§ 2.2 Medicaid & Elder Law

A bright care facility corridor with a window at the far end

Texas Medicaid Long-Term Care Eligibility

Three tests decide the outcome: medical necessity, income and countable resources. An applicant must pass all three, and the rules governing each are different enough that families routinely misjudge which one is the actual obstacle.

Every dollar figure below changes at least annually. This page explains how the tests are structured; for the operative numbers, use the Texas Health and Human Services pages and the key figures page, which lists the official sources rather than reprinting numbers that go stale.

Medical necessity

The applicant must genuinely require the level of care being sought. For nursing facility Medicaid this means a functional assessment establishing that the applicant needs the kind of care a licensed facility provides — measured largely by dependence in activities of daily living such as bathing, dressing, transferring, toileting and eating, together with medical conditions requiring ongoing skilled oversight.

This test is often taken for granted and occasionally becomes the sticking point, particularly for applicants with substantial cognitive impairment but comparatively preserved physical function. Documentation matters. Physicians' notes recording the actual level of assistance required carry more weight than a diagnosis alone.

The income cap

Texas is an income-cap state. An applicant whose gross monthly income exceeds a set figure — historically pegged at three times the federal SSI benefit rate and adjusted annually — is ineligible, full stop, regardless of how far short of the nursing home bill that income falls.

The cliff produces genuinely absurd results. An applicant just over the cap, whose income covers perhaps two-thirds of the monthly cost of care, is ineligible; an applicant just under it qualifies. The remedy is the qualified income trust, sometimes called a Miller trust, which allows income above the cap to be routed through a special account so that the applicant is treated as within the limit. It is a well-established mechanism and it works, but it must be established and funded correctly, and every month.

Income counted is generally the applicant's gross income from all sources — Social Security, pensions, annuities, rental income, interest — before deductions. Once eligible, nearly all of that income is applied to the cost of care as the applicant's "co-payment", leaving only a small personal needs allowance, plus permitted deductions for health insurance premiums and, for a married applicant, an allowance diverted to the spouse at home.

Countable resources

Resources are divided into countable and exempt. Countable resources must be below a modest limit for an individual applicant. Exempt resources include, subject to conditions:

The homestead, subject to a federal equity limit that is indexed annually — the equity limit does not apply where a spouse, a minor child or a child who is blind or disabled lives in the home. Intent to return home matters, and stating it matters.
One motor vehicle, without a value limit in the ordinary case.
Household goods and personal effects.
Irrevocable prepaid funeral and burial arrangements, plus a limited burial fund and burial spaces.
Certain life insurance, where total face value is within a low threshold; above it, cash value becomes countable.
Property essential to self-support, within limits.

Everything else — bank accounts, brokerage accounts, second vehicles, rental and recreational property, cash value of larger policies, and the assets of any revocable trust — is countable. A revocable living trust confers no eligibility advantage whatever, a point developed on the living trusts page.

The married couple: spousal impoverishment rules

Where one spouse enters care and the other remains in the community, federal spousal impoverishment provisions apply, and they change the calculation substantially.

At the point of institutionalisation, the couple's countable resources are assessed as a whole, and a portion is protected for the community spouse — the community spouse resource allowance, calculated as a share of the couple's combined countable resources subject to a statutory floor and ceiling, both indexed annually. Resources above that protected share must be spent down before the institutionalised spouse qualifies.

Income is treated separately and, importantly, the community spouse's own income is not counted toward the applicant's income cap. Where the community spouse's income falls below a minimum monthly maintenance needs allowance, part of the applicant's income may be diverted to them rather than paid to the facility. In some circumstances an increased resource allowance may be obtained if income alone cannot reach that minimum.

These provisions exist precisely to prevent a spouse at home being impoverished by the other's care costs, and they are frequently applied less favourably than they should be by families who never learn they exist.

The five-year look-back

The application requires disclosure of transfers made during the sixty months preceding it. Transfers made for less than fair market value during that window create a penalty period of ineligibility, calculated by dividing the uncompensated value transferred by the average monthly cost of nursing facility care in Texas.

Two features make this harsher than families expect. First, the penalty does not begin at the transfer; it begins when the applicant is otherwise eligible and receiving care — that is, when they are already in the facility and out of money. Second, there is no small-gift exception. The annual federal gift tax exclusion has nothing to do with Medicaid, and the customary practice of giving children a few thousand dollars each Christmas can generate months of ineligibility. The governing federal provision is 42 U.S.C. § 1396p.

Certain transfers are exempt, including transfers to a spouse, to a child who is blind or disabled, to a trust for the sole benefit of a disabled person under sixty-five, and transfers of a home to a caretaker child who lived there and provided care that delayed institutionalisation for at least two years, or to a sibling with an equity interest who lived there for at least a year. These exceptions are narrow, fact-specific and documentation-hungry.

A penalty already incurred is not always final. Returning the transferred assets can cure it, and undue hardship waivers exist. Both are covered on the crisis planning page, alongside what remains possible when nothing was done in advance.