Spousal Impoverishment and Long-Term Care: What You Need to Know

When one spouse requires long-term care, the fear of spousal impoverishment—where one partner's assets are depleted due to medical costs—can add stress during an already difficult time. Spousal Impoverishment Protections (SIP), introduced in 1988, are Medicaid rules designed to prevent the community spouse (the spouse living independently) from being left destitute while the institutionalized spouse (the one needing care) accesses Medicaid-funded services.

These protections allow the community spouse to retain a portion of the couple's income and assets, ensuring financial stability while the institutionalized spouse receives necessary care. In 2014, SIP protections were expanded to include Medi-Cal Home and Community-Based Services (HCBS), helping more couples qualify for care without exhausting their resources. Below, we break down how these protections work, as well as key calculations and important rules.

Eligibility and Medicaid application process

Spousal Impoverishment Protections are not something you "apply" for in a standalone process. Instead, they are automatically applied as part of the Medicaid application process when the institutionalized spouse applies for Medicaid to cover long-term care services, such as nursing home care or Home and Community-Based Services (HCBS).

Step 1: Medicaid application process begins

The institutionalized spouse applies for Medicaid coverage for long-term care. This triggers the evaluation of both spouses' financial resources, including income and assets.

Why both spouses? Medicaid views married couples as a single financial unit and assesses their combined income and assets to determine eligibility.

Step 2: Assessment of income and assets

Medicaid evaluates the couple's countable assets and determines how much the institutionalized spouse must "spend down" to qualify for Medicaid.

Certain assets, like the family home, one vehicle, and personal belongings, are excluded from this calculation.

The Community Spouse Resource Allowance (CSRA) is calculated at this stage, determining how much of the couple's assets the community spouse can keep.

The CSRA protects a portion of the couple's assets for the community spouse. In 2024:

• Minimum allowable assets: $30,828
• Maximum allowable assets: $154,140
• For couples with total assets below $100,000, the community spouse retains $50,000. By 2025, the maximum allowance increases to $157,920.

Step 3: Spousal income allowance is set

Medicaid determines whether the community spouse's monthly income meets the Minimum Monthly Maintenance Needs Allowance (MMMNA). If the community spouse's income is below this federally set minimum, they may receive a portion of the institutionalized spouse's income to make up the difference.

Step 4: Medicaid eligibility is determined

After accounting for exempt assets, CSRA, and income allowances, Medicaid determines if the institutionalized spouse meets the eligibility criteria (typically having less than $2,000 in countable assets and meeting income limits).

If the couple's resources are above the limits, Medicaid may require the institutionalized spouse to spend down assets before they can qualify. Spousal protections ensure that the community spouse does not have to deplete their share of assets or income during this process.

Step 5: After Medicaid approval

Once the institutionalized spouse is approved for Medicaid, the spousal impoverishment protections remain in effect. These rules help the community spouse keep enough resources for their basic needs while the institutionalized spouse's care is covered.

When do SIP provisions become relevant?

SIP provisions become relevant as soon as a couple realizes one spouse may need Medicaid for long-term care services. For example:

• Early planning: Couples may consult an elder law attorney or Medicaid planner before applying for Medicaid to strategize around asset allocation and avoid delays in eligibility.
• During Medicaid application: The financial review during the Medicaid application process is when SIP protections are officially applied, including calculating the CSRA and MMMNA.
• Ongoing protections: After Medicaid approval, SIP ensures the community spouse retains enough income and assets, even as circumstances change.

Protection of home equity

The family home is often a couple's most significant asset and is generally exempt from Medicaid calculations:

• For the community spouse: The home remains protected as long as the community spouse lives there, regardless of its value.
• For single applicants: The home is exempt if the institutionalized spouse expresses an intent to return to it.
• Equity limits: States set limits on how much home equity can be excluded, typically ranging between $700,000 and $1,000,000. If equity exceeds these limits, adjustments may be required before Medicaid eligibility is granted.

Retirement accounts

Treatment of retirement accounts depends on ownership:

• Institutionalized spouse: Retirement accounts like 401(k)s and IRAs are countable assets unless converted into an income stream through withdrawals or annuitization.
• Community spouse: In most states, retirement accounts owned by the community spouse are exempt, allowing them to retain savings for future needs.

Implications of asset transfers

Medicaid enforces a five-year look-back period for asset transfers to prevent applicants from reducing their countable assets unfairly. Transfers made for less than fair market value may trigger penalties, delaying eligibility.

• Permissible transfers: Certain transfers, such as to the community spouse or a child with a disability, are allowed without penalty.
• Penalty periods: If an impermissible transfer is identified, Medicaid imposes a penalty period, calculated based on the value of the transferred assets and the average cost of care in the state.
• Strategic planning: Asset transfers to the community spouse can help meet Medicaid's asset limits without incurring penalties, but state rules vary. Consulting an elder law attorney or Medicaid planner is highly recommended.

A note from Givers

Couples facing long-term care decisions should proactively work with an elder law attorney or Medicaid planner to understand how these rules apply to their unique circumstances and to avoid costly mistakes.