The Achieving a Better Life Experience Act of 2014 (the ABLE Act) enables individuals with disabilities to save money in a tax-exempt account (ABLE account) which can use for meeting disability-related needs with no impact on eligibility for public benefits based upon financial need. The law states that ABLE accounts should “supplement, but not supplant” benefits available to ABLE account beneficiaries under Medicaid, the Supplemental Security Income program (SSI) and other programs. (I wrote numerous blog posts discussing the ABLE Act and ABLE accounts here, here, here, here and here,)

Recently, the Center for Medicare and Medicaid Services (CMS) released a letter providing guidance to State Medicaid Directors on the treatment of funds in, contributions to, and distributions from an ABLE account for purposes of Medicaid eligibility. The letter also addresses the post-eligibility treatment of income from ABLE accounts, and the disposition of amounts remaining in a Medicaid beneficiary’s ABLE account upon the death of the beneficiary.

The contents of the letter are divided into the following topics:

1.          Treatment of Funds in an ABLE Account
2.          Contributions to ABLE Accounts
3.          Distributions from ABLE Accounts
4.          Post-Eligibility Treatment of Income
5.          Transfer of ABLE Funds to State Estate Recovery

Some highlights include:

1. Treatment of Funds in an ABLE Account: Medicaid state agencies are directed to disregard all funds in ABLE accounts, including interest/earnings, in determining eligibility of Medicaid applicants and beneficiaries who are subject to a resource test.  Additionally, the interest/earnings of the funds in an ABLE account will be excluded when determining income eligibility under the Medicaid program.

2. Contributions to ABLE Accounts: The CMS letter states that contributions by a third party into a beneficiary’s ABLE account (such as a parent or friend of the account owner) are disregarded when determining Medicaid eligibility.  Further, contributions by a third party are not counted either as income or included in total resources of the account beneficiary (the same guidelines apply to contributions from a special needs trust and/or pooled trust).

Additionally, the ABLE beneficiary is allowed to contribute to their own income or resource into their ABLE account (thus reducing their countable resources with respect to their eligibility for Medicaid). However, while the contribution may result in a reduction of countable resources, it would not result in a reduction of countable income (provided the contribution is a result of their income).

Lastly, it is possible that a third party who has made a contribution to an ABLE account of someone else may apply for Medicaid. If so, contributions made by the third party to an ABLE account benefiting another person may affect the third party’s future eligibility for Medicaid.

3. Distributions from ABLE Accounts: The CMS letter states that so long as distributions from an ABLE account are used for qualified disability expenses (QDEs), the funds distributed will not be counted as income for purposes of determining eligibility for Medicaid.  Funds used for non-qualified expenses or distributions may be counted as income of the beneficiary when determining eligibility for Medicaid.

4. Post-Eligibility Treatment of Income: The CMS letter directs Medicaid state agencies to disregard distributions from ABLE accounts as income provided the distributions are used for QDEs.

5. Transfer of ABLE Account Funds to State and Estate Recovery: The CMS letter stipulates that states are required to seek recovery of funds in an ABLE account to repay the state for funds expended on behalf of the Medicaid recipient. If the estate of an ABLE account beneficiary is not subject to Medicaid estate recovery under federal law, states have discretion whether to file a claim against the ABLE account of a deceased Medicaid recipient.