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IRA DISTRIBUTIONS TO BE AVERAGED TO DETERMINE INCOME FOR LONG-TERM CARE MEDICAID

Although nothing has been officially announced, a reliable source from the Texas Health and Human Services has indicated the state will look at the annual distributions from an IRA and divide that amount by 12 to determine the monthly income for long-term care Medicaid eligibility. Long-term care Medicaid, which helps pay for nursing care costs, has an income cap of $2,349 per month. Previously, the state looked at income only in the month of receipt. So, for example, if an applicant for long-term care Medicaid has gross (before deductions for Medicare Parts B and D) monthly Social Security income of $2,250 (which is below the cap) and takes a required minimum distribution of $1,200 for the year, it would add an average of $100 ($1,200/12) toward the income cap creating ineligibility since $2,350 ($2,250 + $100) exceeds the cap. A Qualified Income Trust (an income only trust) could be created so that eligibility could be achieved. Under Texas Medicaid rules, an IRA of a long-term care Medicaid applicant does not count as a resource if the applicant is taking required minimum distributions (RMDs), although the RMDs would count as income. If this rule is effective, there will be more than ever qualified income trusts created.

Furthermore, if distributions from an IRA are averaged, this will also affect the amount of countable resources for a married couple that can be protected since the government permits expansion of the “protected resource amount” is tied to non-countable resource income (i.e., Social Security, pension and, in this case, the average monthly IRA distributions). The lower the amount of non-countable resource income, the greater amount of resources (such as cash) that can be kept by the community spouse (the spouse that lives in the community). As a result, sometimes there is Medicaid eligibility for a couple even if they have several hundred thousand dollars (even though a maximum protected resource amount is $128,640) if the non-countable resource income of the couple is less than $3,216.50 per month. Thus, if IRA distributions are now counted in this calculation, the less countable resources could be preserved for eligibility.

Finally, if IRA distributions are averaged instead of only counting as income in the month of receipt, then the community spouse would be entitled to less income than can be diverted from the institutionalized spouse. If the community spouse has income of less than $3,216.50 per month, then there would be a diversion of income from the institutionalized spouse to the community spouse to get up to that level. If the IRA distributions are averaged, this would result in a greater amount of the institutionalized spouse’s income going to the facility.

Advice regarding when to take distributions from IRAs for potential Medicaid applicants will change based on the final determination by the state.

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