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Spousal Impoverishment and Medicaid

State and federal law has numerous provisions to ensure the healthy spouse of an ailing senior does not impoverish herself trying to afford her spouse’s medical care. These provisions are codified in Section 358.411 of the Texas Administrative Code and are typically referred to as the Spousal Impoverishment Provisions. While the Spousal Impoverishment Provisions can be confusing at first blush, they can also be distilled into three easy to understand concepts.

When an ailing spouse, or “institutionalized spouse,” is applying for Nursing Home Medicaid, the healthy spouse, or “community spouse,” is able to take advantage of the 1) income diversion rules, 2) the spousal protected resource amount policies, and sometimes can even 3) expand the protected resource amount if her monthly income is not in excess of the minimum monthly maintenance and needs allowance after utilizing the income diversion rules. Let’s take a look at each of these three concepts in greater detail.

INCOME DIVERSION

When a Medicaid applicant is married, the community spouse is allowed to divert the institutionalized spouse’s income to continue and maintain the quality of life that she is accustomed to. Say, for instance, the institutionalized spouse has $1,000 in monthly social security income, and the community souse has $500 in income. In this case, the community spouse can divert to herself the institutionalized spouse’s $1,000 income. This allows her the full enjoyment of the $1,500 that she is accustomed to earning each month. Here, the institutionalized spouse’s “applied income,” or the expected contribution he should make towards his nursing home expenses, is zero dollars. This also means that Medicaid would pay 100% of the institutionalized spouse’s medical expenses, including the monthly nursing home bill, hospital stays, and ambulance rides.

The ability to divert income, however, is capped at $3,090.* This figure is called the minimum monthly maintenance and needs allowance, or MMMNA for short. Let’s modify the above example to demonstrate how the MMMNA works. Say the community spouse’s income was $2,500 instead of only $500. Then, she would only be allowed to divert $590 of her spouse’s $1000 income, so that her monthly income becomes $3,090. The remaining $410 of the institutionalized spouse’s income would be paid to the nursing home as his applied income, after his allowable deductions are accounted for, such as his personal needs allowance or insurance premiums. The remaining unpaid balance owed to the nursing home would be paid by Medicaid along with all other allowable costs of his medical care.

SPOUSAL PROTECTED RESOURCE AMOUNT

Often times, Medicaid applicants believe they need to spend down their entire life savings until they are below the $2,000 resource limit. This is not the case with spouses. The community spouse is allowed to keep half of the community estate, referred to as the Spousal Protected Resource Amount, or SPRA for short. The SPRA is calculated as of the month the institutionalized spouse entered the hospital or long term care facility and did not return home for more than 72 hours. As of 2018, the SPRA is capped at $123,600, and at a minimum, the SPRA is $24,720.

Let’s put these SPRA numbers into practice to see how they work. For instance, if the institutionalized spouse entered long term care and the married couple only had $15,000 to their names, then the community spouse’s SPRA is the full $15,000 (since it is below the minimum), no spend down is needed, and the institutionalized spouse is below resource. A slightly different example: say the family had $150,000 in total assets the month the husband went into long term care. The community spouse is entitled to her $75,000 SPRA, and the institutionalized spouse would need to spend more than $73,000 to be below the $2000 resource limit. As yet another example: say a married couple had $300,000 in the bank when the husband entered long term care. The SPRA in this case is not simply half, but instead, it is the maximum amount of $123,600. The institutionalized spouse can keep only $2000. This means the family is $174,400 over the resource limit.

The institutionalized spouse’s half of the marital estate must be spent down so that he is below the $2,000 countable resource limit. The key word in that sentence is “countable,” because it is possible to transform countable resources, such as cash, into non-countable resources, such as an irrevocable prepaid funeral contract. While developing a comprehensive Medicaid plan, an elder law attorney can help you explore all of the possible non-countable resource options to create the most practical and useful spend down strategy. Instead of simply private paying the nursing home, families can spend the money in such a way that the community spouse or the family benefits. Or, depending on family dynamics and goals, elder law attorneys can help families find a way to preserve the money instead of spending it.

EXPANDED SPOUSAL PROTECTED RESOURCES AMOUNT

With an understanding of income diversion and the SPRA calculation, it is easier to understand when and how the SPRA can be expanded. If after diverting the institutionalized spouse’s income, the community spouse’s income is still below the MMMNA, then the Medicaid applicant can request that the SPRA be expanded.

Consider the following. The community spouse has an income of $1500 after a full diversion of the institutionalized spouse’s income. Additionally, the married couple has $500,000 in the bank during the month the husband went into long term care. Therefore, the SPRA would be the maximum of $123,600, and the couple would be expected to spend $376,400 before Nursing Home Medicaid benefits could be awarded. But there a huge disconnect in logic here. On the one hand, Medicaid law says the community spouse must spend her money to get below the resource and SPRA limits. Yet, on the other hand, Medicaid law recognizes she falls short of the MMMNA. Again, this is the minimum monthly maintenance and needs allowance—i.e. the minimum amount of money she should have to support herself monthly. If she does not even earn the minimum, then why should she be expected to spend the majority of her life savings? This is the precise rationale behind the Expanded SPRA rules.

It would make more sense if she were allowed to invest this $376,400 to increase her income, getting her closer to the MMMNA, right? That is precisely what the Expanded SPRA rules allow. To answer how much we can expand the SPRA by, we need to do a little math by asking ourselves, “How much money would the community spouse need in 1-year interest bearing CDs to supplement her income by $1590 a month?” With interest rates at all-time lows, this often means Expanded SPRA calculations produce very large numbers. For instance, using the numbers immediately above, it would be possible for the community spouse to keep $7,632,000 in countable resources and still qualify her husband for Medicaid, assuming a not-too-uncommon 0.25% annual interest rate on a 1-year CD.

This means our hypothetical community spouse would be able to keep every penny of their $500,000 life savings, achieve Medicaid eligibility for her husband, and have zero dollars in applied income. This is not just a win-win scenario; it is a win-win-win scenario.

Call or contact us today to schedule a free consultation to discuss how the Spousal Impoverishment Provisions may apply to you or your loved one. For a free legal consultation, contact us at (713) 936-9620.

* The Medicaid income cap, SPRA minimum and maximum, MMMNA, and countable resource limits quoted in this article reflect the Jan. 1, 2018 effective numbers. These numbers often change on an annual basis.

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