Medicaid, the federal-state health program for people with low incomes and limited assets, has always treated the family home differently from other property. Even when a person moves into a nursing facility, their home is generally excluded from the asset calculations used to determine eligibility, as long as they express an intent to return home someday. The idea is that no one should have to sell their house to receive care.
That protection has not been unlimited. Since 2006, federal law has capped the amount of home equity that can be excluded when a person applies for Medicaid coverage of long-term services and supports (LTSS), which can include nursing home care, home health aides, adult day programs, and similar services. In 2026, the federal home equity limit is $752,000. States have been allowed to raise it to as high as $1,130,000. Both figures are adjusted upward each year for inflation.
The Budget Reconciliation Act of 2025, signed into law on July 4, 2025, changes this system in two important ways starting in January 2028:
First, it sets a hard national ceiling of $1 million. No state will be allowed to exempt more than $1 million in home equity when determining eligibility for Medicaid long-term care. Twelve states and the District of Columbia currently allow a higher limit, including California, New York, Massachusetts, Colorado, and Hawaii, and will be forced to lower their limits when the new law takes effect.
Second, the $1 million limit is frozen. Unlike the current limits, which rise with inflation every year, the new cap will not be indexed to the cost of living. As home values continue to increase over time, more and more people’s homes will eventually exceed a ceiling that never moves.
There is one exception: homes on property that is zoned for agricultural use are not subject to the new cap and will continue to follow the old rules, including annual inflation adjustments.
Older Adults at Risk of Denial for Medicaid Benefits
Older adults who own homes in high-cost urban areas, particularly in the 12 states that had adopted the higher limit, will be affected the most when the law becomes effective. A two-bedroom home in San Francisco, New York City, or Honolulu can easily exceed $1 million even for someone who is otherwise low-income and would qualify for Medicaid in every other respect. In such cases, the home’s value, not the owner’s cash or savings, would be the reason for denial of Medicaid benefits.
Even in areas where home values are below $1 million today, the frozen cap is likely to cause problems over the coming years. According to analysts at Justice in Aging, the current federal ceiling of $752,000 would be expected to reach $1 million in roughly seven to 10 years under typical inflation rates.
At that point, states would be required to stay at $1 million rather than adjust higher. This means future generations of retirees in areas with rising home prices could be caught by the cap even if they would not be today.
Many older adults who own homes worth over $1 million purchased them decades ago at a fraction of their current value. They may otherwise have a modest income and few liquid assets. They are, as advocates often describe them, “cash-poor and house-rich” and this law could force them to make impossible choices.
Strategies to Consider Before the 2028 Deadline
If you or a loved one own a home with equity above $1 million, there are several strategies to consider before the 2028 deadline. Each has trade-offs, and you should consult an elder law attorney or a benefits counselor before taking action.
- Reverse mortgage. Federal law allows using a reverse mortgage to reduce home equity below the Medicaid limit. The loan proceeds can help pay for care or living expenses while you remain in the home.
- Home equity loan. A traditional home equity loan or line of credit (HELOC) can also lower your equity stake.
- Transfer to spouse or qualifying dependent. The home equity limit does not apply if a spouse, a child under 21, or a blind or disabled child of any age lives in the home. This exemption remains in the new law. Therefore, for example, the home equity limitation is not applied to a married couple living in the home.
- Hardship waiver. Federal law requires states to have a process to waive the home equity limit in cases of demonstrated hardship.
- Medicaid planning with an attorney. An elder law attorney can help structure finances, potentially through trusts, transfers, or other legal tools, to reduce countable home equity. Strict lookback rules apply, so start the process early.
- Agricultural property status. If your home sits on land that is zoned for agricultural use, it may be exempt from the new cap entirely. Verify your property’s zoning with your county assessor or a local attorney.
Medicaid Estate Recovery Is Still in Place
Even when a home is protected for eligibility purposes during a person’s lifetime, Medicaid programs can, and usually do, seek repayment from the estate after death. Exempting your home from the equity cap does not shield it from estate recovery. An elder law attorney can advise on planning strategies for this as well.
There is still time to plan. Find out your home’s current equity. Subtract any mortgage balance or outstanding loans from your home’s current market value. If the result is near or over $1 million, begin exploring your options now.
The intersection of Medicaid eligibility, estate planning, and real property law is complex. A qualified attorney can map out options specific to your state’s rules.
Ask your state Medicaid agency about hardship waivers. Federal law requires states to establish a hardship waiver process. Check with your state agency and stay informed through organizations like Justice in Aging.
The attorneys in the Elder Law Practice Group of Meltzer Lippe are here to help you determine the best course of action and be prepared for 2028 with possible long-term care needs.
Ronald Fatoullah, Esq. Chairs the firm’s Elder Law Practice Group and is a Partner of the firm’s Trusts & Estates Practice Group.
This blog posting is for informational and educational purposes only. It is general in nature and not person or circumstance specific. This blog posting is not intended, nor should it be construed as rendering independent investment, legal or tax advice. It may but does not necessarily constitute attorney advertising.