The Social Security Administration has recently announced its cost-of-living adjustment (COLA) for 2025, providing a boost to monthly benefits for millions of Americans. Here’s what you need to know about this year’s adjustment and how it might affect your clients.
Understanding the 2025 COLA Adjustment?
The cost-of-living adjustment (COLA) is an annual increase in Social Security benefits designed to protect recipients from the effects of inflation. Beginning in January 2025, Social Security beneficiaries will see a 2.5% increase in their monthly payments.
Considerations for Clients Currently Serving a Penalty Period
Potential Shortfall Reduction for Gift/ Annuity Plans: For clients currently serving a Medicaid penalty period due to prior gifts, the COLA increase can be advantageous. The higher Social Security income may reduce the monthly income shortfall in Gift/MCA Medicaid planning.
As you know, during a penalty period, clients are responsible for covering the private pay rate of their nursing home care. When implementing a Gift/MCA planning strategy, an intentional income shortfall is often built into the plan to make sure the client remains otherwise eligible for benefits from an income perspective. With the COLA adjustment increasing monthly Social Security income, the shortfall may now be smaller than initially projected.
In most states, once a penalty period related to making a gift in the 5-year lookback period has been determined by Medicaid, the penalty period continues to run without interruption even if the client’s income increases during the penalty period. Furthermore, with a 2.5% COLA adjustment, the average Social Security retirement benefit will rise by approximately $50 per month. As such, the COLA adjustment likely won’t impact most clients’ existing penalty period.
Rising Nursing Home Costs: Be cautious though – while the COLA offers some relief, nursing homes often adjust their private-pay rates at the beginning of the year. Any increase in private pay rates will also impact your client’s monthly income shortfall calculations.
Impact on Current Medicaid Recipients
Potential Increase in Medicaid Co-Pays: If your client is already receiving Medicaid, their increased Social Security income may trigger a higher Medicaid co-pay starting in 2025.
Considerations for Clients in Income Cap States
Qualified Income Trust (QIT) Adjustments: For attorneys practicing in income cap states, where Medicaid eligibility hinges on meeting income limits, the COLA may require updates to Qualified Income Trusts (QITs). If a QIT already exists, updates to the trust’s Schedule a might be necessary.
Establishing a QIT Before the New Year: If your client’s increased income will exceed your state’s new income cap, you may want to consider establishing a QIT in December to ensure seamless continued Medicaid eligibility for your client as of January 1, 2025.
Ongoing Support for Your Medicaid Clients
The 2025 COLA serves as a reminder of the value of continuous oversight in Medicaid Planning. Annual income adjustments, changes in Medicaid rules, and adjustments to Medicaid planning numbers highlight the importance of offering your clients maintenance packages that include regular reviews and updates to their Medicaid strategies.
Summary
As Medicaid regulations vary across states, attorneys should review their state’s rules to ensure proper handling of the COLA adjustments. This includes understanding how income changes affect eligibility, reporting obligations, and co-pay recalculations.
By staying proactive and preparing for these changes, Medicaid planning attorneys can better protect their clients’ benefits and ensure smooth transitions into 2025.
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