New Jersey’s Medicaid program is about to get a dramatic overhaul. Currently, there are two programs of Medicaid that pay for long-term care, such as care in a nursing home or IN assisted living residence or at home (such as a home health aide).

One program is known as Medicaid Only Medicaid. Medicaid Only will pay for long-term care in a nursing home, in an assisted living residence, and at home, such as a home health aide. The Medicaid Only program has an income cap. Currently, the income cap is $2,163 per month.

If an applicant’s gross monthly income is at or below $2,163 per month, he can potentially qualify for the Medicaid Only Medicaid program (assuming he has very limited assets and requires assistance with his activities of daily living). If the applicant’s gross monthly income exceeds $2,163, even if by only one penny, he will not qualify for Medicaid Only Medicaid under any circumstances. This is what an income cap is all about.

The other program of Medicaid that will pay for long-term care services is known as Medically Needy Medicaid. Medically Needy Medicaid program is for individuals whose gross monthly income exceeds the income cap; however, Medically Needy program will only pay for long-term care in a nursing home, not in an assisted living residence or at home.

So, if a person is looking for assistance with the long-term care services that they need in an assisted living residence or at home (such as a home health aide) and their gross monthly income exceeds the income cap (currently $2,163), they are out of luck. Such an individual will never qualify for Medicaid long-term care services, even if they owned no assets whatsoever.

This is about to change. New Jersey is about to eliminate effectively the income cap. In the future, individuals whose income exceeds the income cap will be able to place the amount of income by which their income exceeds the cap into a special trust, called a Miller Trust after a famous case. Once the income is placed into the trust, the income does not count against the individual for purposes of Medicaid eligibility. The Medicaid beneficiary will then have to “spend down” the excess income in the trust every month by using that income to pay for her medical needs or other specified needs.

The thing is, federal law does not permit a state to use Miller Trusts if the state has a Medically Needy program for nursing home care. New Jersey does have a Medically Needy program for nursing home care, so New Jersey is getting rid of its Medically Needy program. What this means is, Medicaid applicants in a nursing home or an assisted living residence or at home whose income exceeds the income cap will have to start using Miller Trusts to handle their “excess” income.

For instance, if Mrs. Smith is in a nursing home or an assisted living residence and her gross monthly income is $2,263, she will have to place $100 of her income into a Miller Trust every month. Every month, the trustee of Mrs. Smith’s Miller Trust (who cannot be Mrs. Smith) will then have to use that $100 of income to contribute towards the cost of her care, for instance, by paying it over to the nursing home or assisted living residence.

It’s essentially a legal fiction that permits Mrs. Smith to qualify for Medicaid notwithstanding the fact that her income exceeds the income cap. In reading this, you might be thinking, What a pain that will be. But the reality of the situation is, the State is opening up Medicaid long-term care services to a large percentage of people for whom such services have been unavailable, those whose income exceeds the income cap but need long-term care services at home or in assisted living residence.

This change does require more skill and knowledge in order to qualify for Medicaid benefits; however, the pool of people who can qualify for benefits will be much deeper. I applaud the State for making this change.

Medicaid stories often focus on restrictions, deadlines, and eligibility hurdles. When a rule change actually creates new opportunities for applicants and their families, it is worth paying attention. Understanding these changes can make the planning process less frustrating and more effective.