Q. I’m 49 and I had to stop working for medical reasons in August 2021. I have a private disability policy. After the six month elimination period, the carrier granted me full disability and I started to receive benefits. This policy was purchased with post tax dollars, so my benefit amount is tax-free. I have also applied for Social Security disability. When I first stopped working, I was told I can apply for Medicaid because I had zero income. Now that I have some income, what will Medicaid consider?
A. We’re sorry to hear you’re unable to work.
But we are glad to hear that you are receiving disability benefits from your private policy.
You are correct that because you paid for the coverage with after tax dollars, your benefits are tax-free, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.
“Any benefits received will not show up in your modified adjusted gross income (MAGI) calculation for things like income tax returns and eligibility for reduced health insurance premiums under Obamacare,” DeFelice said. “That may not necessarily be the case when determining Medicaid eligibility.”
To qualify for disability-based Medicaid, you must have “countable income” that is $1,133 per month or less, or $1,526 or less for couples, he said.
The way your income is counted for disability-based Medicaid is very similar to SSI’s countable income calculation: Less than half of any earned income is counted, and most of your unearned income is counted.
DeFelice said unearned income includes funds received from sources for which no paid work activity is performed.
Disability benefits such as SSDI, SSI, short-term disability insurance, private long-term disability insurance, VA benefits, Workers’ Compensation; income from a trust or investment, spousal support, dividends, profits or funds received from any source other than work are all usually considered unearned income, he said.
DeFelice said when you reapply for Medicaid they may count the disability benefits you are receiving, which may unfortunately disqualify you.
“If indeed you lose your Medicaid coverage, you should be able to purchase health coverage privately without your disability affecting your consideration, thanks to the Affordable Care Act,” he said. “And, if you can’t afford the individual coverage, the government may help you pay for it through tax credits.”
Additionally, with the changes made through the American Rescue Plan, no American will ever pay more than 8.5% of their household income for health coverage, DeFelice said. If your premium is more than 8.5% of your household income, then you’ll qualify for a premium tax credit to help cover the rest, he said.
“Here’s your advantage: Under the plan, the `household income’ figure isn’t just what your household makes in a year — it’s based on your modified adjusted gross income,” he said. “And in your case, your MAGI should not include your private disability benefits when determining your eligibility for tax credits towards your health premiums, should Medicaid reject your next application.”
DeFelice said if you ultimately qualify for SSDI, you will automatically be eligible for Medicare benefits, which offers greater coverage than Medicaid. You should also inquire with the state to see if your children would be covered under the Children’s Health Insurance Program (CHIP).
Because of the complexities of these programs, consider working with a qualified attorney with experience in these areas.
Email your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.