Medicaid Spousal Income Allowance

The other week, I began writing about the Medicaid spousal impoverishment provisions.  Medicaid is a health insurance program for needy individuals.  In order to qualify for Medicaid benefits, an individual must have a limited amount of assets and income insufficient to pay for his care.

Typically, a Medicaid recipient can have no more than $2,000 in assets.  Furthermore, the assets of the husband and wife are pooled for purposes of determining the ill-spouse’s eligibility for Medicaid.  So, for instance, if the husband enters a nursing home and seeks to qualify for Medicaid benefits, his assets and those of his wife will count against his eligibility for Medicaid.

This pooling of assets would result in both the husband and wife being permitted to retain no more than $2,000 if the Medicaid law did not have a spousal impoverishment provision that permitted the wife to retain more than $2,000 in assets.  Two weeks ago, I wrote about the provision of the Medicaid law that permits the wife to retain a maximum of $115,920 in countable assets and a minimum of $23,184, depending upon the amount of assets that the couple owned when the husband entered the nursing home.

This week, I wanted to write about the spousal income allowance, which is a spousal impoverishment provision of the Medicaid law that permits the wife, in certain circumstances, to retain a portion of her husband’s income.  Without a spousal income allowance, most of the husband’s income would be owed to the nursing home to reduce the amount the Medicaid program pays the nursing home.

When a person qualifies for Medicaid benefits, Medicaid will pay the nursing home for the cost of his care.  Most nursing homes cost between $8,500 and $12,000 a month to a private-paying resident.  If the resident is a Medicaid beneficiary, the nursing home will receive no more than (approximately) $6,500 per month from the Medicaid program.

The Medicaid beneficiary’s income reduces the amount Medicaid pays to the nursing facility.  So, for instance, if the husband has income of $2,000, then his income (less certain deductions) will be paid to the nursing home reducing the amount Medicaid pays the nursing home from $6,500 to $4,500.

One deduction from the husband’s income is his $35 per month personal needs allowance, which is the amount of money Medicaid will permit the husband to retain for his monthly personal needs.

Because Medicaid is a health insurance program, Medicaid will also permit the husband to deduct the cost of his health insurance premium from his income.  If the husband pays a health insurance premium of $100 per month, then Medicaid will permit a $100 per month deduction to pay his monthly health insurance premium.  In this way, the husband will have Medicare, private health insurance, and Medicaid; Medicaid is the payer of last resort, so Medicaid will only pay for things for which Medicare and the private health insurance do not pay.

Finally, if the Medicaid beneficiary is married, the Medicaid program may permit the wife to retain a certain amount of his income, depending upon her expenses and her income.  The calculation of the spousal income allowance is a two-part calculation.

First, there is a basic allowance of $1,891 to cover non-shelter expenses.  Assume the wife has monthly income of $1,500.  Given that amount of income, she will be permitted to retain a basic allowance of $491 ($1,891 – $1,500 = $491).

Second, there is an excess shelter allowance.  The wife can retain an amount sufficient to pay her shelter expenses (mortgage, real estate taxes, property insurance, utilities) to the extent those expenses exceed $567.  So, if the wife has shelter expenses of $1,000, she can retain an excess shelter allowance of $433 ($1,000 – $567 = $433).

In total, our wife can retain $924 ($491 + $433 = $924) of her husband’s monthly income.  The husband can deduct $35 for his personal needs allowance and $100 for his health insurance premium.  The remainder of his $2,000 a month income is owned to the nursing home to reduce Medicaid’s cost share.

Can Mom Afford To Live

When one spouse enters a nursing home, the well-spouse often wonders what of the couple’s assets and income will be left for her.  Most people are just making it with all of their assets and all of their income, so the thought of losing a large percentage of a couple’s assets and income to long-term care costs can be very frightening.

There are two primary methods of paying for long-term care, such as care in an assisted living residence or nursing home:  private payment or Medicaid.  Private payment is just what the phrase states—paying for the nursing home from the resident’s private funds, the resident’s assets and income.

A nursing home in New Jersey costs about $10,000 to $12,00 a month.  An assisted living residence in New Jersey costs between $5,000 and $7,500 a month, depending upon the level of care that the resident needs.  Most people could not afford to pay privately for long-term care for very long.

Medicaid is a government health insurance program for needy individuals.  Unlike most health insurance programs, Medicaid will pay for long-term care costs.  In order to qualify for Medicaid, the applicant must have very limited assets—typically less than $4,000 or $2,000 in assets, depending upon the program of Medicaid for which the applicant is seeking to qualify—and income insufficient to pay for the cost of his care.

If an applicant for Medicaid benefits is married, his spouse who is not residing in the nursing home can retain certain assets.  In Medicaid parlance, the well-spouse is called the “community spouse.”  The spouse in the nursing home is called the “institutionalized spouse.”

Assume that Mr. Smith enters a nursing home.  The nursing home costs $12,000 a month for those residents who are privately paying the facility.  Mrs. Smith is in good health and resides at home.  The Smiths own a home worth $350,000, an automobile, and cash/cash equivalent assets of $300,000.

Mr. Smith receives income of $3,500 a month from Social Security and a pension he receives from his former employer.  Mrs. Smith receives $1,000 a month from Social Security; accordingly, Mr. and Mrs. Smith have combined, fixed monthly income of $4,500.  The couple’s shelter expenses (real estate taxes, utilities, property insurance, etc.) are $1,600 a month.  The couple’s non-shelter expenses (medical expenses, food, clothing, travel) are $2,300 a month; accordingly, Mr. and Mrs. Smith have aggregate monthly expenses of $3,900, leaving a monthly surplus from their income of $600.

Mr. and Mrs. Smith want Mr. Smith to qualify for Medicaid benefits to pay for the cost of his care.  The Medicaid program will permit Mr. Smith to retain no more than $4,000 before he can qualify for Medicaid.  Mrs. Smith can retain the home and the automobile, both of which are non-countable assets, and a certain amount of the countable assets.

The amount of the countable assets that Mrs. Smith can retain is dependent upon the amount of countable assets that the couple had when Mr. Smith entered the nursing home.  Because the Smiths had $300,000 in countable assets (cash/cash equivalents) when Mr. Smith entered the nursing home, Mrs. Smith can retain the maximum amount of countable assets that the Medicaid program permits a community spouse to retain, which is approximately $115,000.

If the Smiths only had $200,000 in cash, Mrs. Smith would only be permitting to retain $100,000.  If the Smith had $50,000, Mrs. Smith could retain $25,000, and if the Smiths had $25,000, Mrs. Smith could retain the minimum amount of countable assets, which is about $23,000.

The Medicaid program also permits Mrs. Smith to retain a certain amount of Mr. Smith income.  I will discuss the methodology for calculating Mrs. Smith’s income allowance next week, as the calculation of the income allowance is a bit involved.

The Best Made Plans

I meet with a great many people and review their estate planning documents.  Two of the most common estate planning documents are a power of attorney and a living will.

A power of attorney is a document that permits one person, called the agent, to make financial decisions for another person, called the principal.  A living will is a document that permits one person, called the health care agent/proxy, to make health care decisions for another person, called the declarant.  (For simplicity, I’ll call the person charged with making decision the “agent” whether I am referring to a power of attorney or living will and the person who names his agent for financial or health care decisions the “principal.”)

Together, a power of attorney document and living will could permit an agent to make any decision he may need to make for his principal; however, a great many power of attorney and living will documents are not well-drafted.  The documents fail to address common issues that arise and, therefore, do not permit the agent to make decisions on certain issues that he may need to make.  There are common issues that I look for in every power of attorney and living will that I review.

With respect to a power of attorney, I always look to see if the power of attorney document addresses gifting of the principal’s assets.  Many people, if asked, may not want their agent to be able to gift their assets.

But, here’s a common situation that I encounter.  A son or daughter is sitting in front of my desk.  The son is telling me how his mother is currently residing in a nursing facility because she has multiple ailments and can no longer care for herself.  Mom is going to reside in a nursing home for the remainder of her life.  The nursing home costs $12,000 a month, and mom’s monthly income is $1,500 a month, leaving a short fall of $10,500 a month.

Mom has a house worth $150,000 and about $100,000 in other assets.  The son is asking me if I can preserve a portion of mom’s assets and qualify mom for Medicaid benefits.  Medicaid is a government health insurance program for needy individuals that will pay for mom’s care in a nursing home.  In order to qualify for Medicaid, mom must have a very limited amount of assets.

Mom is currently mentally incapacitated and cannot make decisions for herself.  I ask the son if he is mom’s power of attorney agent, and he tells me that he is.  I ask to review the power of attorney document.  The document fails to address gifting; in other words, the document does not permit the son, as mom’s agent, to gift her assets.  I now have to tell the son that we cannot engage in Medicaid planning because the power of attorney mom signed does not permit gifting and any Medicaid planning that I would suggest would involving gifting some of mom’s assets.

If mom’s power of attorney document had permitted the son to gift mom’s assets, I could have helped him preserve a portion of mom’s assets from the nursing home.  I may still be able to do it despite the poorly drafted power of attorney, but it would involve filing for guardianship over mom and asking the court’s permission to engage in Medicaid planning.

With respect to a living will, I always review the document to see if it addresses the Health Insurance Portability and Accountability Act (“HIPAA”).  HIPAA is a privacy law that prevents any person other than you from gaining access to your medical information.

Doctors, hospital, and insurance companies are well aware of HIPAA and will not share your health care information with anyone other than you and your personal representative for HIPAA purposes.  For this reason, I always address HIPAA in the living wills that I draft and ensure that your agent is your personal representative for HIPAA purposes.  Most of the living wills that I review fail to address HIPAA.

It is important to have a well-drafted power of attorney and living will.  When your agent goes to use those documents, you typically can no longer make decisions for yourself, so the document cannot be changed to address issues that it fails to address.