(2008)In the 10 months since Pennsylvania’s implementation of the federal Deficit Reduction Act, income protection for the spouse of a Medicaid applicant has emerged as one of the more complicated areas for clients to grasp.

In this two-part series, we’ll explain the new rules.

In this issue, we’ll review the basics, and explain how Pennsylvania has implemented the “income first” rule. In our next issue, we’ll explain how couples can use excess resources to protect income for the Medicaid applicant’s spouse.

Monthly Maintenance Needs Allowance

As you may know, a Medicaid applicant’s spouse (also called a “community spouse”) is entitled to receive a certain level of income, called the Monthly Maintenance Needs Allowance, or MMNA for short.

The MMNA usually ranges between the minimum and maximum figures (currently $1,712 and $2,610 respectively). Where any particular community spouse falls between those two figures depends on the spouse’s shelter costs, such as rent, utilities, insurance, etc.

The community spouse is entitled to a MMNA so long as he or she is not in nursing facility care like the Medicaid applicant.

Bridging the gap

Many community spouses have far less income than their MMNA. For example, a woman whose husband was the family breadwinner may be approved for a MMNA of $1,800, but have income of only $600 from Social Security.

Where will she get the remaining $1,200?

One source could be her husband’s income. He may have sufficient available income that could make up the entire $1,200. If so, the Commonwealth would allow him to pay that amount to his wife each month and still qualify for Medicaid to make up the remainder of his nursing facility costs.

Another source could be the couple’s resources. They may have too much money to qualify for Medicaid without spending some of it down. In some circumstances, the Commonwealth may allow the wife to keep some or all of these “excess resources” to generate income.

Which do you use to bridge the gap – income or resources? Answering that question is one of the most challenging issues in Medicaid planning today.

“Income first” rule

The Deficit Reduction Act of 2005 required states to implement the “income first” rule for Medicaid applicants. That rule gets its name from the fact that it requires a couple to look to the Medicaid applicant’s income first to bridge a community spouse’s income gap, rather than looking to the resources first.

As a practical matter, using the “income first” rule usually means that the couple will spend down more before qualifying for Medicaid. In our example above, the wife could bridge her entire $1,200 gap from her husband’s income. If so, the couple may have to spend down tens of thousands, or even hundreds of thousands, of dollars before qualifying for Medicaid.

A distinct danger of using the “income first” rule is that it can leave the community spouse impoverished after the death of the Medicaid recipient. In our example, the wife could be left with much less than $1,800 in income after her husband dies (depending on the amount and source of his income). In that case, having spent down substantial resources, she has a diminished ability to generate income for the remainder of her life.

In our next issue: Are there alternatives to the “income first” rule? What alternative yields the best result?

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