Her Mortgage-Free Ski Town Home Topped Medicaid’s $1.13 Million Equity Cap as Prices Rose

She paid off her mortgage, never tapped the house for cash, and still watched her home equity rise with the market, just as it has for many retirees. Now Medicaid says she has too much wealth to qualify for long-term care coverage, even though her income never increased.

Picture a widow who bought a modest house in a ski town decades ago, back when the area had more pickup trucks than private jets. She lives on Social Security and a small pension. She never sold the property, never refinanced it, and never opened a home equity line of credit. The mortgage was paid off years ago.

She assumed the house would be protected if she ever needed long-term care. Then a care-planning meeting brought unwelcome news: her home equity is now above the $1,130,000 Medicaid limit KFF lists for her state. Rising home values did the work while her income stayed the same.

That is the heart of Medicaid’s home equity test. It looks at how much value a person has in the home, so market appreciation alone can push an owner over the threshold.

Medicaid’s Home Equity Ceiling

It helps to separate two programs that are often confused. Medicare, the federal health insurance program for people 65 and older, covers only short skilled nursing stays after a hospital admission. Medicaid, by contrast, is the federal-state program for people with limited means and is the primary payer for long-term nursing home care. It also includes financial eligibility rules, including a separate home-equity test for many people seeking long-term care.

KFF’s survey of Medicaid financial eligibility for older adults and people with disabilities found that federal rules require home equity limits for most applicants who qualify based on ongoing care needs. According to KFF, the limits must fall between $752,000 and $1,130,000.

States choose where they land within that range, which is why the answer depends on where someone lives. KFF found that most states set the limit at $752,000, while 11 states use the federal maximum. The homeowner in this example lives in one of those states with the highest cap, and still exceeds it.

Why a Paid-Off House Crossed the Line

Equity is the market value of a home minus any debt tied to it, such as a mortgage or home equity loan. For a house that is fully paid off, equity equals the full value of the property, so every gain in the market flows straight into the Medicaid calculation.

Income does not factor into that formula. A retiree with a fixed pension can see her equity rise year after year without doing anything at all. In resort towns with limited land and steady demand from second-home buyers, that process can move even faster.

National price data show how strong that increase has been. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, a key measure of single-family home prices, reached 337.306, its highest level in five years and 1.9% above a year earlier. In October 2021, it stood at 273.563.

That appreciation can make a homeowner appear wealthy on paper, even though it does not provide any cash toward long-term care unless the owner sells the home or borrows against it.

Exceptions, California and the 2028 Change

There are exceptions to the rule. According to KFF, every state has situations in which the home is exempt from the equity limit, such as when a spouse still lives there. Families with a spouse at home often face a very different calculation than a single homeowner like this widow.

California is an outlier for now. KFF says it is the only state with no home equity limit at all.

That will change soon. Under the 2025 reconciliation law, the maximum home equity limit drops to $1 million starting January 1, 2028, regardless of inflation, according to KFF. That will reduce the ceiling in states using the maximum and restore a limit in California.

A frozen cap combined with rising home prices means more paid-off homes will edge over the line each year, even if their owners do nothing except continue living in them.

What Families Should Check Before a Care Crisis

Families that get a current market estimate and the exact mortgage payoff balance before a health emergency know where they stand. Those that wait often learn the answer at the application desk, when fewer options remain and time is short.

Another crucial detail is the state’s actual figure. A state may use the lower $752,000 limit that KFF found in most states, or a spouse exemption may change the picture entirely.

Families should also note January 1, 2028. In states with the maximum limit, a home that is just under today’s ceiling could cross above the new one without any money changing hands. Checking now, while there is still time to plan, is far less costly than finding out in a rush.