We have heard from clients who have received mysterious lump sum deposits into their accounts from Social Security. Recent developments in the Social Security Administration’s Windfall Elimination Provision (WEP) have led to these lump-sum deposits appearing in the accounts of some retirees.

While this unexpected windfall may seem like good news, it could have unintended consequences for those relying on Medicaid and other need-based benefits.

What Is the Windfall Elimination Provision?

As we explained in our previous article The Social Security Fairness Act: Impact on Connecticut Residents, the Windfall Elimination Provision (WEP) was a law that reduces Social Security benefits for individuals who receive pensions from non-covered government employment—such as teachers, firefighters, or other public-sector workers who didn’t pay into Social Security. Historically, WEP has lowered monthly Social Security checks rather than providing a lump sum.

In January, President Biden signed the Social Security Fairness Act, which has resulted in back payments being made in bulk, with retirees receiving large sums all at once.

How the Lump Sum Could Affect Medicaid Eligibility

Medicaid eligibility is determined based on income and asset limits. Since Medicaid is a means-tested program, any sudden increase in financial resources—such as a lump-sum deposit—could push individuals over the threshold, potentially making them ineligible for benefits. Here’s how:

• Asset Limits: Many Medicaid programs have strict asset limits, typically around $1,600 in Connecticut. A large deposit from WEP could push assets beyond these limits.
• Income Considerations: This lump sum of past due income could lead to temporary Medicaid ineligibility.
• Long-Term Care & Medicare Savings Programs: Those relying on Medicaid for nursing home coverage or Medicare Savings Programs could see disruptions in their benefits.

What Can You Do?

First, check your accounts! Social Security is mailing letters but sometimes those get lost, so if you think you or a loved one qualified for payment due to the change in the law, check your balances! Deposits have been showing up in accounts this month (March 2025)! If you received a lump-sum deposit due to WEP and are concerned about Medicaid eligibility, consider these steps:

1. Spend Down Assets Wisely. If the lump sum deposit has caused your bank balances to exceed Medicaid’s asset limit, you may be able to legally spend down the excess funds on medical bills, home improvements, or other exempt expenses.
2. Establish a Special Needs Trust. Depending on your state, placing funds into a qualified trust may help maintain Medicaid eligibility.
3. Report the Change. Failure to report a significant financial change to Medicaid could result in penalties or loss of benefits. Contact your state’s Medicaid office to discuss options.
4. Seek Professional Guidance. Consulting a financial advisor or elder law attorney can help you navigate this situation effectively.

Final Thoughts

While the lump-sum deposit from the Windfall Elimination Provision is the step in the right direction to treating all taxpayers fairly, it is essential to understand how it impacts need-based benefits like Medicaid. Proactive planning can help ensure continued eligibility while making the most of these unexpected funds.

If you or a loved one are affected, taking immediate action can prevent disruptions in healthcare coverage and other critical services. If you need legal assistance with determining how the lump sum payment affects you or a loved one’s Medicaid eligibility, Reed Wilson Case can help.

Disclaimer: The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only.

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