Countable Allowance

After all exemptions are accounted for, the client is allowed $2,000 in countable resources. This can be cash or extra value attributed to items like a burial policy. If the client exceeds $2,000 in countable resources, he/she will be denied Medicaid benefits.

Spousal Impoverishment Provisions

The only surviving parts of the ill-fated Medicare Catastrophic Coverage Act are the Spousal Impoverishment Provisions, now codified as part of the Social Security Act. These provisions apply to any person who was placed into a nursing home after September 30, 1989 for a continuous period of at least 30 days.

The Spousal Impoverishment Provisions are poorly named; they should really be the "Prevention of Spousal Impoverishment" provisions.

Protection of Resources

The Spousal Impoverishment Provisions apply when one spouse is in a nursing home and one spouse lives at home. The at home spouse is given the label "community spouse" -- which has nothing to do with community property.

The community spouse is allowed to retain some assets, in contradiction of the deeming of resources rule. A maximum and minimum allowance are announced, and within that window the community spouse is may retain half of the couple's combined countable resources. The maximum is $109,560 and the minimum is $21,912. (2011)

The spousal allowance is in addition to the value of the home, car, burial fund and other exempt assets.

Example 1: Bob is living at home, Mary is in a nursing home. They have cash assets of $125,000, a home and a car. Mary is qualified for Medicaid in every other way. Application for Medicaid benefits is submitted, and Medicaid informs Bob that he may retain $62,500 as his spousal allowance. The balance of $62,500 is attributed to Mary, and since it exceeds the resource limit she is not qualified for Medicaid benefits. However, she can spend down her portion for medical care to $2000. When consumed, she will qualify for benefits. Bob still has his $62,500 even though Mary is now on Medicaid.

Example 2: The couple's assets total $275,000. When application for benefits is made, half of the assets exceeds the maximum allowable amount (i.e, $137,500 is more than $109,560). As such, Bob is allowed to retain $109,560 and Mary is charged with $165,440. She must spend down her part before she'll qualify for Medicaid.

Example 3: The couple's assets total $27,000. Half of the assets is less than the minimum allowable amount (i.e., $13,500 is less than $21,912). As such, Bob is allowed to retain $21,912 and Mary is charged with $5,088. She must spend down her part before she'll qualify for Medicaid.

The maximum and minimum allowances change from year to year.

Protection of income

The community spouse is also granted an income allowance under the Spousal Impoverishment Provisions. Under year 2011 regulations, the community spouse may retain up to $2,739 of the couple's combined income per month to be used for the community spouse's living expenses (this is called the "minimum monthly maintenance needs allowance, or MMMNA) .

The protection of income rule seems to violate the "name on the check" rule, but it doesn't. Before the couple reaches the point where this part of their income is diverted to the community spouse, the patient must still have income below $2,022 per month. The community spouse is allowed to keep the income allowance only if the patient first qualifies for Medicaid benefits.

Example 1: Bob is the community spouse. His monthly income is $1800. Mary is the patient. Her income is $950. She is qualified for Medicaid in every respect. Bob is allowed to keep $2,739 from their combined income. The balance, $11, must be paid to the nursing home for the care it is providing to Mary. Medicaid picks up the balance of the nursing home bill.

Example 2: Bob is the nursing home resident; he earns $2,100 per month. Since his income exceeds the $1,911 income cap, he does not qualify for Medicaid. We never reach the point were a division of income for the Spousal Allowance is made. A Miller Trust (Qualified Income Trust) can be used to defeat the monthly income limit.

Expanded SRA

The income allowance has another major role to play. What if the income from both spouses is not enough to cover the $2,739 income allowance? For instance, if Bob's income is $800 and Mary’s income is $300 she is entitled to keep the entire $1,100 for her MMMNA. But $1,100 is far less than the allowance of $2,739. To fill that gap, Medicaidwill allow Mary's’s protected resource allowance to be increased beyond the typical one-half of countable resources. The extra funds can be invested to produce the income necessary to fill the gap.

How much could a married couple expand the protected resource allowance? It depends on two factors: 1) the size of the gap, and 2) current interest rates for a one-year certificate of deposit in your community. Here is a step-by-step guide to the calculation, based on Bob & Mary’s situation:

Yes, you saw that correctly. In this example, the community spouse (Mary) would be allowed an investment pool of more than $2 million - which, if invested at 0.75% in a one year CD would produce income of about $1639 per month needed to bring her up to the MMMNA. Of course, if they had $2 million to invest, they would not qualify for Medicaid (or need it) in the first place. But the point is that their existing resources fall below that $2 million limit -- so under the Expanded SRA, the community spouse can keep the existing resources even though the nursing home spouse goes onto Medicaid. (NOTE: this extreme outcome results from the historically, rediculously low interest rate that banks are paying on one-year CDs.)

Using the facts  where the countable resources are $50,000 and the standard protected resource allowance is $25,000, the expanded resource allowance lets Mary keep all $50,0000 and Bob can go on Medicaid  immediately without a spend-down. The contributing factors, again, are the amount of retirement income (step 2) and the interest rate (step 7). Interest rates can be obtained from your local bank – many of them post rates on the Internet. Just choose the lowest rate that they publish for a one-year CD.