New Law Ups Social Security Benefits to Some Retirees, People with Disabilities & Affects Long-term Care Medicaid

The Social Security Fairness Act, signed into law on January 5, 2025, delivers benefits to some retirees and people with disabilities who were not previously eligible to receive Social Security benefits. Effective retroactively to January 2024, the law repealed the Windfall Elimination Provision (WEP), which eliminated or reduced Social Security benefits for individuals who also receive a pension from an employer that did not withhold Social Security taxes, such as teachers, firefighters, and police officers in many states. For example, WEP, the law since 1983, applied to Texas public school teachers who receive a pension under the Teacher Retirement System. WEP reductions applied even to workers who qualified for benefits by contributing to Social Security through other employment.

The law also repealed the Government Pension Offset, which reduced or eliminated Social Security benefits for spouses or widow(er)s of certain state and local government workers whose employers did not withhold Social Security taxes.

The new law affects about 3.2 million people nationwide, and many have seen large deposits into their bank accounts. The first retroactive payments began issuing at the end of February. The lump sum retroactive payments are expected to be complete by the end of March 2025. To date, the Social Security Administration has issued more than $1.7 billion to more than 250,000 Texas recipients.

Social Security will also pay a monthly benefit to impacted individuals. The new benefit amounts are scheduled to begin in April 2025. Those affected should receive two notices in the mail—the first addressing the lump sum retroactive payment and the second addressing the ongoing monthly benefit. Individuals who have never applied for Social Security due to the Windfall Elimination Program may need to proactively file an application at www.ssa.gov/apply.

How do these new benefits affect long-term care Medicaid?

Long-term care Medicaid, administered by the Texas Health and Human Services Commission, is a medical assistance program for the elderly and people with disabilities who meet certain eligibility requirements. Benefits are available to eligible individuals who reside in a skilled nursing facility or at home. Medicaid in Texas has a cap on income. If the gross monthly income of the individual in the nursing facility exceeds the cap of $2,901 (in 2025), the person is ineligible for long-term care Medicaid. The additional Social Security payment received by those affected by the new law might push a person’s income over the cap. If so, a properly drafted and managed Qualified Income Trust solves the problem. But a Medicaid beneficiary’s loved ones or representatives must take action quickly so as not to interrupt benefits.

There may also be an impact if the Medicaid beneficiary’s spouse (the one not in the nursing home) receives the additional Social Security monthly amount. Medicaid beneficiaries pay a copayment to the nursing home, consisting of a large portion of their gross income. A portion or all of a married beneficiary’s income may instead be given to the spouse at home, and this depends on the income level of the spouse at home.

There is also a cap on countable assets. Be cautioned that Texas Health and Human Services has not yet issued a rule regarding how the lump sum Social Security payment will be treated. Under Medicaid rules regarding other types of lump sum government payments that have been paid in the past, the lump sum payment wasn’t counted as a resource for several months following the month of receipt. Medicaid beneficiaries should work with their attorney regarding the effect of increased Social Security payments in their particular situation.

Nothing contained in this publication should be considered as the rendering of legal advice to any person’s specific case but should be considered general information.