Strengthening Financial Protections and Ensuring Choice for Medicaid Beneficiaries and Their Families


Medicaid coverage for long-term services and supports (LTSS) provides a safety net for vulnerable older people (and younger people with disabilities) who have low incomes and few assets, or who become impoverished because of medical needs, LTSS needs, or both. In fiscal year 2016, Medicaid paid $167 billion for LTSS (in both institutional and home- and community-based settings), or approximately 30 percent of total Medicaid expenditures. Institutional care still accounts for the majority (55 percent) of Medicaid LTSS spending for older people and adults with physical disabilities.

Federal and state eligibility criteria effectively restrict access to Medicaid to the very poor. These criteria, as well as the complexity of determining eligibility, vary widely from state to state. In most states, older people who are eligible for Supplemental Security Income (SSI) are considered eligible for Medicaid. To be eligible for SSI in 2018, an individual cannot have countable income over $750 a month and more than $2,000 in assets. In 2016, the federal SSI eligibility thresholds for individuals were $733 per month in countable monthly income and $2,000 in liquid assets. Yet certain states, known as 209(b) states, may impose even more restrictive eligibility rules (see also Chapter 6, Low-Income Assistance - Low-Income Assistance Programs—Supplemental Security Income for more information on SSI).

In determining program eligibility, Medicaid does not count the person’s home, one car, and a modest amount of personal goods. However, the Deficit Reduction Act of 2005 (DRA) limited the value of exempt home equity ($572,000 in 2018), with states having the option to exempt up to $858,000.

Financial eligibility—certain States may choose to have a medically needy program that allows people over the age of 65 (and younger people receiving Supplemental Security Income or Social Security Disability Insurance benefits) to spend down their assets and income in order to meet their state’s financial eligibility criteria for Medicaid coverage of nursing facility care. If states do not want to have a medically needy program, they may choose to use a special income rule of 300 percent of the SSI benefit ($2,250 per month) to qualify individuals for nursing facility care and home- and community-based services (HCBS) waiver programs.

In states where the eligibility of people with higher incomes is limited to those qualifying under the special income rule, individuals with too much income may still qualify for Medicaid coverage of nursing facility care and HCBS waiver programs by placing their incomes in a Miller Trust. When the person dies, the money in the trust is used to reimburse the state for the amount that Medicaid spent on the Miller trust owner.

In 2016, nursing facility residents who are Medicaid-eligible were permitted to keep a personal needs allowance of between $30 and $200 per month (depending on the state) to cover basic expenses such as personal hygiene supplies and phone calls.

Financial protections for spouses—Medicaid requires states to protect the income and assets of spouses of nursing facility residents (the “community spouse”) to prevent spousal impoverishment. In 2018, states had to allow the community spouse of a nursing facility resident to retain a minimum of $2,057.50 per month in income, with the option of allowing up to $3,090. Any income above that goes toward the cost of the beneficiary’s nursing facility care. States also had to allow spouses to protect between $24,720 and $123,600 in assets. These amounts are automatically updated annually for inflation.

States can offer the same protection to spouses, including same-sex spouses, of Medicaid recipients who receive HCBS under a waiver program. For five years beginning in  2014, states were required to extend spousal impoverishment protections for home- and community-based services beneficiaries as well as nursing facility residents. If not extended in 2019, these protections for HCBS. Following the June 2015 U.S. Supreme Court ruling that state same-sex marriage bans are unconstitutional, married domestic partners may no longer be eligible for these income and asset protections.

Estate recovery today almost every state and the District of Columbia has a program for recovering Medicaid costs from beneficiaries’ estates. Under the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993), all states must recover Medicaid costs for nursing facility or HCBS care from the estates of people who received benefits at age 55 or older. OBRA 1993 defines “estate” to include assets that are part of the probate estate under state law. States can include other property in which the individual had any legal interest at the time of death, including property passing by joint tenancy or living trust. Under federal law, states have the option to implement estate recovery for receipt of primary- and acute-care services. Thus, individuals who enroll in the Medicaid expansion could be subject to estate recovery rules (see also Chapter 7, Health - State Plan Amendments and Waiver Authority—Medicaid Waiver Authority).

Recoveries cannot be made while there is a surviving spouse or dependent child. In some states, unmarried domestic partners and same-sex spouses may not have this protection. With certain exceptions and exemptions, a number of states recover expenditures by filing liens on the homes of Medicaid recipients; however, no recovery can be made until both the recipient and spouse die, the house is sold, and any surviving children reach the age of 21.

States may allow liens to be placed prior to an individual’s death. But federal law prohibits states from imposing pre-death liens unless the person is in a nursing facility and expected to be permanently institutionalized. Any pre-death lien must be removed if the individual is discharged from the nursing facility and returns to the community.

The look-back period for pre-eligibility transfers of assets—when determining Medicaid eligibility, states are required by federal law to determine whether an applicant transferred assets for less than fair-market value during the five previous years (known as the look-back). If a beneficiary is found to have gifted or transferred assets, a penalty period is imposed during which the applicant is ineligible for benefits. Although the look-back is intended to prevent people from sheltering assets in order to qualify for Medicaid inappropriately, many transfers deemed inappropriate were done innocently, before the need for LTSS was even apparent. The passage of the DRA tightened the asset transfer rules. Applicants have the option of requesting a hardship waiver of the penalty period.


Choice of service

In this policy: FederalState

AARP supports ensuring that people who qualify for Medicaid have a choice between home- and community-based care (HCBS) or nursing facility care and have a choice of providers.

Public input

In this policy: FederalState

AARP supports an open contract development, waiver, or state plan amendmentThe state plan is a contract between a state and the federal government describing how the state administers its Medicaid program. Whenever a state makes changes to its Medicaid program, it sends state plan amendments (SPAs) to CMS for review and approval. process that provides for meaningful public input.

Medicaid financial eligibility criteria

In this policy: FederalState

All individuals with incomes at or below 100 percent of the poverty line ($12,060 per year for an individual in 2017) should be considered categorically eligible for Medicaid.

The federal government should increase the asset limit for eligibility and index it for inflation. States should establish higher asset levels for HCBS beneficiaries to help them remain in their homes and communities.

Transfer-of-assets look-back, penalty periods, and hardship waivers

In this policy: FederalState

Look-back period—Congress should repeal the five-year look-back period for asset transfers and return to the previous 36-month look-back window. Other provisions, including one that changed the start date of the penalty period to the date of application for Medicaid benefits (instead of date of transfer), and another that imposed a cap on home equity, should also be repealed. Congress should not modify these provisions in ways that further restrict eligibility for Medicaid-funded long-term services and supports (LTSS).

Federal and state regulations should provide look-back guidelines to distinguish deliberately abusive practices from legitimate transfers that occurred in the normal course of life events, such as charitable donations and contributions to family members’ medical and educational expenses.

The federal government should define the types of transfers that should be presumed to be legitimate and not subject to a penalty—for example, donations to churches and charities, donations to family members for medical and educational expenses, and a reasonable level of undocumented expenditures—unless the state can demonstrate an intent to qualify for Medicaid improperly. A threshold limit should be established for transfer-of-asset penalties so that those making reasonable levels of transfers for charities, religious donations, or personal gifts, or who are unable to provide documentation of all purchases over a five-year period, are not penalized.

Government attempts to prevent abusive asset transfers for the purpose of qualifying for Medicaid should focus on deliberately fraudulent or abusive activities and loopholes in state laws, not the ordinary actions of typical families with moderate and low incomes.

Asset transfers made outside the individual’s control—such as those resulting from a court order because of fraud or misrepresentation—or made before the individual could reasonably be expected to anticipate the need for LTSS within the next five years—disabling injury, onset of a disabling disease, or diagnosis of a previously undetected medical condition after the transfer date—should be exempt from consideration when implementing the provisions of the Deficit Reduction Act (DRA).

The imposition of a penalty period should be delayed until it is determined that the applicant has the income and resources sufficient to pay for all necessary medical and support care and treatment, food, housing, utilities, and other necessities of life for the duration of the penalty period.

Federal and state regulations should require monitoring during the penalty period to ensure that applicants are not deprived of care or necessities.

Prior to the imposition of a penalty, applicants seeking a hardship waiver of the penalty should receive assistance in developing a care plan and budget for medical and supportive services and necessities for the duration of the penalty period.

States should provide advance written notice to the applicant identifying the income and resources available, and the projected costs of medical and support care and treatment, food, housing, utilities, and other necessities of life during the penalty period.

Applicants should be afforded the opportunity to appeal state determinations of support costs.
Hardship waiver—federal and state regulations should establish uniform criteria for evaluating whether denial of coverage under stringent DRA provisions causes hardship.

Federal and state regulations should allow for and promptly process hardship-waiver requests and appeals prior to or during the penalty period.

Federal and state regulations should establish clear guidelines on what constitutes a hardship for determining transfer-of-asset penalties. Uniform criteria should be established for evaluating whether denial of coverage under stringent DRA provisions causes hardship. Federal and state regulations should allow for and promptly process hardship-waiver requests and appeals prior to or during the penalty period.

Hardship waivers should be granted to individuals who require LTSS but would be denied Medicaid because of prohibited asset transfers.

Federal and state regulations should establish hardship waivers of the home equity limit in order to protect people who have no other way to pay for needed care and to ensure that people are not forced to sell their homes to get the needed care.

Federal regulations should require that states give all applicants information about the availability of hardship exceptions, ensure presumptive eligibility until a final decision is rendered, and provide a standardized appeal process for people whose exemption requests are denied.

Recovery of transferred assets

In this policy: State

States should not impose blanket requirements for applicants to seek the return of all transferred assets and should not mandate civil or criminal legal action to regain transferred assets.
This could be done by establishing a minimum transfer amount for which recovery is required.

Frivolous recovery efforts lacking any lawful basis and criminal complaints motivating an applicant to file charges of malicious prosecution should be prohibited.

States should establish a hardship exception for those unable to make any recovery effort because of functional limitations.

Reducing home equity barriers to Medicaid eligibility

In this policy: FederalState

Federal and state regulations should establish hardship waivers of the home equity limit that protect people who have no other way to pay for needed care.

The federal government should encourage states to provide clear information about other options to individuals who are denied Medicaid eligibility due to home equity under the DRA.

States should be required to use a fair process to determine an individual’s home equity (i.e., a home’s current fair-market value for property tax purposes, minus any outstanding debts against the home).

States should be allowed to increase the home equity cap to $750,000, as permitted by the Deficit Reduction Act, with minimal administrative burden.

States should not deny eligibility under the home equity provision if the individual is ineligible for a reverse mortgage or unable to obtain a home equity loan

Impoverishment protection for spouses, domestic partners, and children

In this policy: FederalState

Unmarried domestic partners and spouses in same-sex marriages should be provided all the financial protections given to opposite-sex community spouses.

Current financial protections for spouses, caregivers, and dependent children should be retained, and extended to domestic partners.

Federal and state governments should make permanent the financial protections to prevent impoverishment of spouses of beneficiaries who receive Medicaid HCBS. Federal and state governments should continue prohibiting any requirement that adult children or grandchildren of Medicaid beneficiaries receiving LTSS assume financial responsibility for their parents’ or grandparents’ care.

States should set the highest community spouse resource allowance and spousal maintenance needs allowance possible under federal law to provide community spouses with the greatest financial protection.

Estate recovery programs

In this policy: FederalState

Heirs should have an extended period of time to reimburse the state so they are not forced to sell the deceased person’s home and should be protected from coercive tactics designed to force repayment of Medicaid expenditures.

The federal government and states should establish procedures for waiving estate recovery when undue hardship would result.

Federal regulations should require states to use all money recovered from the estates of Medicaid recipients to improve the program.

The term “estate” under the estate recovery program should be defined no more broadly than it is under state probate law.

Federal regulations should ensure public accountability by requiring estate recovery programs to provide consistent and readily available data on the total costs of the program and the numbers of beneficiaries affected, as well as other essential information, such as the number of exemptions, deferrals, hardship waivers, liens, and contested recoveries.

Federal regulations should ensure that consumers are adequately informed about Medicaid estate recovery. Recovery notices should be timely, clear, and easy to read (e.g., published in an adequate type size), and should include vital information concerning exemptions, deferrals, hardship waivers, liens, and consumer obligations and rights.

Federal regulations prohibiting states from placing liens on the property of Medicaid recipients who receive LTSS in the home and community should remain in force.

Medically needy programs

In this policy: FederalState

The federal government should require all states to implement medically needy programs for people who need LTSS in all settings. States with medically needy programs for nursing facility residents should retain them.

States without medically needy programs should use the special income rule of 300 percent of the Supplemental Security Income benefit level.

Personal needs allowance

In this policy: Federal

The federal government should increase the minimum personal needs allowance for Medicaid beneficiaries in nursing facilities and residential care settings. The allowance should be adjusted annually to account for changes in the cost of items for personal needs.