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Potential Changes to Medicaid Long-Term Care Spousal Impoverishment Rules: States’ Plans and Implications for Community Integration

Introduction

Seniors and people with disabilities or chronic illnesses may need long-term services and supports (LTSS) for help with self-care tasks (such as eating, bathing, or dressing) and household activities (such as preparing meals, managing medication, or housekeeping). Medicaid is the primary payer for LTSS, covering over half of national spending on nursing home care and home and community-based services (HCBS) as of 2017.1 To financially qualify for Medicaid LTSS, an individual must have low income and limited assets. When one spouse in a married couple needs LTSS, Medicaid spousal impoverishment rules protect certain income and assets to support the other spouse’s living expenses, in an effort to prevent her “financial devastation from paying the high cost of [her spouse’s] nursing home care.”2

Since the spousal impoverishment rules were enacted in 1988, federal law has required states to apply them when a married individual seeks nursing home care.3 Prior to 2014, states had the option to apply the rules when a married individual sought home and-community based waiver services.4 However, beginning on January 1, 2014, Section 2404 of the Affordable Care Act (ACA) required states to apply the spousal impoverishment rules to HCBS waivers. Section 2404 also expanded the spousal impoverishment rules to the Section 1915 (i) HCBS state plan option, Community First Choice (CFC) attendant care services and supports, and individuals eligible through a medically needy spend down. Section 2404 was set to expire on December 31, 2018, but Congress recently reauthorized it through March 31, 2019.5 If Congress does not further extend Section 2404, the spousal impoverishment rules will revert to a state option for HCBS waivers and will not apply to other HCBS, as of April 1, 2019 (Figure 1).

Figure 1: Application of Medicaid spousal impoverishment rules.

This issue brief answers key questions about the spousal impoverishment rules,6 presents new data from a 2018 Kaiser Family Foundation (KFF) 50-state survey about state policies and future plans in this area, and considers the implications if Congress does not extend Section 2404. Complete findings from KFF’s 2018 survey of state Medicaid financial eligibility rules for seniors and people with disabilities will be released at a later date.7

Key Questions About Medicaid LTSS Spousal Impoverishment Rules

1.   What Are the General Medicaid LTSS Financial Eligibility Rules?

Federal law limits Medicaid LTSS eligibility to people with low incomes and limited assets. At minimum, states generally must cover nursing home care for people who have qualifying functional needs and receive federal Supplemental Security Income (SSI) benefits8 ($771 per month for an individual, and $1,157 for a couple in 2019).9 States can choose to adopt the “special income rule,” to increase the Medicaid nursing home income limit to 300% of SSI ($2,313 per month for an individual in 2019),10 and 43 states do so in 2018.11 States also can choose to apply the “special income rule” when determining Medicaid financial eligibility for people receiving HCBS under a waiver, and all but one of the states using the “special income rule” elect this option to expand HCBS financial eligibility; this eligibility pathway sometimes is referred to as the “217-group.”12 Additionally, people who qualify for Medicaid institutional LTSS or HCBS under the “special income rule” typically are subject to an asset limit, and most states apply the SSI asset limits of $2,000 for an individual, and $3,000 for a couple.

Once eligible for Medicaid LTSS, individuals generally must contribute a portion of their monthly income to the cost of their care. These “post-eligibility treatment of income” (PETI) rules apply to both nursing home services and HCBS waivers. For those in nursing homes, a small “personal needs allowance” is permitted to pay for items not covered by Medicaid, such as clothing;13 the federal minimum personal needs allowance is $30 per month14 and the state median was $50 per month in 2018. Individuals in the “217-group” are subject to PETI under HCBS waivers and may have a higher “maintenance needs allowance,” recognizing that individuals living in the community must pay for room and board. There is no federal minimum for HCBS maintenance needs; instead states may use any amount as long as it is based on a “reasonable assessment of need” and subject to a maximum that applies to all enrollees under the waiver.15

2.   What Policy Considerations Led Congress to Enact the Spousal Impoverishment Rules?

Congress created the spousal impoverishment rules in 1988, to protect a portion of a married couple’s income and assets to support the “community spouse’s” living expenses when the other spouse sought Medicaid LTSS. The spousal impoverishment rules supersede rules that would otherwise require eligibility determinations to account for a spouse’s financial responsibility for a Medicaid applicant or beneficiary.16 They were enacted “in response to evidence that at-home spouses – typically elderly women with little or no income of their own – faced poverty and a radical reduction in their standard of living before their spouses living in a nursing home could qualify for Medicaid.”17 Prior to the spousal impoverishment rules, “married individuals requiring Medicaid-covered LTSS were commonly faced with either forgoing services or leaving the spouse still living at home with little income or resources.”18

Concerns about potentially financially devastating LTSS costs that motivated Congress to add the spousal impoverishment rules to Medicaid 30 years ago remain relevant today. LTSS costs are difficult for most people to afford out-of-pocket, and private insurance coverage of LTSS is limited. In 2018, a year of nursing home care averaged over $89,000; average annual home health aide services cost over $50,000; and average annual adult day health care services totaled nearly $19,000.19 As in 1988, the high cost of LTSS “can rapidly deplete the lifetime savings of elderly couples”20 today. The spousal impoverishment rules “help ensure. . . that community spouses are able to live out their lives with independence and dignity.”21 While the amounts protected under the rules (discussed below) might be considered “quite modest or even inadequate to sustain the at-home spouse’s accustomed standard of living, they far exceed the income and asset levels that may be retained in the case of unmarried recipients of Medicaid long-term care services”22 (described above, e.g., $2,000 in countable assets and a minimum of $30 monthly personal needs allowance for nursing home enrollees).

3.   How Do the Spousal Impoverishment Rules Affect Medicaid LTSS Financial Eligibility?

Since 1988, Congress has required states to apply the spousal impoverishment rules to long-term nursing home services to provide financial support for the “community spouse.”23 Specifically, states must disregard a portion of income and assets at two points when a married individual is seeking nursing home services: (1) when determining and renewing the individual’s Medicaid financial eligibility; and (2) when determining the individual’s monthly required contribution to his care costs under the PETI rules (Figure 2). The rules apply to long-term nursing home stays, which are those expected to last at least 30 consecutive days.24 The spousal impoverishment rules apply when a married individual seeks or receives Medicaid LTSS, and his spouse is not in a nursing home or other medical institution.25 The rules do not apply when both spouses seek long-term Medicaid nursing home care.26 The amounts protected under the spousal impoverishment rules are updated annually and are in addition to the general Medicaid LTSS income and asset limits described above. Box 1 provides additional detail about how protected amounts are determined under the rules.

Figure 2: Effect of spousal impoverishment rules on Medicaid financial eligibility.

Box 1: General Application of Medicaid Spousal Impoverishment Rules27

Income. When determining financial eligibility for a married individual seeking Medicaid LTSS,28 and when determining his required contribution from monthly income to the cost of care,29 any income in the “community spouse’s” sole name is not deemed available to the Medicaid spouse. Additionally, when determining the required contribution from monthly income to the cost of care, the starting point is that half of any income in the couple’s joint name is deemed available to the Medicaid spouse.30 However, the rules also provide for a “monthly maintenance needs allowance” (MMNA) for the community spouse, subject to both minimum and maximum limits.31 If the “community spouse’s” sole income, plus half of the couple’s joint income, is less than the minimum MMNA, the “community spouse” can retain additional income, enough to reach the minimum. The MMNA is 150% FPL ($2,057.50 per month for a household of two).32 The “community spouse’s” MMNA cannot exceed a maximum limit ($3,160.50 in 2019).33

Assets. When determining Medicaid LTSS financial eligibility, the starting point is that half of the couple’s assets (including any countable assets in which either or both spouses have an ownership interest at the time of the Medicaid spouse’s most recent period of continuous institutionalization34) potentially can be retained by the “community spouse.35 However, rules also provide for a “community spouse resource allowance” (CSRA), subject to minimum and maximum limits.36 If the “community spouse’s” half of the assets is less than the minimum CSRA ($25,284 in 2019, and higher at state option), the Medicaid spouse can transfer to her enough assets to reach the minimum CSRA. If the “community spouse’s” half of the assets exceeds the maximum CSRA ($126,420 in 2019), she can retain only the amount up to the maximum, with remaining assets considered available to the Medicaid spouse.37 After Medicaid eligibility is established, none of the “community spouse’s” resources are deemed available to the Medicaid spouse.38

From the rules’ creation in 1988, until ACA Section 2404 took effect in January 2014, states had the option to apply the spousal impoverishment rules to HCBS waivers.39 Specifically, states could choose whether to apply the rules to HCBS waivers in two instances: first, states could decide whether to apply the rules when determining and renewing financial eligibility under HCBS waivers for the “217-group.” These are individuals for whom states have opted to expand the minimum Medicaid LTSS financial eligibility limits under the “special income rule” (described above), who would be eligible under the Medicaid state plan if institutionalized, meet an institutional level of care, and would be institutionalized if not receiving waiver services. The option to apply the spousal impoverishment rules to HCBS waivers is specifically limited to the 217-group, even though states also can include people eligible through other Medicaid eligibility pathways in their HCBS waivers.40 Second, if states apply the spousal impoverishment rules when determining and renewing Medicaid financial eligibility for the 217-group under HCBS waivers, they also can opt to apply the rules to this group when determining any required monthly contribution from income to their cost of care under the PETI rules (described above). The 217-group is the only Medicaid HCBS population subject to PETI.

Prior to Section 2404 taking effect in 2014, most, but not all states, opted to apply the spousal impoverishment rules to HCBS waivers. In 2009 (the most recent year for which data are available prior to 2014), five states (Alabama, Massachusetts, New Hampshire, New York, and West Virginia) chose not to apply the spousal impoverishment rules to HCBS waivers, and these data were not reported for one state (Illinois).41

4.   How Did the ACA Section 2404 Change the Medicaid Spousal Impoverishment Rules?

Section 2404 required states to apply the spousal impoverishment rules to Medicaid HCBS waivers from January 1, 2014 through December 31, 2018, and Congress recently extended this provision through March 31, 2019. Section 2404 removes the state option for applying the rules to HCBS waivers and instead makes the rules mandatory for determining both financial eligibility and PETI when a married individual seeks Medicaid home and community-based waiver services.42 As of 2015, most states were applying the spousal impoverishment rules to HCBS waivers. Two states (New Hampshire and Massachusetts) were not doing so, and two states (Illinois and Minnesota43) were applying the rules to some but not all HCBS waivers.44

Table 1: Federal Requirements and State Options to Apply Medicaid Spousal Impoverishment Rules
LTSS Authority 1988-2013 2014 through March 31, 2019, under Section 2404 As of April 1, 2019, unless Section 2404 reauthorized
Institutional care
Nursing homes Required Required Required
Medical institutions Required Required Required
HCBS
217-group in Section 1915 (c) waivers State option* Required State option*
Other groups in Section 1915 (c) waivers Not allowed** Required Not allowed**
HCBS under Section 1115 waivers Not allowed** Required Not allowed**
Section 1915 (i) state plan HCBS Not allowed** Required Not allowed**
Community First Choice Not allowed** Required Not allowed**
Medically needy/spend down Not allowed** Required Not allowed**
NOTES: *States opt whether to apply the rules to financial eligibility for the 217-group, and if so, separately opt whether to also apply the rules to that group’s PETI. **States may obtain § 1115 waivers to apply the rules to individuals other than the 217-group. SOURCE: 42 U.S.C. § 1396r-5; ACA § 2404; Pub. L. No. 116-3, § 3 (Jan. 24, 2019).

Additionally, Section 2404 expands the types of HCBS to which states must apply the spousal impoverishment rules from 2014 through March 31, 2019. First, Section 2404 applies the spousal impoverishment rules to all individuals under Section 1915 (c) HCBS waivers, not just the 217-group. Section 2404 also applies the spousal impoverishment rules to HCBS provided under Section 1115 waivers. Finally, Section 2404 requires states to apply the rules when determining Medicaid financial eligibility for HCBS provided through additional authorities, including the Section 1915 (i) state plan option, CFC attendant care services and supports, and medically needy/spend down pathways. Table 1 summarizes federal requirements and state options to apply the spousal impoverishment rules.

5.   How Will the Medicaid Spousal Impoverishment Rules Change if ACA Section 2404 Expires on March 31, 2019?

If Congress does not further extend Section 2404, application of the spousal impoverishment rules to HCBS waivers will return to a state option45 and will no longer apply to the other HCBS authorities as of April 1, 2019 (Table 1). Without Section 2404, states would have to obtain a Section 1115 waiver to apply the spousal impoverishment rules to HCBS waiver enrollees other than the 217-group, those receiving Section 1915 (i) state plan HCBS or CFC, or individuals eligible through a spend down.46 On February 9, 2019, CMS issued guidance directing states to take the following actions, effective April 1, 2019, if Section 2404 expires: (1) redetermine financial eligibility, without applying the spousal impoverishment rules, for all individuals receiving HCBS under Section 1915 (i) and CFC, and for those eligible under HCBS waivers (other than the 217-group if the state elects that option); (2) recalculate PETI for individuals receiving services under HCBS waivers, (other than the 217-group if the state elects that option); and (3) stop applying the rules to new Medicaid HCBS applicants (other than the 217-group if the state elects that option).47

Continuing to extend Section 2404 on a temporary basis may create confusion for Medicaid beneficiaries and increase states’ administrative burdens. CMS initially issued the above instructions to states about Medicaid eligibility redeterminations and PETI recalculations in November 9, 2018 guidance, when Section 2404 was set to expire on December 31, 2018. Because Congress subsequently extended Section 2404 through March 31, 2019, states that already had completed redeterminations and informed any Medicaid beneficiary that they were no longer eligible for Medicaid or would have PETI revised as of January 1, 2019, now must revise those decisions and “immediately inform these individuals that they will remain eligible for Medicaid or that their PETI calculation will not change.”48 However, states will again need to complete Medicaid eligibility redeterminations and PETI recalculations effective April 1, 2019, if Section 2404 is not further extended.

As of 2018, 50 states were applying the spousal impoverishment rules to HCBS waivers as required by Section 2404 (Table 2). One state (Illinois) applied the rules to some but not all HCBS waivers. According to Illinois’ approved waiver documents, the rules currently apply to seven of nine HCBS waivers; this information is not provided in the approvals for Illinois’ other two waivers.49

If Section 2404 expires, 45 states reported plans to continue to apply the spousal impoverishment rules to all of their HCBS waivers as of the end of 2018 (Table 2). (At the time of our survey, Section 2404 was set to expire at the end of 2018, but Congress subsequently extended it through March 2019.) Two states (Arkansas and Illinois) plan to scale back by applying the rules to some but not all HCBS waivers if Section 2404 is not reauthorized. Arkansas reports that it will apply the rules to two of its four waivers: seniors/adults with physical disabilities and assisted living, but not autism and intellectual/developmental disabilities.50 Approved waiver documents indicate that Illinois plans to scale back application of the rules if Section 2404 is not extended by applying the rules in full to one of nine HCBS waivers and in part (for financial eligibility but not PETI) to two waivers.51 One state (Minnesota) plans to apply the rules to one of five waivers (elderly only) but has a separate Section 1115 waiver addressing spousal deeming.52 Two states (Maine53 and New Hampshire) do not plan to apply the rules to any HCBS waivers, and one state’s plans (Montana) were still undecided at the time of our survey. Waiver approval documents indicate that none of Montana’s waivers cover the 217-group, so Montana would have to pursue a Section 1115 waiver to continue to apply the rules to its HCBS waiver applicants and enrollees.54

6.   What Are the Implications of Not Applying Spousal Impoverishment Rules to Medicaid HCBS?

Applying the same financial eligibility rules to Medicaid nursing facility care and HCBS helps alleviate bias in favor of institutional care.55 If financial eligibility limits are less stringent for nursing home care than for HCBS, an individual in need of LTSS may qualify only for institutional care. Even if an individual financially qualifies for both nursing home care and HCBS, he may be incentivized to choose nursing home care if that option will protect additional income and assets to support his spouse at home, due to differential application of the spousal impoverishment rules.

Applying more stringent income and asset rules to HCBS, compared to nursing home care, could impact the progress that states have made in expanding access to HCBS. The share of Medicaid LTSS spending devoted to HCBS instead of institutional care has been steadily increasing in recent decades. A majority of Medicaid LTSS spending went to HCBS for the first time in 2013, and reached 57% in 2016 (Figure 3). Although not required by federal Medicaid law, states have an independent community integration obligation under the Americans with Disabilities Act (ADA) when administering services, programs, and activities.56 The Supreme Court’s Olmstead decision found that the unjustified institutionalization of people with disabilities is illegal discrimination under the ADA, and Medicaid plays a key role in helping states meet their community integration obligations.57

Figure 3: Medicaid LTSS spending split between home and community-based vs. institutional care over time.

Looking Ahead

Congress authorized a temporary 3-month extension of Section 2404, which is now set to expire at the end of March 2019. Section 2404’s initial expansion of the spousal impoverishment rules and the subsequent 3-month extension likely were time limited due to an effort to control costs. In January 2019, the Congressional Budget Office estimated the cost of the temporary extension of Section 2404 at $22 million ($9 million in FY 2019, $7 million in FY 2020, and $7 million in FY 2021).58 This legislation also included a temporary extension of the Money Follows the Person program, and the costs of both of these extensions were offset by reductions in federal Medicaid matching funds after 2020 for states without asset verification programs and a reduction in the Medicaid Improvement Fund.59

If further extended, the rules would provide stability and continuity for enrollees receiving HCBS and for states administering Medicaid eligibility determinations and renewals. State data show that many states were electing the option to apply the rules to the HCBS waiver 217-group before 2014, and most are planning to continue to do so at this time. However, if Section 2404 expires, several states already have indicated that they will not continue to apply the spousal impoverishment rules to some or all of their HCBS waivers, and more could follow. Without Section 2404 or a similar requirement, states can modify their election of the option by submitting an HCBS waiver amendment.60 Additionally, without Section 2404, states lack legal authority to apply the rules when determining financial eligibility for HCBS under other Medicaid authorities, including waiver enrollees other than the 217-group, Section 1915 (i), CFC, and spend down pathways, and would have to devote time and resources to obtaining and administering a Section 1115 waiver to be able to treat financial eligibility for all HCBS equally.61 Applying different Medicaid financial eligibility rules to institutional LTSS and HCBS could affect states’ progress in expanding access to HCBS, rebalancing LTSS spending, and promoting community integration.

Table 2: States’ Application of Spousal Impoverishment Rules to Medicaid HCBS Waivers
State Applies to HCBS Waivers in 2018 Plans to Continue After Dec. 2018* Notes on Planned Changes After Dec. 2018*
Alabama Yes Yes
Alaska Yes Yes
Arizona Yes Yes
Arkansas Yes Some Seniors/adults with physical disabilities and assisted living waivers only.
California Yes Yes
Colorado Yes Yes
Connecticut Yes Yes
Delaware Yes Yes
DC Yes Yes
Florida Yes Yes
Georgia Yes Yes
Hawaii Yes Yes
Idaho Yes Yes
Illinois Some Some Apply fully to supportive living waiver and partially to persons with disabilities and elderly waivers.
Indiana Yes Yes
Iowa Yes Yes
Kansas Yes Yes
Kentucky Yes Yes
Louisiana Yes Yes
Maine Yes No
Maryland Yes Yes
Massachusetts Yes Yes
Michigan Yes Yes
Minnesota Yes Some Elderly waiver only, but also has § 1115 waiver applying spousal deeming to other populations.
Mississippi Yes Yes
Missouri Yes Yes
Montana Yes Undecided
Nebraska Yes Yes
Nevada Yes Yes
New Hampshire Yes No
New Jersey Yes Yes
New Mexico Yes Yes
New York Yes Yes
North Carolina Yes Yes
North Dakota Yes Yes
Ohio Yes Yes
Oklahoma Yes Yes
Oregon Yes Yes
Pennsylvania Yes Yes
Rhode Island Yes Yes
South Carolina Yes Yes
South Dakota Yes Yes
Tennessee Yes Yes
Texas Yes Yes
Utah Yes Yes
Vermont Yes Yes
Virginia Yes Yes
Washington Yes Yes
West Virginia Yes Yes
Wisconsin Yes Yes
Wyoming Yes Yes
TOTALS: 50 yes, 1 some 45 yes, 3 some, 1 undecided, 2 no
NOTE: *At the time of our survey, the requirement to apply spousal impoverishment rules to HCBS waivers was set to expire on 12/31/18, but Congress subsequently extended it through 3/31/18. SOURCE: KFF Medicaid Financial Eligibility Survey for Seniors and People with Disabilities (preliminary data as of Nov. 2018), supplemented by Section 1915 (c) waiver approval documents for AR, IL, MN, and NJ, as posted on Medicaid.gov.
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