Deciding how to pay for long-term care can be confusing and stressful for older couples. When only one spouse needs nursing home level care, figuring out how to cover these costs without impoverishing the other spouse who will continue living in the community is even more complicated. Fortunately, Medicaid rules allow the so-called “community spouse” to retain a certain amount of the couple’s income and assets while deeming the nursing home spouse eligible to receive the high-level care they need.
What Is Spousal Impoverishment?
Medicaid is a joint federal and state program that helps people with limited income and few assets cover health care costs. Strict financial criteria dictate who is eligible for Medicaid coverage, especially when it comes to long-term services and supports (LTSS). This makes sense for a single applicant, but how does a married couple meet these financial eligibility requirements?
Recent research shows that the national median cost of a semi-private nursing home room is $7,756 per month. Even couples who have made legal and financial preparations for retirement can quickly exhaust their savings when just one spouse develops a need for this level of care. Sadly, many people have not been willing or able to put funds aside for their future needs. Most older adults rely heavily on benefits from the Social Security Administration (SSA) as their main source of income in retirement. According to the SSA, half of married elderly beneficiaries receive 50 percent or more of their income from Social Security even though the average monthly benefit for retired workers in December 2020 was only $1,544.
Fortunately, while nursing home spouses must meet strict financial limits, Medicaid has taken steps to ensure that community spouses retain control of sufficient funds for their costs of living. Current laws to prevent “spousal impoverishment” were enacted by Congress in 1988. Prior to the passage of spousal impoverishment provisions, community spouses faced serious financial hardship after spending down their income and assets on nursing home care to get Medicaid coverage to kick in for their institutionalized partners.
According to Medicaid.gov, “These provisions help ensure that this situation will not occur and that community spouses are able to live out their lives with independence and dignity.” Now, community spouses are permitted to keep a certain amount of income and assets to pay for their living expenses even after their ill spouses qualify medically and financially for long-term care Medicaid.
Keep in mind that Medicaid long-term services and supports include both institutional nursing home care and home- and community-based long-term care. Medicaid varies from state to state, but these spousal impoverishment rules may apply to alternative long-term care Medicaid programs, such as assisted living and in-home care waivers. In other words, the so-called “institutionalized spouse” or “nursing home spouse” can refer to a senior who requires a nursing home level of care but receives it in a setting outside of a skilled nursing facility like their home.
Making Sense of Medicaid Income Limits
A long-term care Medicaid beneficiary is expected to pay all their income (less certain deductions) to the nursing home since Medicaid foots the bill for their room, board, utilities and care. Aside from personal items, such as clothing, snacks, toiletries and other incidentals, everything is covered. So, there is no need for them to retain this income. Medicaid nursing home residents are allowed to keep a small personal needs allowance (PNA) of at least $30 per month for these incidental purchases, but the exact amount varies by state.
Unlike assets, each spouse’s income is considered separately based on who the payments are addressed to/intended for. Therefore, a community spouse’s income, no matter how large, does not have any bearing on whether their spouse qualifies for long-term care Medicaid. This aspect sounds refreshingly straightforward, but the rules can still be complex in certain situations.
Income Limits for the Nursing Home Spouse
When only one spouse is applying for Medicaid long-term care, the applicant must meet an income limit to qualify. The Medicaid income limit in 2021 is $2,382 per month. Certain states (known as income cap states) use this number as a hard limit for applicants, while other states (known as medically needy states) allow applicants with high health care costs to “spend down” excess income on their own care.
The rules for the nursing home spouse’s income are as follows if their community spouse receives $2,177.50 or more of their own income each month in 2021. This threshold is called the minimum monthly maintenance needs allowance (MMMNA) and will be discussed in further detail below.
How Medicaid Treats Income in Income Cap States
While the financial requirements in income cap states may seem black and white, there are ways that applicants with excess income can achieve Medicaid eligibility. Certain trusts, such as Miller trusts, can be used as part of a Medicaid planning strategy to qualify for long-term care coverage.
How Medicaid Treats Income in Medically Needy States
In medically needy states, an applicant can spend down to a different limit which may be called the medically needy income limit (MNIL) or maintenance needs allowance (MNA). These limits vary by state and depending on whether the applicant is living in a nursing home or in the community. (Applicants who receive home- and community-based services are allowed to retain more of their income because they have higher costs of living compared to those receiving all-inclusive care in a nursing home.)
Once an applicant reaches this state-specific limit, Medicaid will kick in to cover any remaining care costs for the rest of the medically needy period. These periods also differ in length by state and may last for one month, three months or even six months. The difference between an applicant’s income (less amounts like their PNA) and the MNA/MNIL limit that they must spend down to is often referred to as their “share of cost.”
Income Rules for the Community Spouse
If the nursing home spouse’s income makes up all or most of their household’s total income—even if it falls below the $2,382 limit—it leaves their spouse at risk for impoverishment after they qualify. To prevent this, Medicaid allows for a special type of income reallocation.
Monthly Maintenance Needs Allowance Amounts
As noted above, if the community spouse does not receive at least $2,177.50 of their own income each month (the MMMNA), then Medicaid allows them to receive some (or all) of their spouse’s income to bring them up to the minimum threshold. This transfer is completely permissible by Medicaid for the sole purpose of preventing spousal impoverishment.
Hawaii and Alaska have higher costs of living, therefore their MMMNA figures are $2,505 and $2,721.25 respectively. Just as there is a minimum allowance, there is also a maximum. The federal maximum monthly maintenance needs allowance in 2021 is $3,259.50 per month. Some states set their own MMMNA limits within the federal minimum and maximum range. For example, in Illinois, this amount is $2,739 per month and referred to as the Community Spouse Maintenance Needs Allowance (CSMNA).
It may be possible for a community spouse to receive more of their nursing home spouse’s income above their state’s MMMNA if their housing and utility costs are sizable. In 2021, the community spouse monthly housing allowance is $653.25 in 48 states and the District of Columbia, $816.38 in Alaska, and $751.50 in Hawaii. Utility allowance amounts vary widely and are set by each state.
Rent, mortgage payments, property taxes and utilities can help increase the amount of income a community spouse receives to offset costs of living, but their total allowance cannot exceed the federal maximum allowance limit listed above.
Protecting Income for the Community Spouse
Applying for long-term care Medicaid can be confusing even in the simplest scenarios. It is best to find and work with a reputable elder law attorney who is well versed in Medicaid in your state. Careful Medicaid planning will ensure that the nursing home spouse gets the care they need while the community spouse retains control of the income and assets they need to cover their costs of living. Without a personalized Medicaid planning strategy, seniors risk making mistakes and triggering a costly penalty period of ineligibility.
Sources: Genworth Cost of Care Survey 2020 (https://www.genworth.com/aging-and-you/finances/cost-of-care.html); Social Security Fact Sheet (https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf); TREATMENT OF INCOME AND RESOURCES FOR CERTAIN INSTITUTIONALIZED SPOUSES (https://www.ssa.gov/OP_Home/ssact/title19/1924.htm); Spousal Impoverishment (https://www.medicaid.gov/medicaid/eligibility/spousal-impoverishment/index.html); 2021 SSI and Spousal Impoverishment Standards (https://www.medicaid.gov/medicaid/eligibility/downloads/ssi-and-spousal-impoverishment-standards.pdf); Provider Notice Issued 01/15/2021: Prevention of Spousal Impoverishment Standards for 2021 (https://www2.illinois.gov/hfs/MedicalProviders/notices/Pages/prn210115a.aspx)