What is the impact on Medicaid benefits of the 2023 TRS stipend and possible cost of living increase?

Many retired Texans receive a monthly annuity from the Teacher Retirement System (TRS) of Texas. If you are one of those Texans, you may be receiving a one-time stipend in September. The 88th Texas Legislature passed legislation authorizing TRS to give retirees who are age 75 or older a one-time stipend of $7,500, and retirees age 70-74 a one-time stipend of $2,400. Annuitants must have been eligible in August and must have met the qualifying age on or before August 31, 2023.

The $7,500 stipend will be treated as a rollover eligible distribution, and if you elected not to roll it over, a mandatory 20% will be withheld for federal income tax purposes, and the stipend will be paid the same way you receive your regular monthly annuity (for example, by direct deposit). If you elected to roll over the stipend, the withholding depends on the type of rollover you selected, and TRS will mail a check made payable to the IRA or other plan you designated.

The $2,400 stipend will not be treated as an eligible rollover distribution, the stipend will be paid the same way you receive your regular monthly annuity, and income tax withholding will be applied to the stipend based on the information TRS has on file.

In addition, the legislature passed a bill allowing the possibility of a cost-of-living adjustment (COLA) to be effective and paid in January 2024. The COLA will take effect only if it is approved by Texas voters in the November 2023 election. If passed, the COLA will vary depending on when you retired, with lower increases for those who retired more recently and a higher increase for those who retired before August 31, 2001.

What do the one-time stipend and potential COLA mean if you or your loved one receives long-term care Medicaid benefits, whether at home or in a skilled nursing facility?

The Texas Health and Human Services Commission, the agency that administers Texas Medicaid, will consider the one-time stipend as “unearned income” in the month of receipt. If all or part of the stipend is still in the person’s account as of 12:01 a.m. on the first day of the following month, it is a countable resource. Action must be taken to spend down most or all of the stipend within the month of receipt. Because the Medicaid rules for married people are different than for single people, spending down may look different depending on marital status.

If Texas voters pass the constitutional amendment allowing the cost-of-living increase, it will begin in January 2024. The 2023 Medicaid income cap for a single person or married person whose spouse is not also receiving Medicaid is $2,742 of gross monthly income. This cap changes every year and is tied to Social Security cost-of-living increases. Medicaid recipients whose incomes exceed the cap must establish a Qualified Income Trust (QIT) to be income-eligible. TRS annuitants on Medicaid who may not require a QIT now may find that they will need one in 2024 if the COLA puts them over the 2024 cap.

Because Medicaid is a needs-based program with income and asset limits, it is critical to take action so as not to jeopardize Medicaid eligibility. In many circumstances, the advice of an attorney who practices elder law should be sought.

You may visit our website at www.wrightabshire.com. 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.