Division of Assets is the name commonly used for the Spousal Impoverishment provisions of the Medicare Catastrophic Act of 1988. This is a federal law that applies only to couples. The intent of the law was to change the eligibility requirements for Medicaid where one spouse needs nursing home care while the other spouse remains in the community, i.e. at home (the "community spouse.") The law, in effect, recognizes that it makes little sense to impoverish both spouses when only one needs to qualify for Medicaid assistance for nursing home care.
As a result of this recognition, division of assets was born. Basically, in a division of assets, the couple gathers all their countable assets together in a review. Exempt and unavailable assets, discussed above, are not counted.
The countable assets are then divided in two, with the at-home or “community spouse” allowed to keep one half of all countable assets to a maximum of $109,560. The other half of the countable assets must be either “spent down” until less than $2,000.00 remains or protected using various legal strategies. The amount of the countable assets which the at-home spouse gets to keep is called the protected spousal amount.
Each state also establishes a monthly income level for the community spouse. This is called the Community Spouse Income Allowance. In Michigan, the community spouse is permitted to keep a minimum monthly income of $1,822. The nursing home resident is permitted to keep $60 per month from their income.
If the community spouse does not have at least $1,822 in income, then he or she is allowed to take the income of the nursing home spouse in an amount large enough to reach the Community Spouse Income Allowance (i.e., up to at least $1,822). This avoids the necessity (hopefully) of the community spouse having to dip into savings each month, which would result in gradual impoverishment. The nursing home spouse’s remaining income goes to the nursing home, so even though they may have qualified for Medicaid, the nursing home resident can still be contributing a significant amount to their cost of care.
To illustrate, assume a husband is the spouse in the nursing home and has an income of $1,700.00 per month from Social Security and a pension. The wife is the at-home spouse and receives $800.00 per month in Social Security income. With her Social Security, she is $1,022 short each month:
$1,822 community spouse’s monthly needs allowance (as determined by formula)
- 800 community spouse’s Social Security
=$1,022 short fall
In this case, the community spouse will receive $1,022 (the shortfall amount) per month from the nursing home spouse’s Social Security and/or pension and the rest of the nursing home spouse’s income will then be paid to the nursing home for the cost of his care, less $60 a month. This amount is called the patient pay amount and, in this case, $618.00 will be paid to the nursing home each month, even after obtaining Medicaid eligibility. Medicaid will pay the remaining portion of the nursing home bill. If the nursing home resident and community spouse have health insurance premiums, this can also continue to be paid out of the nursing home resident's income.
Often the loss of even part of the nursing home spouse’s income as the patient pay amount can still be a hardship on the community spouse as many seniors require their total income to meet their needs. This does not mean, however, that there are no additional planning alternatives which the couple can pursue, as will be discussed in future posts.