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Can I Receive Medicare & Keep My 401(k)?

It is important to recognize the distinction between Medicare and Medicaid. Medicare is the federal health insurance program for people over age 65. It is not means-based. You do not have to be poor or low-income to qualify for benefits. You are eligible merely by being a legal U.S. resident over the age of 65 or by having a qualifying medical condition, such as end stage renal disease. Medicaid is the federally subsidized, state-run health insurance program for the poor and indigent. To receive Medicaid, you must typically spend your 401k and other assets down to under a few thousand dollars, though state plans vary, and there are exceptions for certain kinds of assets.

  1. Medicaid Eligibility

    • To qualify for Medicaid, you must meet stringent means testing criteria established by your state. Typically, you cannot have an income of over a minimal amount per month, including Social Security and pension payments, and you cannot have countable assets over approximately $2,000, though state laws vary.

    Countable Versus Noncountable Assets

    • Typically, the states administering Medicare provide some allowance for certain kinds of assets such as home equity, a small amount of cash value in life insurance and a small allowance for a personal vehicle. Every state develops its own criteria. The assets covered in these allowances are called "noncountable assets" and are not counted against the individual for the purposes of calculating Medicaid eligibility. However, where the state exempts assets as noncountable, the state typically preserves its right to recover any Medicaid benefits paid from the estate when the Medicaid beneficiary and surviving spouse, if any, pass away.

    Medicaid and Community Spouses

    • Again, state guidelines vary, but states typically provide some allowance for the maintenance of a spouse who is not in need of Medicaid benefits. The federal minimum protected amount to prevent spousal impoverishment is $109,560 as of late 2010, or an amount designated by a court to provide for a minimum standard of living, if greater than $109,560.

    Gifting Prohibitions

    • You generally cannot qualify for Medicaid by giving away countable resources to friends and family members for less than fair value. The Deficit Reduction Act of 2005 provides for a 60 month "lookback" period for gifts. Any substantial gifts made within that period of time could disqualify the applicant for Medicaid for a period of 60 months from the date of the gift. Some states, however, recognize a caregiver's agreement in which a lump sum is transferred to a family member in exchange for the contractual obligation to provide care.

    Conclusion

    • You can receive Medicare benefits and keep your 401k. However, you may not be able to receive Medicaid benefits and keep your 401k, depending on the circumstances.

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