WHOSE INCOME IS IT ANYWAY?

The United State Supreme Court will soon decide one of the hottest issues in Medicaid planning. Must the community spouse use the institutionalized spouse’s income to meet her basic needs?

Medicaid is the only government program that pays for long-term, custodial care. Medicaid is a welfare program. To qualify for Medicaid, you can have no more than $2,000 in “countable assets,” assets other than the house, a car, personal goods and household effects, and certain policies of life insurance. When a married individual asks for Medicaid assistance, the assets of that individual’s spouse are “deemed” to him.

In other words, if a husband enters a nursing home and seeks Medicaid assistance, his wife’s assets are treated as his assets. This is true irrespective of the nature of those assets. For example, if the wife had inherited all of the assets she holds in her name, those assets would unquestionably be her assets. In a divorce, a family court would be bound to award the wife all of the assets she inherited. But for Medicaid purposes, this is irrelevant. If the couple remains married, the wife’s assets are the husband’s assets.

This deeming of assets could cause a significant problem for the wife in our example. In Medicaid terminology, the wife is called the “community spouse” and the husband, in the nursing home, is called the “institutionalized spouse.”

If the assets in the name of the community spouse are deemed to the institutionalized spouse and if the institutionalized spouse can have no more than $2,000, the community spouse would have few assets on which to live and would only have her income. Realizing this dilemma, Congress passed a law that allows the community spouse to retain up to $87,000 of the couple’s assets, in addition to the $2,000 that the Institutionalized spouse can retain.

So, if the couple had $200,000 in countable assets, the community spouse would be able to retain the maximum $87,000. If they had $100,000, she could keep $50,000, or one-half of the assets. If they had $80,000, she could keep $40,000. And so forth, until they reached a floor of $17,400, which is the minimum amount of countable assets that the community spouse can retain, if the couple has a sufficient amount of countable assets. These sheltered, countable assets are called the Community Spouse Resource Allowance, or CSRA.

In New Jersey, the community spouse also can retain a certain amount of the institutionalized spouse’s income, if the community spouse’s income is insufficient to meet her basic needs and shelter expenses. This income allowance is called the Minimum Monthly Maintenance Needs Allowance, or MMMNA.

The case presently before the Supreme Court, entitled Blumer v. Wisconsin Dept. of Health & Family Services, is to decide whether States, such as New Jersey, can compel the Community Spouse to look to the income of the institutionalized spouse to raise her income to a level that meets her basic living expenses and shelter expenses. This is called the “income first rule.” The alternative to the income first rule is called the “resource first rule,” which allows the community spouse to retain additional, countable assets to meet her income needs.

Elder law practitioners would like to see the abolition of the income first rule. One of the gravest flaws with the income first rule is the fact that when the institutionalized spouse dies, so to does his income. On the other hand, if a certain percentage of investment return were attributed to the assets that the community spouse could retain, say 6%, and the community spouse could retain additional assets as part of her CSRA to meet her expenses, then that investment income would remain after the institutionalized spouse died.

For example, assume the community spouse could retain $87,000 in assets, but let’s also assume that her income falls $500 short of her monthly expenses. Using the resource first rule, the community spouse could retain an additional $13,000 in countable assets in order to produce the needed $500 per month, if a 6% rate of return were attributed to the assets. $100,000 at a 6% rate of return is $6,000 per year or $500 per month.

Once again, unlike the institutionalized spouse’s income, the additional assets don’t go away after the institutionalized spouse dies.