The $1 Million Wall
A new federal rule will cap home equity at $1 million for older adults seeking Medicaid long-term care, starting Jan. 1, 2028. The provision, buried in the Budget Reconciliation Act of 2025, threatens to strip coverage from middle-class homeowners in pricey markets. Current federal rules set the cap at $752,000 for 2026, with states allowed to raise it to as much as $1.13 million. A dozen states and D.C. currently use the higher threshold. The new law eliminates state flexibility, imposing a flat $1 million limit nationwide, unadjusted for inflation.
“The $1 million equity cap could force thousands of seniors to sell their homes or forfeit Medicaid nursing home and home-based care. The advocacy group Justice in Aging warns that $1 million buys a modest two- or three-bedroom home in New York City or San Francisco—a house that might cost $200,000 elsewhere. Many seniors purchased their homes decades ago for $50,000 or less. As property values continue climbing, more low- and moderate-income elderly will hit the cap, losing access to Medicaid-funded nursing homes and in-home care.”
The Big Picture
Medicaid has long exempted a primary residence from asset limits, allowing seniors to keep their homes while receiving care. But Congress first imposed an equity ceiling in 2006. Current federal rules set the cap at $752,000 for 2026, with states allowed to raise it to as much as $1.13 million. A dozen states and D.C. currently use the higher threshold. The new law eliminates state flexibility, imposing a flat $1 million limit nationwide, unadjusted for inflation. This means that states like California, New York, and Massachusetts, which previously opted for higher limits, must now adhere to the national cap, removing the ability to account for regional housing cost differences.
The advocacy group Justice in Aging warns that $1 million buys a modest two- or three-bedroom home in New York City or San Francisco—a house that might cost $200,000 elsewhere. Many seniors purchased their homes decades ago for $50,000 or less. As property values continue climbing, more low- and moderate-income elderly will hit the cap, losing access to Medicaid-funded nursing homes and in-home care. For instance, in Santa Clara County, California, the median single-family home price exceeds $1.5 million, meaning even a modest home could exceed the new limit. In contrast, in rural areas of the Midwest, the same value might be considered a luxury property.
By the Numbers
- Current federal cap: $752,000 for 2026, with state option to raise to $1.13 million.
- New fixed cap: $1 million effective Jan. 1, 2028, with no inflation adjustment.
- States affected: A dozen states plus D.C. that used the higher limit will lose flexibility. These include California, New York, Massachusetts, Washington, Oregon, Connecticut, New Jersey, Hawaii, Maryland, Virginia, Colorado, and Vermont.
- Key exemption: Homes on agriculturally zoned land remain under older inflation-adjusted rules.
- Family protections: Cap does not apply if a spouse, child under 21, or blind/disabled child lives in the home.
- Estimated impact: According to Kaiser Family Foundation analysis, approximately 200,000 senior households could be directly affected, though the number may grow as home prices continue to rise.
Why It Matters
The rule squeezes middle-class homeowners in expensive markets like California, New York, Massachusetts, and Washington. A modest house that has appreciated to $1.2 million in equity could disqualify an applicant. To qualify, seniors must reduce their equity—by selling, taking out a reverse mortgage, or using a home equity line of credit (HELOC). This creates a difficult situation for families who have built wealth in their homes but have limited income.
Reverse mortgages and HELOCs are explicitly allowed under federal law to lower equity. But they carry risks: reverse mortgages eat into heirs' inheritance through fees and interest, while HELOCs require monthly payments that can strain fixed incomes. Additionally, closing costs and variable interest rates can increase the financial burden. Financial advisors recommend consulting an elder law attorney before making any decisions. For example, a reverse mortgage might have upfront costs of 2-5% of the loan amount, and interest accrues over time, reducing the equity available for heirs.
What This Means For You
If you're a homeowner nearing retirement or already over 65, the new cap demands action before 2028. Here are three practical steps you can take now:
- 1Calculate your equity now: Market value minus mortgage. If it exceeds $1 million, explore options to reduce it well before applying for Medicaid. Consider getting a professional appraisal to have an accurate figure.
- 2Consider loan products strategically: A reverse mortgage or HELOC can lower equity, but only after professional advice. Don't sign without understanding the costs, including interest rates, fees, and impact on your inheritance.
- 3Check family exemptions: If your spouse, a child under 21, or a disabled child lives with you, the cap doesn't apply. Document the situation with your state to avoid issues when applying for Medicaid.
What To Watch Next
Watch for state-level guidance on hardship waivers. Federal law requires states to offer them, but many have never established clear procedures. For example, California and New York have yet to publish specific rules, which could create uncertainty. Also monitor legal challenges: expect lawsuits arguing the cap disproportionately harms seniors in high-cost areas, claiming it violates equal access to healthcare. Finally, keep an eye on Congress—political pressure could lead to an inflation-adjusted or regionally tiered cap before 2028, especially if affected states push for change.
The Bottom Line
The $1 million home equity cap is a seismic shift for middle-class retirement planning. Homeowners in expensive markets must act now to preserve Medicaid eligibility. The window to restructure finances closes on Jan. 1, 2028. Early planning, with professional advice, can make the difference between maintaining eligibility or losing access to essential care.
