The Budget Reconciliation Act of 2025 (H.R. 1 or P.L. No. 119-12) makes numerous changes to Medicaid eligibility. One change that particularly impacts older adults is a new limit on home equity.
Beginning in January 2028, federal law will not allow state Medicaid programs to cover expenses for long-term services and supports (LTSS) if a person’s home equity exceeds $1 million. This limit will not apply to homes located on agricultural property.
This $1 million limit modifies pre-existing Medicaid limits on home equity. As discussed below, many states will continue to employ home equity limits less than $1 million.
Background: Medicaid Has Limited Home Equity Since 2006
For coverage of older adults (at least age 65) and people with disabilities, federal Medicaid law requires that the person have minimal assets — often $2,000 or less. But equity in the person’s home (their “principal place of residence”) is not included in these calculations, based on the philosophy that people shouldn’t have to give up their homes in order to receive Medicaid coverage. (“Equity” is the property’s value minus any money owed on that property.)
Home equity has been exempt even if the person (a nursing facility resident, for example) is not living in the home, as long as they intend to return home. “Intent to return” is subjective, so applicants are well-advised to answer “yes” on a Medicaid application when asked if they intend to return home, regardless of their health care prognosis.[1]
In 2006, Congress amended the law and for the first time Medicaid began making distinctions based on home equity, but only for coverage of long-term services and supports (LTSS), which includes nursing facility services and home and community-based services. In general, in 2006 when the law became effective, LTSS eligibility was limited to individuals with no more than $500,000 in home equity, although individual states had discretion to raise their home equity limit to as high as $750,000, and also to use the increased limit only in certain areas of the state.[2]
The federal limits have been indexed to inflation since 2011. As a result, the federal home equity limit for 2026 is $752,000, with an individual state having discretion to raise the limit to as high as $1,130,000.[3] An individual state’s decisions regarding home equity limits, as well as any geographical targeting within the state, are listed in the state’s Medicaid plan in Supplement 17 to Attachment 2.6A. Most states currently are applying the basic home equity limit of $752,000. Twelve states (including D.C.) have raised their limit to the higher level of $1,130,000. They are: Alabama, California, Colorado, Connecticut, District of Columbia, Hawaii, Maine, Massachusetts, New Jersey, New York, Tennessee and Washington.[4]
Exceptions to the Home Equity Limits
The federal law does provide for two exceptions to the home equity limits. The first protects the person’s family. None of the home equity limits apply if one of the following family members is living in the home: a spouse, minor child (under age 21), or blind or disabled child of any age.[5]
The second exception protects the person themself. Federal law instructs the Centers for Medicare & Medicaid Services (CMS) to establish a process whereby a state can waive the home equity limit “in the case of a demonstrated hardship.”[6] Both CMS and most or all states, however, have evidently failed to develop the waiver processes required by federal law.[7]
Also, if a person’s home equity exceeds the relevant limit, they can take action to reduce the equity. Medicaid law specifies that nothing in the home equity provision “prevent[s] an individual from using a reverse mortgage or home equity loan to reduce the individual’s total equity interest in the home.”[8]
Note that none of the exceptions discussed here apply to Medicaid estate recovery. Following a Medicaid recipient’s death, a Medicaid program can attempt to pay itself back for incurred LTSS expenses from the deceased recipient’s remaining property. In many cases, recovery will be sought against the decedent’s home equity, which was an exempt resource for the purposes of eligibility, but which is largely unprotected from the Medicaid program’s post-death collection actions.
Effective in 2028, H.R. 1 Establishes $1 Million Ceiling on Home Equity Limit
H.R. 1 has amended federal Medicaid law to create two systems of home equity limits, effective January 1, 2028. Homes on agricultural property — defined as “a lot that is zoned for agricultural use” — will follow preexisting law, while all other homes will be subject to a hard home equity ceiling of $1,000,000.[9] States retain the ability to apply different limits to different areas of the state, and must apply the continuing exceptions for undue hardship, spouses, and minor and disabled children.
As a result, starting in 2028, Medicaid LTSS coverage will not be available to any person with home equity over $1 million from a home on a non-agricultural lot. This will have an immediate impact in the 12 states that have chosen the discretionary, higher limit — they will be forced to reduce their limits from approximately $1.2 million to $1 million.[10]
For the lower-limit states, the effect of the $1 million limit will be delayed, but likely not for long. The current limit of $752,000 will likely increase to $1 million in seven to ten years, approximately, depending on inflation and other changes to the cost of living during that time.[11] At that point, states will be required to use the $1 million limit rather than any higher level dictated by cost-of-living increases.
Again, these limits will apply only to homes on non-agricultural property. Homes on agricultural properties will continue to be subject to the original law and all annual cost of living increases, even if those limits might exceed $1 million.
Why a Hard Cap on Home Equity is a Problem
The $1 million limit fails to account for rising home values, particularly in certain areas of the country. While historically people with little enough income to be eligible for Medicaid have not owned homes valued anywhere near this limit, it is no longer true that only the rich have million-dollar homes.[12] As time goes on, the stereotype of an outrageously luxurious million-dollar home is less and less true, particularly in urban areas. A million-dollar house in New York City or San Francisco, for example, may be a simple two- or three-bedroom residence that might cost $200,000 or less if located elsewhere. In some cases, what is now a million-dollar home was purchased forty or fifty years ago by the Medicaid applicant for $50,000 or less.
What Should Advocates Do in Response to Medicaid’s Home Equity Law?
As discussed above, the law requires hardship waivers, but both federal and state governments have fallen short. State-level advocacy is needed to establish waiver procedures, provide guidance on proper consideration of hardship claims, and give applicants broad advance notice of hardship waiver availability. Waivers should be available through the initial application process, and not just as a response to a denied application.
Another variable is how home equity is determined. State Medicaid programs likely will rely on assessed values, and advocates should ensure that those systems fairly determine a home’s current value.
On the direct-service level, advocates should advise their clients on the availability of hardship waivers and the protections for spouses, children under age 21, or blind or disabled children, whenever any of these family members live in the home. Advocates also should advise clients to consult with an elder law attorney and/or financial planner to discuss the possibility of reducing home equity by borrowing against the home. The reducing-home-equity strategies should be approached with caution, as reverse mortgages and home equity loans have downsides. These are significant transactions — and Medicaid eligibility is not the only consideration — so it is critical to ensure that any decisions are well-informed and any potential borrowing against a home is done with eyes wide open.
Additional Resources
Endnotes
20 C.F.R. § 416.1212(c); Social Security Administration POMS 01130.100(E). ↑
42 U.S.C. § 1396p(f)(1)(A), (B); Deficit Reduction Act of 2005, Pub. L. 109-171, § 6014, 120 Stat. 4 (2006). ↑
42 U.S.C. § 1396p(f)(1)(C); CMS, CMCS Informational Bulletin, 2026 SSI, Spousal Impoverishment, and Medicare Savings Program Resource Standards (Dec. 9, 2025). ↑
KFF, Medicaid Eligibility Levels for Older Adults and People with Disabilities (Non-MAGI) in 2025, Appendix Table 7. ↑
42 U.S.C. § 1396p(f)(2). ↑
42 U.S.C. § 1396p(f)(4). ↑
In 2006, CMS published a memorandum recognizing its obligation to create hardship waiver procedures for the home equity limits, and stating that “[p]ending publication of a process specific to the home equity limit,” states could use their hardship waiver procedures for transfer of asset penalties. CMS State Medicaid Director Letter SMDL #06-018 (July 27, 2006), Enclosure with guidance on implementation of Deficit Reduction Act of 2005, at 24. Subsequently, however, CMS has not issued any guidance regarding “process specific to the home equity limit.” ↑
42 U.S.C. § 1396p(f)(3). ↑
Pub. L. 109-171, § 71108(a), 139 Stat. 72 (2025); 42 U.S.C. § 1396p(f)(1)(B), (C) (eff. Jan. 1, 2028). ↑
This estimate assumes simple 3% cost of living increases for both 2027 and 2028. ($1,130,000 X 103% X 103% = $1,198,000) The actual amount obviously will depend on the economy in 2026 and 2027. ↑
These estimates are drawn from the AI Overview on Google. The question “under a three [or four] percent annual cost of living increase, how long would it take for $752,000 to increase to $1,000,000?” yields answers of 9.64 years (under a 3% annual increase) and 7.27 years (under a 4% annual increase). The AI Overview lists a compound growth formula of A = P(1+r)t, where A is the target amount, P is the starting amount, r is the cost of living rate, and t is the number of years. ↑
See, e.g., Peyton Whitney, Harvard University Joint Ctr. for Housing Studies, Home Prices Surge to Five Times Median Income, Nearing Historic Highs (Oct. 6, 2025). ↑
