Financial Planning for Families of Children with Special Needs

Caring for a child with special needs requires thoughtful financial planning. Medically necessary treatments and therapies can quickly add up and strain a family's limited financial resources. Educating families on about Medicaid waivers and financial vehicles that can save money towards medical expenses should be a part of every patient’s care plan. 

Consider the financial options below when establishing care for your child with special needs.

When establishing care for your child with special needs, consider the financial options below to manage your family’s budget.

Medicaid Waivers

Medicaid waivers allow qualified patients the opportunity to receive benefits by “waiving” federal constraints that would typically limit coverage. Children with special needs may qualify for certain Medicaid waivers that procure medical treatment and healthcare services. 

If a family has private insurance, the primary insurer typically covers the medical bill first, and Medicaid will cover any remaining expenses. This allowance is crucial; Medicaid may cover the cost of deductibles, co-pays, and additional therapy visits that exceed the primary insurance’s annual limits.

Depending on your state, Medicaid may also cover certain professional services or personal care items, such as: 

• Transportation to and from doctors appointments
• Diapers
• Wheelchairs or lifts
• Home-delivered meals
• Prescription medication
• Physical or occupational therapy

Unfortunately, specific waivers may warrant waitlists, so candidates should apply as soon as possible. The following two waivers are applicable to children with special needs.

Home- and Community-Based Services (HCBS)

State-run Home- and Community-Based Services (HCBS) waiver programs provide home- and community-based services to people in need of long-term care. This qualification allows patients to receive care at home or in a community setting, such as a relative’s home. Services that may be covered include, but are not limited to:

• Respite
• Medical supplies
• Home or vehicle modifications
• Transportation
• Home health aides or nurses

Children with disabilities may qualify but there may be income limitations. These benefits may only be available to children whose parents make less than a certain yearly salary.

Katie Beckett Waiver

A Katie Beckett Waiver is a Medicaid waiver for children under 19 years old with complex, extensive medical needs or long-term disabilities. This benefit option is named after Katie Beckett, a patient who required a ventilator and lived in a hospital for several years. To allow her to live at home home, Katie’s parents advocated for appropriate disability healthcare coverage. In 1982, the Tax Equity and Fiscal Responsibility Act (TEFRA) codified this waiver.

This waiver enables children to receive “institutional-level care” at home. Similar to HCBS, TEFRA eligibility is also based on the child’s level of income but doesn’t have a waitlist for patients that qualify. TEFRA waivers exist in 24 states. Parents can access availability and eligibility information on their state’s Medicaid website.

Supplemental Security Income (SSI)

Supplemental Security Income (SSI) is a monthly payment for those with limited earnings that either have a qualifying disability or are at least 65 years of age. Children and adults with special needs may qualify if their medical conditions meet Social Security’s definition of disability. Some examples of qualified disabilities include:

• Autism spectrum disorder
• Blindness
• Hearing impairment
• Down syndrome
• Epilepsy

Eligibility limitations exist based on income and additional assets or resources. Qualification for children typically relies on combined household’s income. For adults with disabilities living with family members, the family members’ income and resources may be considered. Payment amounts vary by state, so contact a local Social Security office to learn more about your location’s eligibility requirements and restrictions.

Special Needs Trust (SNT)

A special needs trust (SNT) is designed to improve the beneficiary’s quality of life without disqualifying them from eligibility for government benefits, such as Medicaid or SSI. Families that consider an SNT typically face one of the following situations:

• A patient that inherits assets may not qualify for benefits from the government until these assets are spent to the point the patient qualifies under financial limits for eligibility. 
• Patients that suddenly receive significant assets may be asked to repay formerly provided government services. In this circumstance, the patient not only loses eligibility for further government benefits but also potentially for the inherited asset. Parents can consider designating the SNT for any life insurance policies in order to avoid problems with eligibility for federal benefits.
• An SNT also allows families to plan the allocation of large financial gifts to beneficiaries that may exceed limits in other options, such as an Achieving a Better Life Experience (ABLE) account (to be discussed later in this article). 

Families can appoint a person (trustee) such as a sibling to manage the assets on the beneficiary’s behalf. This affords families with the comfort and advanced knowledge of who will be responsible for the patient’s finances in the event of a parent’s unfortunate passing. Trustees may utilize the resources in the SNT for necessities such as home upkeep, utilities, fees, and other needs that may not be covered by government services. 

One disadvantage to SNTs is they typically reach the highest tax brackets at lower thresholds, which usually means owing more taxes. 

There are several types of SNTs, including first-party, third-party, and pooled SNTs. The process for implementing an SNT is often complex, so families should consult an experienced attorney when considering the best option for their situation.

Achieving a Better Life Experience (ABLE) Accounts

The Achieving a Better Life Experience (ABLE) Act of 2014 allows states to create tax-advantaged savings accounts for people with disabilities. ABLE account holders can invest these contributions and grow them tax-free. 

This gives patients the opportunity to receive tax-exempt income later in life. Account holders can use an ABLE account to pay for qualified disability-related expenses without affecting their eligibility for government assistance programs. Qualified expenses include, but aren’t limited to:

• Food
• Housing
• Transportation services
• Healthcare expenses

To qualify, patients must be diagnosed with a disability before age 26. These patients require a letter from a licensed physician certifying they have a disability. This requirement is just one reason why early intervention and evaluation is important..

ABLE accounts typically cost less than an SNT to create and offer more flexibility. However ABLE accounts come with several restrictions. For example, the total annual contributions to the account are limited to the annual gift exemption for the year ($17,000 for 2023). Preset limits may also exist on the total amount within an ABLE account. In some states, the limit is $500,000. Lastly, when calculating eligibility for SSI, restrictions include a $100,000 limit on the exemption amount.

Learn More About Care for Children with Special Needs

Financial planning is an important part of the care plan for a child with special needs. Parents often feel overwhelmed with the responsibility or don’t consider it a priority. 

No one can predict the future. Having a stable plan in place can prevent complex problems with government agencies, such as the IRS, Medicaid, and Social Security, that a special needs patient may find difficult to navigate alone. Families must take the time to speak with a financial advisor and qualified legal counsel to create a detailed strategy that ensures their child’s financial security now and in the future. 

For additional information about special needs care, particularly those in need of autism spectrum disorder treatment, please visit our website or book an appointment to talk with one of our mental health experts.

Disclaimer: The contents of the article are for educational purposes only and do not constitute personalized financial advice.