Figuring out how to pay for long-term care can be confusing and stressful for elderly couples. When only one spouse needs nursing home level care, figuring out how to cover these long-term care costs without impoverishing the other spouse who will continue living in the community is even more complicated. Fortunately, there is a way of performing a Medicaid spend down that allows the so-called “community spouse” to retain a certain amount of the couple’s income and assets while enabling the nursing home spouse to receive the expensive, high level care they need.
What Happens When Only One Spouse Needs Medicaid Long-Term Care?
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 does a married couple have to spend down all their assets and income when only one spouse requires Medicaid? Fortunately, the answer is no.
The current national median cost of a semi-private nursing home room is $7,513 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 long-term care. This scenario was dubbed “spousal impoverishment” and Congress created rules to prevent it in 1988. Prior to the passage of spousal impoverishment protections, 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.
Medicaid Asset Limits for Community Spouses
While a nursing home spouse may not have more than $2,000 in countable assets in order to receive Medicaid long-term care benefits, federal law permits their community spouse to retain up to $128,640 in countable assets in 2020 (e.g., cash, stocks, bonds, and real estate in addition to their primary residence). This is known as the maximum community spouse resource allowance or CSRA. States can set their own CSRA standard, but it cannot exceed the $128,640 maximum CSRA or be lower than the $25,728 minimum CSRA set by federal law.
How Much Money Can a Healthy Spouse Keep?
In most states, the community spouse may only retain 50 percent of the total countable assets of both spouses, up to their state’s maximum CSRA. Medicaid considers all property owned by a married couple to be joint assets. Therefore, all countable assets—regardless of whether they are titled in the husband’s name, the wife’s name or jointly—are totaled up and then divided by two.
The community spouse is then permitted to keep one-half of the total assets, up to the maximum CSRA. The other half (minus the $2,000 exemption allowed for the nursing home spouse) must be “spent down” or otherwise disposed of before the applicant can qualify for Medicaid.
Calculating the Community Spouse Resource Allowance
For example, consider a couple with a house, car, personal property in and around the home, jewelry, cash in the bank, and maybe an IRA or 401(k). The husband requires nursing home level care and intends to apply for Medicaid in the near future, but his wife is still well and able to live independently in the community.
First of all, the house will be exempt regardless of its value as long as the community spouse is living there. One car of any value is also exempt, as is all personal property and jewelry. However, the cash and retirement accounts are countable assets (although there are a few states that exempt an individual’s retirement accounts once they are paying out the minimum required distributions under federal tax laws).
If the cash and the retirement assets total, say, $200,000, and the couple lives in a state that uses the federal maximum CSRA ($128,640), then the community spouse could only keep $100,000. After subtracting the husband’s allowable $2,000 of permissible assets, that means the couple would need to spend down $98,000 in excess assets before the husband would qualify for long-term care Medicaid.
If these assets totaled $300,000, though, the community spouse could only keep the maximum CSRA of $128,640 even though that is less than 50 percent of $300,000.
Exceptions to the 50 Percent Rule for Assets
For couples who have very few assets, the community spouse is allowed to keep the first $25,728 (the federal minimum CSRA in 2020), even if that amounts to more than 50 percent of the couple’s total assets.
Additionally, some states do not follow the above 50 percent rule. These states (called 100 percent states) simply allow the community spouse to retain 100 percent of the couple’s assets up to their state’s maximum CSRA, which is $128,640 for most.
100 Percent CSRA States
- Illinois ($109,560 CSRA standard in 2020)
- South Carolina ($66,480 CSRA standard in 2020)
Protecting Assets for the Community Spouse
Once a community spouse’s resource allowance amount is determined, the real work begins: how can you protect the extra assets so they are not merely spent down on the institutionalized spouse’s monthly nursing home bill?
This is what is known today as “Medicaid planning,” and it can get quite complicated. There are many ways of protecting these excess assets, such as investing in exempt real estate, purchasing a “Medicaid annuity,” using Medicaid’s “Cash and Counseling” program to hire a family member for caregiver services, transferring money to a disabled child using specialized trusts, etc.
Be aware that spending down to Medicaid is tricky. You cannot simply give excess assets to a child (unless they are considered disabled under federal law), another family member or a friend without incurring a penalty period of disqualification from Medicaid coverage. The greater the gift, the longer the penalty period. The exact calculation varies from state to state, but all gifts made within the five-year period before the date you apply for Medicaid will count against you.
A knowledgeable elder law attorney with experience in Medicaid planning can devise a personalized Medicaid spend-down strategy for seniors in need of help paying for long-term care. An attorney’s expertise will ensure the institutionalized spouse will qualify for Medicaid as soon as possible while also ensuring the community spouse is able to retain as many assets and as much income as possible.