts, what doesn't, and what states allow—makes the whole process feel less like you're being interrogated and more like you're solving a problem with clear parameters.

Income Limits: The Starting Point of Eligibility

Medicaid eligibility starts with income. If your parent's income is too high, they don't qualify. Period. The state won't even look at assets.

But here's where it gets confusing immediately: income limits vary dramatically by state. The federal poverty level for a single person in 2024 is around $15,000. Some states use this as their Medicaid income limit, which means your parent can have income up to about $15,000 and still qualify. Other states use one hundred fifty percent of poverty level, or two hundred percent, or three hundred percent. A few states use even higher percentages. So in a generous state, your parent might be able to have $45,000 or more in annual income and still qualify for Medicaid. In a restrictive state, they'd need to be under $15,000. Your state's specific percentage makes an enormous difference.

Social Security is counted as income. So is a pension. The question gets thornier when you're asking whether other income sources count,dividends, interest, rental income from property. Most states include these in the income calculation, but they might count them differently. Some states exclude certain income sources entirely. A couple of states treat spousal income differently in specific ways. This is why knowing your exact state's rules matters so much.

The calculation itself sometimes trips people up. Some states count your gross income. Others count net income after specific deductions. Some states count income you technically have access to even if you haven't received it yet. If your parent is waiting for a pension payment or has a property investment that generates income, these count differently depending on your state. Getting the income calculation exactly right requires either understanding your state's specific methodology or having someone else figure it out.

Your parent's income situation might change over time. They might have worked part-time and planned to retire, changing their income. An investment might mature and generate a lump sum. A pension might increase with a cost-of-living adjustment. Medicaid recertifies periodically, and if your parent's income has risen above the limit, they might lose coverage. This is manageable if you're aware it could happen, but it's shocking if you assume Medicaid is permanent once approved.

Asset Limits: What Counts and What Doesn't

Income determines if you're even in the ballpark. Assets determine if you actually qualify.

Medicaid asset limits are low. Most states allow somewhere between $2,000 and $3,000 in liquid assets for a single person. Married couples often get a higher limit, sometimes significantly higher, but even for couples, the limits are restricted. These numbers haven't changed in decades, which means they've become increasingly unrealistic as cost of living has risen, but that's the system as it currently exists.

Liquid assets are the heart of the problem. This means cash, savings accounts, checking accounts, money market accounts, and investments. Stocks, bonds, and mutual funds count. Money sitting in any form where you could theoretically access it quickly counts toward the limit. If your parent has $50,000 in a savings account, they're way over the limit and don't qualify for Medicaid. If they have $2,500 in savings, they're under the limit and might qualify if income is also appropriate.

But the asset limit has a important exemption: the home doesn't count. Your parent can own a house worth half a million dollars and that doesn't count against Medicaid eligibility. This is huge. It's the difference between Medicaid being impossible for homeowners and Medicaid being viable. It means your parent won't lose their home because they need nursing care. It means families don't face the nightmare scenario of having to choose between keeping the family home and accessing care.

One vehicle usually doesn't count, though the rules vary. If your parent owns a car worth $8,000, it typically doesn't affect eligibility. If they own five cars, those probably count. If they own one expensive vehicle worth $60,000, some states might count the value over a certain threshold. The car exemption exists because your parent needs transportation, but like many Medicaid exemptions, it has limits.

A second property counts. If your parent owns a vacation home or a rental property, that's included in the asset count. The state does value it as an asset. This is one of the reasons planning becomes important. If your parent owns a second property they don't need, deciding what to do with it,sell it, transfer it, hold it,becomes part of the planning question.

Personal property,jewelry, furniture, art,generally doesn't count. Your parent's furniture, their wedding ring, their artwork, these don't factor into Medicaid eligibility. The logic is that these aren't liquid assets you could easily turn into cash. The exception is if your parent has a massive collection of valuable artwork or jewelry that could be converted to cash, in which case the state might argue it counts, but in typical situations, personal possessions are exempt.

Life insurance with a cash value is sometimes counted as an asset, depending on the state and the type of policy. Term life insurance with no cash value doesn't count. A whole life policy with accumulated cash value might. This is another situation where your state's specific rules matter and where consulting a professional makes sense.

The Look-Back Period: Understanding the Five-Year Window

Here's where Medicaid gets complicated in a way that feels invasive: the look-back period. Medicaid reserves the right to examine the previous five years of your parent's financial history. If your parent gave away assets, sold property below market value, or transferred money in suspicious ways, Medicaid can penalize them by making them ineligible.

The reasoning is straightforward: Medicaid doesn't want people to give away all their money to relatives right before claiming they're broke and need government help. If your parent spends years accumulating savings and then suddenly gifts it all to their children the month before applying for Medicaid, that seems unfair to the system. So the five-year look-back was created. Any transfer of assets without receiving fair market value in return during that five-year window gets flagged.

This creates a penalty. If your parent gave away $100,000 five years ago as a gift and now applies for Medicaid, the state counts that $100,000 as if they still owned it. Your parent becomes ineligible for a certain period of time,how long depends on the calculation, but it could be months or years. During that period, your parent must pay for care privately. Once they've paid enough to account for what they gave away, the ineligibility period ends and they can receive Medicaid again.

The question is: what counts as a "transfer" that triggers the penalty? An outright gift to your child clearly counts. Your parent writes a check to their son and says "here's some money," that's a transfer. Selling their house to their daughter for $50,000 when it's worth $300,000 is a transfer because they didn't receive fair market value. But what about paying for a grandchild's college tuition? That's technically a transfer without receiving something back, but courts have generally said that direct payments for education or medical care don't trigger Medicaid penalties. What about adding a child's name to the bank account? That gets complicated,it depends on whether it's truly a gift or just access.

The look-back period creates a planning window. If your parent gives away money more than five years before applying for Medicaid, it doesn't count. The state can't penalize them for it. This is one legitimate planning strategy. If your parent is sixty years old and knows they might need care at seventy-five, giving away money now might be acceptable. By the time they apply for Medicaid, the transfer is outside the look-back window.

But here's the trap: if your parent gives away money three years before applying for Medicaid, they'll still face a penalty for it. And if they need care unexpectedly,a fall, a stroke,they might need Medicaid immediately, not years from now. Waiting five years to ensure transfers don't trigger penalties only works if you're confident you won't need Medicaid for five years. That confidence is hard to have.

State Variation: Why Your State's Rules Are Critical

Nothing about Medicaid is uniform. Every rule we've discussed is subject to state variation. One state might have a $2,000 asset limit while a neighboring state has a $3,000 limit. One state might count vehicle value toward assets while another exempts vehicles entirely. One state might allow trusts to protect assets while another treats the trust as countable. One state might be generous with the definition of "fair market value" when evaluating transfers while another is strict.

These aren't small differences either. Sometimes they're economically enormous. In some states, a modest home can be transferred to children years ahead of needing Medicaid without triggering penalties. In other states, this same strategy might be considered inappropriate. The rules are so different that planning that makes perfect sense in one state might be risky in another.

This is why so many families hire elder law attorneys. An attorney licensed in your state knows your state's specific Medicaid rules. They know what strategies work and what strategies are risky. They know which local Medicaid office is known for being strict and which is more reasonable. They can review your parent's situation and say: "In our state, this transfer will cause problems," or "This strategy is allowed and could help your family."

If your parent is considering moving to another state, the planning changes. If they're moving from a state with restrictive Medicaid rules to a state with generous ones, some of the planning they already did might not help in the new state. The look-back period is always five years federally, but how those five years are interpreted can vary. Moving mid-planning complicates everything.

Getting Your Parent's Eligibility Determined: The Process and Timeline

At some point, your parent or someone acting for them will need to actually apply for Medicaid. This typically happens at the state Medicaid office or sometimes through a social worker at a hospital or nursing facility.

The application is detailed. Your parent will need to provide documentation of income, assets, property ownership, and transfers. Tax returns, bank statements, investment account statements, property deeds, mortgage documents if relevant. If your parent has given away money or property in the last five years, documentation of when, how much, and to whom is needed. If they're married, the spouse's information is also required. Getting all of this documentation together takes time. Weeks, sometimes.

The application gets submitted to the state Medicaid office. The office reviews it, looking at income and assets primarily. If your parent is clearly over the limit on either, they're denied. If they're potentially eligible but the office has questions, they might ask for additional documentation or clarification. This back-and-forth can take months. The state is under no particular pressure to process quickly. Some states are faster than others, but delays aren't uncommon.

Once the state determines your parent is eligible, that determination is documented. Your parent gets a Medicaid card or a notification of eligibility. From that point on, Medicaid pays for covered services. But "covered services" is itself complicated,it varies by state and by type of service. A nursing home might be covered. Home health services might have limitations. Getting clarification on exactly what's covered is important before assuming your parent has comprehensive coverage.

The determination process also establishes an eligibility renewal period. Some states recertify annually. Others do it less frequently. Your parent or their representative needs to be aware of when recertification is due because if the paperwork isn't resubmitted, Medicaid coverage can be terminated. This happens more often than you'd think, and it's devastating when a family assumes their parent is still covered and then discovers they're not because nobody filed the renewal paperwork.

The Bottom Line: Complexity Is the Point, and Planning Is the Solution

Medicaid eligibility is genuinely complicated. It's complicated because the system is designed to prevent fraud while also serving people who legitimately need help. That tension creates complexity. It's complicated because states have discretion, and fifty different states create fifty different systems. It's complicated because financial rules are written carefully to limit loopholes, and careful rules are by nature detailed.

But complexity doesn't mean you need to understand every detail yourself. What you need to understand is that understanding matters. Getting professional help,from a social worker, an elder law attorney, or an elder law consultant,costs money upfront but saves money long-term. The cost of mistakes in planning is high. The cost of professional help is low by comparison. If your parent might need Medicaid in the next five to ten years, having someone review their situation now and help them plan is worth the investment.

Your parent's eligibility is determined by their specific situation, your specific state's rules, and the timeline of when they'll need care. No generic answer will apply. But asking the questions, gathering the information, and getting professional guidance is something every family should do before a crisis forces them to scramble.

How To Help Your Elders is an educational resource. We do not provide medical, legal, or financial advice. The information in this article is general in nature and may not apply to your specific situation. If you are concerned about a loved one's cognitive health or safety, consult with their healthcare provider or contact your local Area Agency on Aging for guidance and support.