Sometimes more income isn’t good news. People suffering from major illness worry they could lose their Medicaid eligibility because of changes to Medicaid rules. More and more people are discussing the “Medicaid divorce” as a planning tool, but is it something to consider?
To Your Health!
Medicaid provides health coverage to millions of Americans, including eligible low-income adults, children, pregnant women, elderly adults and people with disabilities. Medicaid is administered by states, according to federal requirements. The program is funded jointly by states and the federal government.
According to online media company Ozy, Susan was diagnosed with rheumatoid arthritis at age 4, and has lived with chronic pain. She didn’t have private insurance at the time of her diagnosis, so Medicaid was critical to manage her disability.
Susan’s husband’s seasonal income fluctuated, leaving Susan hovering near the Medicaid eligibility cap. She had briefly lost coverage during their marriage because her eligibility was based on household income.
Since Susan’s husband’s pay increase Susan worried she could lose Medicaid eligibility again, just when her medical bills were about to skyrocket. Divorce, they decided, would eliminate the month-to-month possibility of losing coverage — and the fear that came with it.
I’ve written about divorce planning before. For example, there is a marriage penalty which people have planned for to avoid the situation where a married couple pays higher income taxes than they would pay if they were un-married and filed individual tax returns.
Medicaid divorces are similar but a rarely talked about type of divorce planning. Some people are forced to think about divorcing when the medical costs for their spouse can lead a couple to deplete their assets, leaving the healthy spouse impoverished.
Medicaid is a federal needs-based assistance program and your eligibility is determined by the total income and assets of you and your spouse which are pooled and totaled and may require that assets are spent down to qualify for Medicaid.
In a Medicaid divorce the goal is to transfer assets to the healthy spouse to minimize the spend-down requirement, maintain the quality of life while qualifying the Medicaid spouse for assistance so that the couple’s assets won’t be depleted.
The Risky Medicaid Divorce
There are huge risks involved in divorce planning for taxes and Medicaid issues. First, there is the impact on your relationship. There is no fake divorce. Once the court signs the final judgment of divorce, you are divorced.
Florida, like all no-fault states, have minimum requirements for getting a divorce. In Florida, for instance, we require that at a minimum your marriage be irretrievably broken before you can get a divorce.
Be aware that the divorce itself could have an impact on other benefits that you or an individual spouse may already be receiving or expect to receive in the future.
Divorce can impact the amount of supplemental security income, Social Security retirement benefits and survivor’s benefits and veteran’s benefits.
Before you even consider a Medicaid Divorce, if you are dealing with a sick spouse, know that there are many planning strategies to help spouses get their loved ones onto Medicaid that do not include divorce.
Susan recalls listening to a doctor tell her parents when she was 15 that she’d never marry or give them grandchildren. She knows that her partner’s income and assets mean she could lose Medicaid and SSI, but her health had felt manageable back then. Cancer, however, changed the equation,
The Ozy article is here.