“Half a Loaf” Medicaid Strategies
What Are the “Half a Loaf” Medicaid Strategies?
The terms Half a Loaf, Reverse Half a Loaf, and Modern Half a Loaf refer to Medicaid asset transfer techniques designed to reduce countable assets to qualify for Medicaid while preserving some funds for family. Of these, the Modern Half a Loaf is most widely used today, the Reverse Half a Loaf is only viable in limited states, and the original version is now obsolete due to federal law changes.
Medicaid applicants must meet strict income and asset limits—often $2,000 in countable assets for a single applicant in 2025, with certain exclusions like a primary home and one vehicle. These strategies focus on meeting the asset limit while funding care needs during Medicaid ineligibility periods.
How Does the Modern Half a Loaf Work?
With this approach, the Medicaid applicant gifts roughly half of their “excess” assets to family, then uses the remaining amount to purchase a short-term Medicaid-Compliant Annuity. The annuity converts assets into income, which is not counted as an asset. While the gift triggers a Medicaid penalty period, the annuity income is used to pay for care during that time.
This method is also known as a Reverse Medicaid Half a Loaf with an Annuity or simply Half a Loaf with Medicaid Annuity.
Why the Calculation Is Not Always 50/50
It’s a misconception that the strategy always involves gifting exactly half and annuitizing the other half. If too much is gifted, the annuity income may run out before the penalty period ends, forcing the family to use gifted funds for care. If too little is gifted, more assets than necessary are converted to income. The goal is to match the annuity payout length with the penalty period to avoid gaps in coverage.
Income Considerations
Total income—including annuity payments, Social Security, and pensions—should not exceed the cost of care in the applicant’s state. Excess income could make the applicant ineligible for Medicaid in income-cap states.
How the Penalty Period Is Calculated
States typically divide the total value of gifted assets by the average monthly private-pay nursing home cost to determine the penalty period. For example, if $64,000 is gifted and the state’s average cost is $8,000 per month, the penalty period is 8 months. The annuity must cover this duration.
Example of a Modern Half a Loaf Plan
Bill has $102,000 in countable assets and lives in a state with a $2,000 Medicaid asset limit. He gifts $50,000 to his daughter and uses $50,000 to buy a Medicaid-Compliant Annuity. This reduces his countable assets to within Medicaid limits. His penalty period is set, and his annuity income covers his care until eligibility begins.
Where Can This Strategy Be Used?
The Modern Half a Loaf or a variation is allowed in 47 states. Oregon and Washington do not permit short-term annuities for Medicaid. In New York, a short-term Medicaid-compliant promissory note is used instead of an annuity, functioning similarly by providing payments during the penalty period.
📄 Click to View State Availability Table
| State | Modern Half a Loaf Allowed? | Special Notes |
|---|---|---|
| Alabama | Yes | Standard annuity method allowed |
| Alaska | Yes | Case-by-case approval |
| Arizona | Yes | Follow state annuity compliance rules |
| Arkansas | Yes | Standard approach permitted |
| California | Yes | Must meet Medi-Cal annuity rules |
| Colorado | Yes | Check local Medicaid guidelines |
| Connecticut | Yes | Planner guidance strongly recommended |
| Delaware | Yes | Standard method approved |
| Florida | Yes | Frequently used in planning |
| Georgia | Yes | Standard rules apply |
| Hawaii | Yes | Planner assistance recommended |
| Idaho | Yes | Confirm annuity terms with Medicaid |
| Illinois | Yes | Strict annuity requirements |
| Indiana | Yes | Standard use permitted |
| Iowa | Yes | Must follow Medicaid annuity rules |
| Kansas | Yes | Common planning strategy |
| Kentucky | Yes | Works with standard rules |
| Louisiana | Yes | Check case-by-case |
| Maine | Yes | Standard approach |
| Maryland | Yes | Standard approach |
| Massachusetts | Yes | Follow MassHealth rules |
| Michigan | Yes | Planner review advised |
| Minnesota | Yes | Standard annuity compliance |
| Mississippi | Yes | Standard rules |
| Missouri | Yes | Standard rules |
| Montana | Yes | Planner review suggested |
| Nebraska | Yes | Standard approval |
| Nevada | Yes | Common planning tool |
| New Hampshire | Yes | Standard method |
| New Jersey | Yes | Follow annuity guidelines |
| New Mexico | Yes | Commonly used |
| New York | Yes (with modification) | Uses promissory note instead of annuity |
| North Carolina | Yes | Standard rules |
| North Dakota | Yes | Standard rules |
| Ohio | Yes | Common planning strategy |
| Oklahoma | Yes | Standard approach |
| Oregon | No | Short-term annuities not permitted |
| Pennsylvania | Yes | Standard rules |
| Rhode Island | Yes | Standard approach |
| South Carolina | Yes | Standard rules |
| South Dakota | Yes | Standard rules |
| Tennessee | Yes | Standard rules |
| Texas | Yes | Common planning method |
| Utah | Yes | Standard approach |
| Vermont | Yes | Standard rules |
| Virginia | Yes | Standard rules |
| Washington | No | Short-term annuities not permitted |
| West Virginia | Yes | Standard approach |
| Wisconsin | Yes | Standard rules |
| Wyoming | Yes | Standard approach |
Do You Need Professional Help?
Yes. This is a complex strategy with many moving parts—state rules, marital status, annuity structure, and penalty period calculations. Mistakes can result in disqualification or extended ineligibility. Professional Medicaid Planners and elder law attorneys can structure the plan correctly.
What Does It Cost?
Full Medicaid planning packages, which may include a Modern Half a Loaf, typically cost between $7,750 and $15,000 with an attorney. Non-attorney planners may charge less. Creating a short-term annuity may cost an additional $1,750–$2,000, though states that allow promissory notes avoid this fee.
What Is the Reverse Half a Loaf?
In this less common variant, all excess assets are first gifted to family. This triggers a penalty period. Then, about half of the assets are returned to the applicant. The penalty is recalculated and shortened, and the returned funds are used to pay for care during the penalty period. Not all states allow penalty recalculation—some require 100% of assets be returned to cancel the penalty.
Why Is the Original Half a Loaf Obsolete?
Before the 2005 Deficit Reduction Act (DRA), applicants could gift half their excess assets and use the rest for care during the penalty period, which began immediately after the gift. The DRA changed the rules so the penalty starts only when a person is both under the asset limit and has applied for Medicaid—making the original method unworkable today.
