Financial Planning for Families with a Disabled Child

For most of us, retirement planning involves saving money consistently, helping it grow through investment and the power of compound interest, and eventually spending down our nest egg at a sustainable rate to fund a comfortable retirement.  If something remains at the end of the line, that’s great, but not really that important.  Your grown children, whom you have loved and nurtured, and perhaps helped through college, are able to fend for themselves. 

But what about the parents of a child with a serious physical or mental health disability?  This child may be unable to work and may need assistance to accomplish daily activities that most of us take for granted.   If the disability is long-term, he or she may require a lifetime of assistance.  In this case, the retirement calculus is quite different: the parents must not only provide ongoing aid to a disabled adult child, but also do their best to provide financial security for the child’s lifetime – an entire additional generation.  That’s quite a financial planning challenge!

If you are such a parent (or perhaps a sibling or other relative), you’ve no doubt educated yourself on the nature of the disability, and learned to be an advocate for your loved one in a world that too often seems indifferent to his/her needs and potential.  You may have wrestled with stigma and misunderstanding, and your own feelings of sorrow, guilt, and exhaustion  – as well as joy and love — as you do your best to support your loved one.  Obtaining the help your disabled loved one needs – even finding out about such services – can be so time-consuming and bewildering as to bring you to tears. 

I am such a parent.  This post is written to share what I have learned about financial planning for someone with a disability, in the hope that this knowledge might smooth the way for others doing their best to provide for their loved ones.  I am no expert, but I have done my best to sort through the confusing information on the options available.  In this post, I’ll go over government programs that can provide vital health coverage and income for disabled persons – Medicaid, Supplemental Security Income (SSI) and Social Security Disability Income (SSDI).  In a follow-on post, I’ll go over several saving/financial planning vehicles that can be extremely valuable for disabled persons – Achieving a Better Life Experience (ABLE) accounts and Third Party Special Needs Trusts. 

What You Can Do Now – Obtain Needed Services

While the safety net in the U.S. may be less generous than in many other Western countries, there are a number of programs that can provide extremely valuable help with health care, basic support and other critical needs.  The problem is that the system for accessing these services is bureaucratic and impenetrable.  Good information in plain English is hard to come by.  Federal, state, local and private organizations have similar-sounding names; who should you even talk to?  Unfortunately, the extensive research, bureaucratic battling and dogged follow-through required to find and successfully access services mean that many needy and disabled people never succeed in obtaining them.  Fortunately, your loved one has you to help them navigate the bureaucracy. 

Here are several of the most important sources of support:

Medicaid

Let’s start with the easiest to access and most straightforward source of help: Medicaid.  Medicaid is a Federal program set up to provide health care for the indigent.  It is typically administered by states, and may be called something else where you live (for example, Apple Health here in Washington state).  Until fairly recently, Medicaid had strict financial criteria for who could be covered, similar to Supplemental Security Income (see below).  However, with the advent of the Affordable Care Act, states were given the option of implementing an expanded version of Medicaid, and most states (37, currently) have done so.  (If you aren’t in one of the expanded Medicaid states, one typically qualifies for Medicaid by qualifying for SSI – see below.) 

Expanded Medicaid has more relaxed financial requirements – income can be no more than 138% of the Federal Poverty Level, which works out to be $17,609 for an individual.  There is no asset test, only the income requirement.  Applying for Medicaid isn’t hard, and can typically be accomplished online in a half hour or so.  

The advantages of being covered under Medicaid are pretty obvious.  Health care costs, including costs for prescription drugs, behavioral health, even dentistry – are mostly or completely covered.  Health care is expensive for anyone, and especially important for those who are disabled.  Even if you believe you have this covered for now, consider that it might be important after you are no longer around; going through the steps to set up coverage now will ensure that this critical source of support is in place when it’s needed.  Health insurance and out-of-pocket costs you save can be put away for long-term support of your disabled loved one. 

A couple of things to keep in mind: the IRS will share information with the Federal Center for Medicare and Medicaid Services;  if your annual income appears to be over the qualifying amount you claimed, Medicaid will likely ask for a refund.  Also, Medicaid is authorized to seek reimbursement from the estate of beneficiaries after they’ve died.  (But see my next post for some potential ways around this.)  As with all health insurance, there are limitations on the doctors and hospitals you can use.  Fortunately, there are usually several choices, so be sure to choose a Medicaid insurer that includes the health care providers your loved one wishes to use.

If you live in an expanded Medicaid state, Medicaid is well worth the modest effort required to apply.  If your loved one with a disability doesn’t qualify for Medicaid (perhaps she’s healthy enough to earn an income that disqualifies her), she may still be able to obtain subsidized health insurance under the Affordable Care Act.

Qualifying for Free or Subsidized Health Insurance

Requirement	Medicaid – Expanded	Medicaid – Traditional	Affordable Care Act Subsidy
Income Limit	$17,609/yr (138% of FPL)*	$9,396/yr**	$49,960/year (400% of FPL)
Asset Limit	N/A	$2,000	N/A
Disability Test?	N/A	N/A	N/A

SSI and SSDI

Supplemental Security Income (SSI) and Social Security Disability Income (SSDI) sound similar, and are frequently confused. These federal programs both provide income support to disabled persons – the only income many such individuals receive — but there are important differences.  SSDI provides income to disabled (former) workers who have paid into the Social Security system – the same payments you make during your working life to provide for Social Security Retirement Benefits.  SSDI is based on your work record (the number and amount of payments into the Social Security system).  You have to have paid into the system for a certain number of quarters to qualify (the formula adjusts for the fact that younger workers haven’t had the opportunity to pay in for as long).  You can check whether your disabled loved one has enough work credits to qualify on mysocialsecuity.gov.  Alternatively, persons who became disabled before age 22 may be eligible for benefits based on their parents’ earning record if the parent has started collecting, or is eligible for, retirement or disability benefits.  Either way, SSDI will almost always provide a larger benefit than SSI, so is preferable if the disabled person qualifies.

SSI, by contrast, is intended to provide income support for blind, disabled and aged persons who cannot provide for themselves.  It is a welfare program rather than a disability insurance program (like SSDI).  Because its aim is to support the truly indigent, SSI has a strict means test for those over 18 – recipients can possess no more than $2,000 in countable assets (certain things, such as a car or a house, are excluded), and income can’t be more than $783 a month – the maximum benefit amount in 2020.  (There are some work incentive programs that can allow SSI recipients temporarily to earn more than this without losing all their benefits.) 

The financial test, while very strict for SSI, is actually the easy part.  SSI (for disability) and SSDI also both require an applicant to demonstrate disability.  The government evaluators look for two things: a documented, current medical diagnosis of a disabling condition (one that Social Security recognizes); and a demonstration that the disability functionally prevents the applicant from holding down a job. 

The application process is intimidating and lengthy, and many people who might qualify give up or don’t even try.  But it can be done; my child was able to qualify for SSI in less than three months.  You can get valuable tips and help from non-profit organizations that provide support to individuals with specific types of disabilities and their families – organizations such as ARC for people with intellectual and developmental disabilities, and NAMI, the National Alliance for Mental Illness.

Before you begin, make sure your loved one meets the financial requirements (for SSI).  If he’s an adult, don’t claim him as a tax dependent even if he lives with you.  If her assets exceed the $2,000 threshold, consider setting up an ABLE account (see my next post). 

You can start the SSI/SSDI application process online.  It’s a long and detailed application, so set aside some time and pour yourself a strong cup of coffee.  Gather together all the medical records you can lay your hands on.  A letter from your loved one’s doctor clearly stating a diagnosis is very helpful.  It’s also a good idea to review the Social Security “Blue Book,” which lists the disability diagnoses Social Security recognizes.  And while you may be able to lean on your loved one’s doctor for the diagnosis, it’s up to you to make the case that the disability translates into a functional inability to hold down a job.  Marshal your arguments, remember relevant instances and examples, and work them into the application.  It’s usually helpful to have a parent or other knowledgeable third party assist with (or take the lead on) the application; often, a disabled person may not think of himself as disabled and may be inclined to downplay – or may not even remember – those vivid vignettes that illustrate the disability and its impacts.  

If your loved one makes it past the first round, there will be additional questionnaires (e.g., Work History Report, Function Report), required documentation, and follow-up interviews.  After all this, your application may be denied.  But don’t give up; there are several levels of appeal.  If your energy starts to flag, this might be a time to consider hiring one of the many “attorney advocates” who will take on your case for a percentage of the benefits.  Keep at it – a majority of SSI applicants are initially denied, but many ultimately succeed upon appeal. 

Qualifying for Government Income Support

Requirement	Supplemental Security Income (SSI)	Social Security Disability Income (SSDI) — Own	SSDI – Parent’s
Financial Resources:
Income Limit	$783/month ($9396/yr)	N/A	N/A
Asset Limit	$2,000	N/A	N/A
Disability:
Disability Diagnosis	Required*	Required	Required
Inability to Work	Required**	Required**	Required**
Onset of Disability	Anytime	Anytime	< Age 22
Social Security Work Record/Credits	N/A	Required (own)	Required (parent’s)

Additional Services

Many other social services may be available to assist your disabled loved one (or, indirectly, you in caring for him).  Local, state and Federal agencies provide services ranging from food stamps to in-home assistance.  Many of these services, which vary by locale, become available for free if you qualify for SSI.  One important example: SSI recipients automatically qualify for Medicaid.   

Conclusion

In sum, there are some government services that can be a great help in easing the financial challenge of helping a child or other loved one with a disability to live a full and happy life.  Finding out about and applying for them can, unfortunately, be pretty challenging – but is worth the effort. 

This is just the first installment. Check back soon for Financial Planning for a Disabled Child — Part II.   

References

SSI, SSDI and Medicaid:

National Alliance on Mental Illness. (2020). Social Security Disability Insurance Benefits & Supplemental Security Income.

Social Security Administration. (2020). Social Security Disability Application Kit. 

Social Security Administration. (2020). Supplemental Security Income Home Page — 2020 Edition.

Social Security Administration. (2020). Disability Evaluation Under Social Security (Blue Book).

The ARC. (2020). Social Security and Income Maintenance.