Many retirees assume that Medicare will cover most of their healthcare costs in retirement. While this is generally true for routine medical care, long-term care is a very different story. Long-term care can include nursing homes, assisted living facilities, and extended in-home care. These services that are not fully covered by Medicare. These costs can add up quickly, often ranging from $50,000 to $150,000 per year depending on the level of care required.
This is where Medicaid often enters the picture later in life. Medicaid is a completely separate program from Medicare, designed to provide coverage for individuals with limited income and assets. Because long-term care is one of the largest and most unpredictable expenses retirees may face, Medicaid is often misunderstood and can be an important part of retirement planning. In recent years, proposed changes and budget pressures have only added to the uncertainty surrounding the program. In this blog, we’ll explore what Medicaid really is, why it is frequently misunderstood and feared, and when proactive planning may help retirees protect their assets while preparing for future care needs.
To start, what exactly is Medicaid? Medicaid is a joint federal and state program designed to provide health coverage to individuals and families with limited income and assets. Unlike Medicare, which is primarily based on age or disability, Medicaid is a means-tested program, meaning eligibility depends on your financial situation. Because it is administered at the state level, the rules and eligibility requirements can vary widely from state to state. Today, Medicaid is the largest payer for long-term care in the United States, covering approximately 66% of all nursing home residents.
The next common question is how Medicaid affects an individual in retirement. As mentioned above, not everyone in retirement will qualify for Medicaid. For example, consider the state of New York, where most of my clients reside. Under New York’s current Medicaid income eligibility rules, a single applicant is limited to $1,800 in monthly income, while a married couple is limited to $2,433. Income counted toward eligibility includes wages, Social Security benefits, pensions, interest and dividends, and retirement account distributions. In addition to income requirements, Medicaid also imposes asset, or “resource,” limits. For 2025, those limits were $32,396 for a single applicant and $43,781 for a married couple. A common and often overlooked misstep involves understanding which assets are not counted toward Medicaid’s asset limits.
In New York, certain assets are considered exempt, including your primary residence, one vehicle, household items and personal belongings, burial funds, and retirement accounts that are already in payout status. As a result, if you are taking a required minimum distribution (RMD) from a retirement account, the remaining balance of that account is not counted as an asset for Medicaid eligibility. However, the RMD itself is treated as income and does count toward Medicaid’s income limits.
One of the biggest misconceptions I hear is that “Medicaid will take your assets”. This fear is common and often misunderstood. What actually happens is that an individual must spend down certain assets to pay for their own care to meet the Medicaid’s eligibility requirements. As mentioned, certain assets are exempt from this spend down process that is required. After death, the state may seek estate recovery, this is the part people tend to fear the most. This is where misinformation causes unnecessary panic. This process typically targets assets passing through probate and can be limited or avoided with proper planning.
Now, this is where planning comes into the picture. As a financial advisor, I don’t draft legal documents required to protect assets for Medicaid purposes. That is the role of an experienced estate planning attorney. That said, this doesn’t mean your financial advisor isn’t looking at the bigger picture. As advisors, we work closely with attorneys and other professionals to help align your long-term plans with your goals. That includes estate and end-of-life planning.
Planning early matters, as there is no one-size-fits-all solution. Every individual has different priorities in retirement. For some, a key goal is leaving a legacy. Ensuring that there are assets left behind for children and future generations. There are some common planning tools that can be used in those situations to protect these assets from being spent down during long-term care. One could be an Irrevocable trust and more specifically a Medicaid asset protection trust. When done properly, this type of trust can help protect assets from being spent down on long-term care costs, but there are important nuances to understand.
One of those nuances is the 5-year look back period. This means the state has the ability to review your financial history for the five years prior to applying for Medicaid. If assets were transferred into an irrevocable trust during that window, those assets may still be considered available and could delay eligibility. This type of planning generally needs to be done well before care is immediately needed.
Another key consideration when discussing your estate plan is control. In order for assets in an irrevocable trust to no longer be considered yours, you must give up control over them. That means trusting a child, relative or other responsible individual to manage and oversee those assets moving forward.
It’s also important to recognize that not everyone needs, or even wants an Irrevocable trust as part of their estate plan. Gifting assets to the next generation now, so that it’s out of your name, can be just as effective and less complex than setting up a Trust in certain situations. Qualifying for a Medicaid funded long-term care facility can also limit your control over where care is provided. You typically don’t get to choose the facility or location. While some private facilities, especially memory care units, can be extremely expensive, that level of care may not be necessary for everyone.
This is where thoughtful planning and having honest conversations with a trusted financial advisor really can matter. Our lives, our health, and our priorities all can change over time. As those changes happen, financial plans can become more complex. Having a well thought out strategy built around what actually matter to you can make a meaningful difference.
Sources:
How cutting Medicaid could upend long-term care for many older Americans | PBS News
https://www.trustedattorneys.com/blog/2025/03/2025-medicaid-limits-update
https://sverdlovlaw.com/can-you-still-qualify-for-medicaid-if-your-income-is-too-high