Understanding Medicaid Home and Community Services: A Primer, 2010 Edition. Income Supplementation by Family Members or Trusts


Family members may be able and willing to help with room and board costs when the beneficiary is unable to pay them. While this discussion focuses on payments by family members, payments may also be made by a special needs trust on behalf of its named beneficiary. Many families set up such trusts for adult children with disabilities to ensure that they will be adequately taken care of throughout their lives.

Since Medicaid does not pay for room and board in residential care settings, Federal rules regarding supplementation in nursing homes do not apply (i.e., families of nursing home residents may not supplement Medicaid payments, which cover room and board and services).

As presented in Table 5-2, 24 states and the District of Columbia reported that they allow family supplementation for individuals in residential care settings, 14 states do not allow supplementation, and 2 states have no policy. The remaining states either do not cover services in residential care settings or did not report whether they have a supplementation policy.41 States are not allowed to require supplementation.

TABLE 5-2. Family Supplementation Policy
Allow Supplementation No Policy Prohibit Supplementation
District of Columbia  
New Hampshire  
New Jersey
New Mexico
North Carolina
North Dakota
Rhode Island
New York
South Carolina  
South Dakota

In states that allow supplementation, family members need to understand that the amount of the supplement is considered in determining financial eligibility for SSI. Federal SSI regulations contain provisions for treating unearned income during the eligibility determination process, and, because Medicaid income and resource rules for the “Aged, Blind, and Disabled” follow SSI rules, the SSI rules for treating unearned income apply to Medicaid eligibility determinations as well, even if an “elderly, blind, or disabled” person is not receiving SSI.42 The application of SSI rules is not required for individuals eligible for Medicaid through another categorical group, such as pregnant women.

Under SSI rules, the entire amount of a family contribution paid directly to an individual is counted as unearned income. As a result, supplementation can lead to a reduced SSI payment or the loss of SSI altogether, and with it, potentially Medicaid as well. Even if an individual is not receiving SSI, this unearned income could cause him or her to lose Medicaid if it raises countable income above the Medicaid income limit.

If, however, the family contribution is paid directly to a residential care facility on the beneficiary’s behalf, it is treated somewhat differently (i.e., as an “in-kind” payment). Under SSI (and therefore Medicaid) rules, in-kind support and maintenance--no matter how much--is valued at only one-third of the monthly SSI benefit, or approximately $225 in 2010. This amount is also considered to be unearned income, just as a direct payment from the family to the individual would be, with similar potential consequences. The difference is that an in-kind payment cannot be valued at more than one-third of the SSI benefit, whereas the entire amount of a direct payment to the individual is countable.

Another point worth noting is that if the family can document that the actual amount of an in-kind payment is less than one-third of the SSI monthly payment, the actual amount of the payment will be used instead of the higher one-third amount. Finally, some states have elected to not count in-kind support and maintenance at all when determining eligibility for Medicaid. The Medicaid state agency should be able to provide information on whether a state has elected to not count such support.

Because the Federal rule states that the maximum reduction to an SSI payment is only one-third of the benefit, there is no limit on the amount of money that can be paid to a facility on behalf of an SSI beneficiary. If a family chooses, they could pay for a private room and board in a more expensive facility without jeopardizing an individual’s eligibility for SSI. However, the payment could result in the loss of Medicaid eligibility.

To prevent beneficiaries from losing Medicaid eligibility, states could amend their State Plan, with approval from CMS, to exempt in-kind income that supports a person’s accommodations or services not covered by the Medicaid payment in residential care settings. Section 1902(r)(2) of the Social Security Act allows states to use less restrictive income and resource methodologies than are used by SSI when determining eligibility for most Medicaid eligibility groups. States can elect to disregard different kinds or greater amounts of income and/or resources than SSI, giving states more flexibility to design and operate their Medicaid programs.

However, although a state may limit its less restrictive methodologies to eligibility groups it selects, the group(s) must still be one of those specifically listed in §1902(r)(2); for example, buy-in groups for working persons with disabilities, most poverty-related groups, and the medically needy. States are not permitted to carve out a subgroup of their own definition (e.g., one based on place of residence).

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