How Spousal Refusal Works as a Strategy to Medicaid Eligibility

Last updated: January 05, 2021


What is Spousal Refusal?

Spousal refusal, which has been dubbed, “just say no,” is when non-applicant spouses of long-term care Medicaid applicants refuse to help pay the cost of long-term care for their spouses. While spouses are legally obligated to financially support one another, Medicaid cannot legally deny care if a non-applicant spouse refuses to contribute towards the care of his / her spouse. Furthermore, the spousal refusal law asserts that non-applicant spouses are entitled to retain their assets by refusing to make them available to their applicant spouse.

This Medicaid planning strategy can be used when one spouse of a married couple requires nursing home Medicaid, or in some cases, Medicaid long-term home and community based services (HCBS) via a Waiver. Please note that non-applicant spouses are often called healthy or community spouses and applicant spouses are frequently called institutionalized spouses. Don’t let the term, “institutionalized” confuse you. While the “institutionalized” spouse might reside in a nursing home, that spouse could just as likely receive long-term care services in the home or community, such as in assisted living.

Spousal refusal, although it is a federal Medicaid law, is not currently utilized in all states as a means to protect assets for non-applicant spouses of long-term care Medicaid applicants. At the time of this writing, the only two states in which it is practiced are Florida and New York.


Why and How Spousal Refusal Works

To understand spousal refusal as a Medicaid planning tool, we need to back up; Medicaid has both income and asset limits in order for a senior to qualify for long-term care. While these income and asset limits vary based on the state and the marital status of an applicant, generally speaking (in 2021), the income limit for a married long-term care Medicaid applicant is $2,382 / month and the asset limit is $2,000. One exception is New York, where applicant spouses, as of 2021, can keep up to $15,750 in assets. (To see state-by-state financial eligibility criteria, click here).

When a nursing home Medicaid / HCBS Medicaid waiver applicant is married, only his / her income is used to determine income eligibility, or phrased differently, the non-applicant spouse’s income is not factored into calculating the income eligibility of the applicant spouse. (Learn more about how Medicaid counts income here). Assets, on the other hand, are calculated differently, as they are considered jointly owed. This means assets in the name of the applicant spouse, as well as the name of the non-applicant spouse, are added together and considered towards Medicaid’s asset limit.

In order to ensure non-applicant spouses of nursing home Medicaid applicants and Medicaid waiver applicants have sufficient income and assets from which to live, there are spousal impoverishment rules. First, there is a spousal income allowance, called a monthly maintenance needs allowance, which is intended to bring a non-applicant spouse’s monthly income up to as much as $3,259.50 (in 2021). Put differently, if the non-applicant spouse’s monthly income is not as high as $3,259.50 / month, the applicant spouse may be able to transfer some of his / her income to bring the non-applicant spouse’s monthly income up to this level. Second, there is a community spouse resource allowance. In 2021, non-applicant spouses can keep up to $130,380 of the couple’s joint assets in addition to the $2,000 in assets (or $15,900 in New York) the applicant spouses can retain. An important note; some higher valued assets are considered exempt (non-countable) towards Medicaid’s asset limit. This includes the couples’ primary residence, household items and appliances, a vehicle, and burial plots. Please note that there are further eligibility criteria in addition to financial criteria. Medicaid requirements by state can be found here.

If the couple has assets greater than the allowable Medicaid limits, this is where spousal refusal can come into play, saving additional assets for the community spouse. With spousal refusal, the community spouse’s assets are not considered in calculating the asset eligibility of the applicant spouse. Put differently, all assets in the non-applicant’s name are disregarded. Furthermore, in New York, if a non-applicant spouse has income in excess of the spousal income allowance ($3,259.50 / month in 2021), he / she is obligated to contribute 25% of his / her income towards his / her spouse’s long term-care. If spousal refusal is used as a Medicaid planning technique, the non-applicant spouse will not have to use any portion of his / her income towards his / her spouse’s cost of care.


Spousal Refusal Steps

Step 1 – Assets in excess of Medicaid’s applicant asset limit are transferred to the non-applicant spouse, allowing the applicant spouse to meet the asset limit. Please note that this is not in violation of Medicaid’s 60-month look back period, in which Medicaid penalizes Medicaid applicants for transferring assets without fair market payment. This is because Medicaid allows applicant spouses to transfer assets to their non-applicant spouses without penalty.

Step 2 – A notice of spousal refusal, which is a written statement of refusal to contribute towards the cost of care, must be signed by the non-applicant spouse and submitted to the Medicaid agency. This refusal to use his / her financial means towards the applicant spouse’s care needs results in the Medicaid applicant’s eligibility calculated as if he / she were a single applicant. This means that whatever financial means the non-applicant has will not be considered when determining the applicant spouse’s eligibility.

Step 3 – Along with the Medicaid application process, the applicant must also complete a spousal refusal form. Since the non-applicant spouse has refused to “support” his / her spouse, this form assigns the right to support to the state. It also allows the state to sue the non-applicant spouse for reimbursement of costs it pays for the applicant spouse’s care.


When Spousal Refusal Might be Considered a Good Option

Spousal refusal might be a good option for a married couple in which one spouse requires nursing home care and the couple have a significant amount of assets (and in New York, when the non-applicant spouse has a very high monthly income). With the nationwide average cost of nursing home care at approximately $7,750 / month ($93,000 / year), a couple can quickly deplete a large amount of their nest egg. Another situation in which spousal refusal might be a good option is when the community spouse will not be able to live off the spousal allowances (income allowance and resource allowance) that Medicaid allows and the couple have a large amount of assets.


Negative Implications / Legality of Spousal Refusal

As mentioned above, with spousal refusal, a state’s Medicaid agency can legally pursue a lawsuit against the non-applicant spouse for refusing to contribute towards his / her spouse’s long-term care. While it is not commonplace for the state to sue, one must prepare for this possibility of the state attempting to recover care costs in the amount it paid for the Medicaid beneficiary spouse. What may happen is that the non-applicant spouse will receive a letter from the state demanding repayment of a specific amount. If this happens, one can repay the state in the amount that it requested, negotiate a different amount, or refuse to pay any amount and chance a lawsuit. Please note that even if a non-applicant spouse repays the state, the amount should be approximately 25% -33% less than he / she would have paid had his spouse not become a Medicaid beneficiary. This is because the Medicaid pay rate is lower than the private pay rate.

Furthermore, with spousal refusal, the community spouse won’t be entitled to a spousal income allowance from the applicant spouse nor will he / she be entitled to a community spouse resource allowance.


In Which States is Spousal Refusal Appropriate?

While spousal refusal can, for all intents and purposes, be utilized in all states as a Medicaid planning technique, it predominantly has only been allowed by the states of New York and Florida. Connecticut has claimed they do not allow spousal refusal, but it was upheld by a federal court in 2005. Even if a state claims they do not allow spousal refusal, one could hire an attorney in an attempt to enforce it. The cost of hiring an attorney could ultimately result in a court decision of spousal refusal and save significant assets for the non-applicant spouse.


Necessity of Working with a Medicaid Planning Professional

A Medicaid planning professional can help you determine if spousal refusal is the right planning strategy for you and your spouse. Remember, all assets are not counted towards Medicaid’s asset limit. A professional can assist in calculating your exempt and non-exempt assets, determining the amount in which the community spouse resource allowance and monthly maintenance needs allowance would be, and weighing if spousal refusal might financially be the better option. If countable assets are not significantly greater than the combined applicant asset limit and community spouse resource allowance, other options, such as purchasing an irrevocable funeral trust, might be better option. If spousal refusal is the best choice, Medicaid planning professionals can assist with the spousal refusal process, such as filing / submitting the appropriate documentation and dealing with a demand letter for repayment of care services.  Contact a Medicaid expert here.


Alternatives to Spousal Refusal

There are other Medicaid planning tools that can be used in place of spousal refusal. For instance, if a couple’s countable assets are not significantly greater than the combined applicant asset limit and the community spouse resource allowance, one option would be to simply spend down excess assets. Ways to do this without violating Medicaid’s look-back rule is to pay off debt, such as mortgage or credit cards, make home repairs and modifications, including an addition to the home, or buy a Medicaid device that is not covered by insurance, such as hearing aids. Essentially, when one modifies their home or purchases hearing aids, one is utilizing countable assets and turning them into exempt assets. Another option to lower countable assets would be to purchase an irrevocable funeral trust, which allows applicants and their spouses to prepay funeral and burial expenses. Yet another alternative, but one for couples that have a significant amount of assets, is Medicaid Divorce. With this Medicaid planning strategy, the couple legally divorces in order to protect assets for the non-applicant spouse.

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