How a lump sum payment affects your Medicaid eligibility and coverage depends on your Medicaid eligibility category. There are two Medicaid eligibility categories: Modified Adjusted Gross Income (MAGI) and non-MAGI.
MAGI Medicaid is available to adults ages 19 to 64 who do not have Medicare, children under the age of 19, pregnant women, parents and caretaker relatives (even if they have Medicare), and certified disabled individuals who do not have Medicare.
In order to qualify for MAGI Medicaid, your monthly household income must be less than the monthly income limits set by the State. But MAGI Medicaid does not have resource or asset limits. This means cash savings, bank accounts, property, and other assets you own are not taken into account when determining whether you are eligible for MAGI Medicaid.
Under MAGI Medicaid, lump sum payments count as income in the month received if the federal income tax rules would treat the payment as income. You will need to know the source of the lump sum to determine whether the payment is counted as income. For example, under federal income tax rules, lottery winnings are counted as income but inheritances are not.
If you have MAGI Medicaid, a lump sum payment is unlikely to affect your coverage immediately. Under MAGI Medicaid, even if the lump sum payment will push your income above the monthly income limit, your Medicaid coverage will continue until the end of your 12-month authorization period. If you receive a payment that puts your income above the monthly limit in your recertification month or towards the end of your 12-month authorization period, you will likely be
determined ineligible for Medicaid when you recertify. However, if your income is below the income limit in the following month or after, you can reapply.
Because there are no resource or asset limits in MAGI Medicaid, you can save the money into the following months and your Medicaid coverage will not be affected unless the interest you receive from the payment will push your monthly income over the Medicaid limit.
Non-MAGI Medicaid is available to adults aged 65 years and older, Medicare recipients, and recipients of SSI, TANF, and foster care. In order to qualify for non-MAGI Medicaid, your monthly household income must be less than the monthly income limits set by the State. Your resources, such as cash savings, bank accounts, property and other assets you own, must also be less than the resource limits set by the State.
Under non-MAGI Medicaid, a lump sum payment counts as income in the month received. Unlike MAGI recipients, non-MAGI Medicaid recipients do have a resource/asset test. If you save the lump sum in whole or in part into the next month, it is counted as a resource for that month along with your existing resources.
If the lump sum payment pushes your income above the monthly income limit, you will be ineligible for that month only. You can be held liable to repay Medicaid for the cost of any services you receive during that month.
If you save any of the lump sum payment into the months after you received it, and it pushes your resources above the Medicaid resource limit, you can be held liable to repay Medicaid for services you receive in all the months you are over the resource limit. To minimize the amount of money you may have to repay to Medicaid, you should transfer* or spend the money in the same month that you receive the payment. This limits your ineligibility to one month. If you delay until the next month or later, you are potentially liable to repay Medicaid for the cost of services you receive for two or more months.
*Please note, if you transfer the money in order to qualify for Medicaid, you may face a penalty if you need Medicaid to pay for nursing home care anytime in next five years after the transfer. Therefore, it is best to contact a lawyer if you plan on transferring any of your lump sum payment.