Strategies You Can Use Now to Accumulate Wealth and Retain SSI/Medicaid Eligibility

By Marsha Katz, The Rural Institute, University of Montana

In the Beginning There Was Medicaid…
… And Congress said “From this time forward (or at least until the next election) this is the means by which we will care for our poor, our elderly, and our disabled.”
And so it was decreed.

Medicaid currently is the funder of last resort for comprehensive health care, developmental disabilities services, mental health services, personal assistance services, home and community based services, and also nursing homes and institutions, among other services.

Congress limited the number of Medicaid recipients by saying “We shall reserve this care for only the most deserving (read “destitute”), and so, there shall be rules.”

These rules always include little or no income, few or no resources, and an additional assortment of rules and exceptions by state often based on the individual’s particular category of eligibility, which way the political winds are blowing, and from this advocate’s perspective, a total lack of logic.

There are many paradoxes I have encountered in my 25+ years as a benefits advocate and activist. For instance, the current national party line for most Americans is “Don’t count on just your Social Security Retirement benefits to carry you through your golden years. Start setting aside additional money now.”

That’s the spin we hear over and over, but it only serves to frustrate us more and more if we depend on SSI and Medicaid for survival. If you receive SSI, and/or are enrolled in Medicaid, you are told in no uncertain terms “Thou Shalt Not Accumulate!”

Most people inside and outside the systems agree that the 40-year-old Medicaid program needs a drastic and complete overhaul. My guess is that the needed overhaul won’t happen anytime soon. A slow evolution, peppered with threatened cuts and caps, is far more likely in the current political climate than the much needed humane revolution.

I base my pessimistic prediction on what I’ve observed about other long standing parts of the Social Security Act that are inequitable and not very disability friendly. For instance, in both the SSI and SSDI programs, you’re severely penalized if you marry; on the other hand, if you’re blind (as opposed to having any other disability), you have much more incentive to work; or, if you receive SSI, as opposed to SSDI, you have much more room to work and earn money without losing your Medicaid, unless your state has a Medicaid buy-in program. If your state has no Medicaid buy-in program and you receive SSDI benefits, every dollar you earn puts you farther and farther away from Medicaid eligibility. And on and on.

While many of us are actively involved in partnering with, or downright pushing the policy makers to reform and improve the federal Medicaid program, the reality in the streets is that until the change occurs, we are stuck with the rules that exist today. Therefore, it is imperative to temporarily suspend our judgment about the lack of logic in the rules, and commit to learning as much as we can about those rules as they exist at any moment, so we can maximize our own situation within the framework of those rules.

Clearly, easier said than done. Rarely are people involved with only one system. And every system has its own rules, acronyms, and language. Trying to juggle these and make any sense of it all requires both a Captain Midnight Secret Decoder Badge, and an inordinate amount of patience and perseverance, especially when the federal and state governments change the rules as often as a newborn’s diapers.

In the meantime…..

Escaping the Poverty Maze

There is no sure fire cookie-cutter-one-size-fits-all approach for accumulating wealth while still retaining SSI/Medicaid, and not violating Medicaid rules. There are, however, strategies that can be used now to improve your situation without risking the loss of essential health care and other Medicaid-covered services.

For SSI recipients, the income and resource rules and policies will apply all over the country. However, where Medicaid is concerned, rules can differ from state to state. Some states provide Medicaid automatically with SSI (AL; AZ; AR; CA; CO; DE; D.C.; FL; GA; IO; KY; LA; ME; MDF; MA; MI; MS; MT; NJ; NM; NY; NC; PA; RI; SC; SD; TN; TX; VT; WA; WV; WI; WY); some states make you apply separately for Medicaid, but they use the same SSI rules for eligibility ( AK; ID; KS; NE; NV; NMI; OR; UT); and a few states (CT; HI; IL; IN; MN; MS; NH; ND; OH; OK; VA), known in SSI policy as “209 b states,” not only make you apply separately for Medicaid, but they use eligibility criteria that are more stringent than the rules for SSI.

For instance, in some states, even though SSI allows you up to $2000 in countable resources, the state Medicaid program may only allow you to have $1500 in countable resources. If you accumulate over the $1500 (but less than the $2000), you won’t lose your SSI, but you could certainly lose your Medicaid in that state.

Earned Income

Perhaps the most obvious way to increase your monthly income is through work, whether that be wage employment, or self-employment. Earnings CAN have a negative impact on Medicaid and SSDI eligibility, and will reduce SSI payments to some extent, so employing some of the following additional strategies can ameliorate or reduce the potential for negative consequences until the SSI/Medicaid policies on income and resources are improved.

Note: There are also a variety of state-specific strategies that you can use (like the Medicaid buy-in programs), so be sure to check with advocates and BPAO experts in your state. For a list of the BPAO resources in each state, see http://www.ssa.gov/work/ServiceProviders/BPAODirectory.html

Students and Earned Income

If you are a student you can earn up to $1410/month, up to a total of $5670/year in 2005, before Social Security will reduce your SSI check. This SSI work incentive, known as the Student Earned Income Exclusion (SEIE), is available when you:

• Are under 22
• Are regularly in school (high school, college, special education)

Allowable Resources

These are available to everyone on SSI and Medicaid. While there are limits, there is still the ability to sock some money away that won’t be counted against you. The following resources are not counted for SSI purposes, but, again, be sure to check with the advocates and BPAO specialists in your state to make sure about your state’s policies on Medicaid, in case your state imposes stricter limits on one or more of these.

• Up to $2000 in countable resources such as cash, bonds, bank accounts, etc.
• Approved irrevocable funeral agreements
• Burial plots and grave stones
• A home you live in, plus any attached land
• A vehicle
• Personal possessions
• Life insurance policy with a face value under $1500
• Term life insurance policy (this means it can’t be cashed in until you die)

Whenever you earn money, if you have funds left after you meet your basic living expenses, putting that money into any of these non-countable resources is one option available to you.

While there is no resource limit for the SSDI program, if you also have/want Medicaid, then you will have to observe the federal and your state Medicaid resource limits.

Note: other allowable resources like PASS plans, PESS (Property Essential for Self Support), IDAs (Individual Development Accounts), and “OBRA” trusts are discussed individually below.

Income from a Third Party

It’s not uncommon for people who receive SSI/Medicaid to have family members or others who want to help them out financially. However, if those people give us cash, or pay our rent, we are at risk for losing or reducing our SSI/Medicaid.

On the other hand, those friends and family members CAN contribute financially in a number of ways without causing harm to us and our benefits. In order to prevent any harm to us, their contributions must NOT be in cash given directly to us, and must NOT be paying for our food and shelter. However, they CAN pay for items like the following;

• Phone bill
• Cable TV bill
• Non-Medicaid covered medical expenses
• Over-the-counter medications and supplies
• Vehicle/Gas, insurance, repairs for our vehicles
• Personal hygiene and paper products, laundry and laundry product costs
• Home repairs
• Renter’s or homeowner’s insurance on our possessions
  
• Memberships to clubs
• Magazine subscriptions
• Pets and pet maintenance
• Supports, like a house cleaner or a job coach

Dedicated Account

On occasion, a group of people or a whole community desire to help someone by collecting donations to buy something substantial such as a lift-equipped van. In order for those funds to not be counted against us, they should be placed in a bank or credit union, in a “dedicated account.” The dedicated account is set up to collect funds that can only be used for a specified purpose (not related to food and shelter). Further, the account should be set up so the funds in the account can be accessed only by a third person (or two people jointly) who would then write a check (or get a cashiers check) payable to the vendor of the item to be purchased.

PASS Plans

A PASS (Plan for Achieving Self Support) is an SSI work incentive that allows someone to create an extra pot of money for a limited amount of time to use for obtaining a job, starting a business, or in the case of Supported Employment, maintaining a job. This extra pot of money is created by setting aside income and/or resources you have that are considered “countable” by SSI. When SSI counts that income or resources, it results in a lower SSI check for you, or you are told that you are simply not financially eligible for SSI at all.

If the countable income/resources are set aside in an approved PASS, SSI pretends those funds don’t exist at all when calculating how much SSI you are due. For example, if you receive a monthly SSDI check of $650 you are not financially eligible (in 2005) for SSI in most states. However, if you put $630/month of that $650 into a PASS to buy a car that gets you to and from your job, you will;

• Be financially eligible for a $579 SSI check/month (in 2005) (plus any state supplement your state provides in addition to the federal SSI amount)
• Have Medicaid in most states, and
• Generate $7560/year ($630/mo x 12 months = $7560/year) to pay for your car or the other products and services needed to help you reach your employment goal

Thus, using a PASS can help you acquire a vehicle, equipment needed to get a job or serve as start-up capital for a business. It can also be a way to fund some extended job coaching for your supported employment job, especially if you are on a waiting list for services in your state.

And, finally, in some cases, a PASS can allow an SSDI-only recipient to become eligible for SSI, and in most cases, Medicaid. During the PASS, if you use up the last month of your 36-month Extended Period of Eligibility (EPE), you can actually be cut off of SSDI, yet retain your SSI and Medicaid after the PASS is over. In fact, the loss of SSDI can actually be listed as a step in your PASS. If you are one of the people who can make this strategy work, you not only end up on SSI and Medicaid, but you can take advantage of SSI’s 1619 (a) & (b) provisions (explained below).
For more information on PASS see http://www.ssa.gov/work/ResourcesToolkit/redbook.html

PESS (Property Essential for Self Support)

If you start your own business, the resources you accumulate in that business are not counted for SSI purposes. Of course, your “net income” will be counted, but the money you put back into the business from your gross proceeds will NOT be counted. Over time you can build a good sized business this way. At some point, you could even choose to sell or “cash out” your business and use the proceeds to buy your own home, which also would not be counted as a resource for SSI purposes.

In a business, you may also have a separate business account that can accumulate cash for current and future business expenses, both the known, and the unexpected. This business account will not be counted as a resource.

Some of us may own an additional home or property that we do not live in. In most cases, this additional home/property would be worth enough that it would make us completely ineligible financially for SSI. However, if you rent the home or land, and it provides you with some income, SSI will count that income as “unearned income,” but will not count the home/land as a resource.
For more information on PESS see http://www.ssa.gov/work/ResourcesToolkit/redbook.html

Incorporating Your Business

While this avenue isn’t open to everyone (because you need to have the right combination of benefits and earnings for it to be of benefit to you), it’s a great opportunity for some small business owners who receive SSDI benefits.

Currently, SSDI recipients aren’t automatically eligible for Medicaid, although most of them receive Medicare. While Medicare covers a number of things, it doesn’t typically cover all prescription costs, or mental health services, developmental disability services, personal assistance services, or durable medical equipment costs, etc. If you depend on these items, it becomes critical to become eligible for, or protect your eligibility for Medicaid.

If you live in a Medicaid buy-in state, you can own your own business, have more money to spend monthly, and get Medicaid by paying an affordable monthly premium. If you DON’T live in a Medicaid buy-in state, you are likely struggling with a costly monthly “spend down” in order to retain your Medicaid eligibility, and you are probably not seeing much increased income as a result of all your work.

If your business is potentially profitable enough that your average monthly NET earnings currently do exceed or will consistently exceed the SGA level ($830/month in 2005) in the future, you are at risk of losing your SSDI, and any Medicaid for which you are currently eligible. However, by incorporating your business, you can prevent this loss of benefits.

For instance, as you incorporate, you might set up yourself and a trusted friend or family member or two as the corporation’s board of directors. Then, once incorporated, the corporation could pay for your business-related expenses like business-related meals, transportation, private health insurance, professional conferences and trainings, and much more.

At the end of the year the board of directors meets at its annual meeting, and if the incorporated business has accrued a profit, the board can decree a “dividend.” If you are struggling with Medicaid, the dividend will be considered income in the month you receive it. BUT, any dividend will NOT be counted as earnings for SGA purposes, thus permitting you to have additional money without fear of losing your SSDI benefits for having earnings at the SGA level.

IDAs (Individual Development Accounts)

In 1999, legislation called “Assets for Independence” created the potential for states and housing organizations to allow TANF (Temporary Assistance for Needy Families, formerly known as ADC/AFDC) recipients and some people subsidized by HUD to save more money than usually allowed. Those funds must usually be saved for a minimum amount of time, and then are matched by the state TANF program, or Tribal TANF program, or the housing organization. The amount of match may be one dollar for every dollar saved, or may be as high as $7 for every dollar saved.

Typically, there is a maximum amount of savings that will be matched. The savings and match money can then be used for one of three outcomes. You can either use the money for an education, or to start your own business, or to purchase your own home.
For more information, see http://www.wid.org/publications/#ida

1619 (a) & (b)

Recipients of SSI can utilize the SSI work incentives known as 1619 (a) and (b) in order to work and increase their monthly and yearly income without fear of losing Medicaid. Simply put,
1619 (a) allows SSI recipients to earn over the monthly SGA (Substantial Gainful Activity) amount with no threat to SSI eligibility. (In 2005 the SGA amount is $830/month).

1619 (a) is one of the advantages SSI recipients have that SSDI recipients don’t. If an SSDI recipient earns over SGA for enough months, he or she will be cut off the SSDI program because Social Security will consider them no longer eligible due to the amount and duration of their earnings.

This is not the case for SSI. Although the person’s SSI check will be reduced, maybe even to $0, based on the amount of their countable earnings, they are still considered an SSI person who remains SSI-eligible.

As you engage in work, and take advantage of 1619 (a), you will have more money each month, both for your typical survival expenses, and for things you want and can’t afford on only SSI. You can also save this money, but remember you can accumulate only up to $2000 in countable resources. Keep in mind, though, that you can also choose to change income that SSI counts into non-countable resources by putting some or all of your earnings into resources such as;

• A house you live in
• A vehicle
• An approved pre-paid irrevocable burial fund
• A business you are starting
• Assistive Technology
• Medical expenses not covered by Medicaid/Medicare/other insurance you have
• A PASS plan

1619 (b) is a little different, but the results are similar to those of 1619 (a). In essence, 1619 (b) allows SSI recipients to earn more money and not lose Medicaid. With 1619 (b), you can earn as much money as it takes to reduce your SSI check to $0 ($1243/month or more), and then some! In fact, you can earn up to a “threshold” specific to your state (ranging from $14,916 to $44,550 in 2005, depending on your state), or, in some cases, a “threshold” amount that is set just for you.

If you use more than the average amount of Medicaid used in your state, you can earn that much more and not lose your Medicaid. To check the threshold amount in your state, and the average Medicaid for your state, go to http://policy.ssa.gov/poms.nsf/lnx/0502302200!opendocument
To see the worksheet for figuring your own individual threshold, go to http://policy.ssa.gov/poms.nsf/lnx/0502302300!opendocument

Once again, remember that these increased earnings can be turned into non-countable resources like the ones listed above, as well as be used to purchased products and services you desire
For more information on 1619 (a) & (b) see http://www.ssa.gov/work/ResourcesToolkit/redbook.html

OBRA ’93 Trusts

The Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) created the potential for people under 65 who are SSI and Medicaid eligible to accumulate some wealth that can be used to enhance your quality of life without jeopardizing your SSI and Medicaid benefits.

In essence, OBRA ’93 allows a parent, grandparent, guardian, or court to create a trust for you using your assets (perhaps a lump sum of money you may receive, often unexpectedly. This lump sum might come from an inheritance, a medical malpractice lawsuit/settlement, a Fair Housing lawsuit/settlement, or even winning the lottery.) A lawyer who knows about these kinds of trusts will need to write the trust document for you, and then arrange for the court to approve it.

By law, OBRA ’93 trusts do not jeopardize your SSI and/or Medicaid eligibility, or your SSI check amounts…as long as you abide by several mandatory criteria in constructing an OBRA ’93 trust.
The criteria include that the trust:

• Can’t be used for food and shelter (but it can be used for a wide range of “amenities”)
• Must be irrevocable (meaning you can’t undo it)
• Can’t be changed once it’s written
• Will use any funds remaining at your death to help repay Medicaid in your state for services provided during your lifetime *(see exception below), which is why you may also hear these trusts referred to as “Payback Trusts.”

*Exception; If your OBRA ’93 trust is managed by a private, non-profit organization, typically in a “pooled trust” arrangement, any funds remaining in the trust when you die can be retained by the non-profit. The non-profit organization can then use these funds to provide amenities for people who have no “quality of life” resources beyond their benefits. It is perfectly acceptable for all funds in your OBRA ’93 trust to be spent before you die, but if any funds do happen to be left over at your death, they can be used to help other people in need if they are retained by a non-profit organization that has been managing your trust. In this “pooled trust” arrangement, the funds of each person are kept in a separate account, but the funds are invested collectively.

OBRA ’93 trusts, like the estate planning trusts that follow, can be used to pay for “quality of life” items or “amenities” like:

• Vacations/trips
• A Vehicle and vehicle maintenance expenses
• Memberships and subscriptions
• Education, conferences, training
• Medical/mental health/alternative medical expenses not covered by Medicaid/Medicare
• Pets and pet maintenance
• Household items, furniture, linens, computer, audio-visual equipment
• Gifts for family and friends on holidays, and special occasions
• Telephone/cell phone/cable TV
• Haircuts, newspapers, movies, etc
• Supports you need and want, for instance a house cleaner, or a job coach

While funds paid out by an OBRA ’93 trust don’t put cash into your hands, they do allow things that you want, but can’t otherwise afford to be purchased for you.

For more information on OBRA trusts, see
http://www.thearc.org/policies/pooledtrust.doc
http://www.fpanet.org/journal/articles/2001_Issues/jfp0801-art9.cfm

Family Estate Planning

There is probably no question asked more frequently by the parents of a person with a significant disability than “What will happen to my son or daughter when I’m no longer around?” One of the practical strategies parents can utilize to assure some quality of life for their son or daughter without interfering with SSI/Medicaid eligibility is to establish a carefully crafted trust. These trusts are often known by names such as “amenities trusts,” “spendthrift discretionary trusts” and even “special needs trusts.”

Whatever the name, this kind of carefully crafted trusts typically:

• Is set up by a parent’s (or other relative’s) will
• Contains language that prohibits use of trust funds for basic food and shelter costs
• May contain a provision for what happens to any funds left after the beneficiary dies
• Contains a provision that gives the trustee total discretion for any making expenditures that aren’t specifically prohibited
• Contains a provision that renders the trust null and void should government regulations change to the person’s/trust’s detriment
• Specify any particular expenditures that are desired by the parent(s) (or other family member creating the trust). Examples might include the trust paying for a yearly trip to visit a brother or sister who lives out of state; regular visits by a social worker; a vehicle to transport the person wherever he/she desires, employment or other supports, etc.

As with the OBRA ’93 trusts, these family estate planning trusts need to be written by attorneys who know and understand Medicaid law. The attorneys who are most likely to have this expertise will be attorneys who practice elder law and those who work with disability organizations like Arcs and Centers for Independent Living. There are references at the end of this article that will get you started in the right direction legally.

Conclusion

All of the above strategies allow persons with disabilities eligible for or receiving SSI and/or Medicaid to accumulate either income or resources/assets within the framework of SSI/Medicaid rules so Medicaid is neither threatened nor lost.

Every person on benefits can’t utilize every single one of these strategies, but everyone can utilize at least one, and hopefully more. While these are no substitute for the long overdue and desperately needed legislative and policy changes, they are tools available now to assist persons with disabilities to at least improve the quality of their lives, if not to escape the poverty maze altogether.

For More Information on Trusts see;
Davis, S., Ed. (2003), A Family Handbook on Future Planning.
Available from: http://www.thearc.org
Etmanski, A. (2000), A Good Life for You and Your Relative with a Disability.
Available from: http://www.agoodlife.org/
Welber, Joel S., Use of Trusts to Compliment Essential Governmental Benefits in Residential Life Care Planning, The, Michigan Bar Journal, p 402, May, 1996.
Welber, Joel S., Special Considerations for Special People--Estate Planning for Families with a Developmentally Disabled Child, Michigan Bar Journal, p 1163, December, 1984.