Medicaid Financial Eligibility for Long-Term
Services and Supports
Kirsten J. Colello
Specialist in Health and Aging Policy
January 12, 2015
Congressional Research Service
7-5700
www.crs.gov
R43506

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Medicaid Financial Eligibility for Long-Term Services and Supports

Summary
Medicaid is a means-tested entitlement program that finances the delivery of health care and
long-term services and supports (LTSS) to certain eligible low-income individuals. Established
under Title XIX of the Social Security Act (SSA), the Medicaid program is state-operated within
broad federal guidelines, and is jointly funded by the federal government and states. To qualify
for Medicaid, individuals must meet certain categorical and financial requirements. To qualify
for Medicaid LTSS, individuals must also meet state-based functional eligibility criteria that
determine need for long-term care. The rules for determining financial eligibility for persons who
need LTSS under the Medicaid program are complex. Generally, individuals must have assets that
are equal to or below established thresholds to be considered eligible for Medicaid. While these
financial eligibility rules also vary by state, states must set these limits in accordance with certain
federal requirements.
Under federal Medicaid law, states are required to provide coverage to aged, blind, and disabled
(ABD) persons receiving cash-assistance through the Supplemental Security Income (SSI)
program, also referred to as mandatory eligibility groups. However, federal law gives states the
option to use eligibility criteria that are more restrictive than SSI. States that use this alternative to
SSI program rules are typically referred to as “209(b) states.” Thus, in general the Medicaid
program uses SSI program rules as the basis for determining financial eligibility. States may also
extend Medicaid coverage to other population groups, referred to as optional eligibility groups.
For elderly and disabled individuals potentially eligible for Medicaid LTSS coverage through
these optional eligibility groups, states may use more liberal standards for determining financial
eligibility than those specified under SSI program rules. Section 1902(r)(2) of the SSA gives
states flexibility to modify SSI program rules with respect to counting assets (both income and
resources) for the purposes of determining Medicaid eligibility. Most states use these Medicaid
statutory provisions to ignore or disregard certain types of income and/or resources, thereby
extending Medicaid coverage to ABD individuals with higher asset levels.
In addition, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended)
included the ACA Medicaid expansion, which allows states to expand Medicaid eligibility
beyond the historical categorical eligibility groups to individuals under age 65 with income up to
133% of the federal poverty level (FPL) (effectively 138% FPL). In general, states are not
required to offer LTSS under the ACA Medicaid expansion. However, the ACA Medicaid
expansion affords states options to include LTSS or otherwise make available state plan
Medicaid-covered LTSS to certain beneficiaries. As of January 1, 2014, most of Medicaid’s non-
elderly populations (i.e., parents, children, pregnant women) now use modified adjusted gross
income (MAGI) financial eligibility rules to determine financial eligibility for Medicaid,
including those individuals eligible under the ACA Medicaid expansion.
Congress has enacted several laws over the years aimed at limiting the ability of individuals to
divest financial resources in order to become eligible for Medicaid LTSS. The Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA, P.L. 97-248) was the first such legislation enacted to
limit the actions of individuals who divest resources for this purpose. The Omnibus Budget and
Reconciliation Act of 1993 (OBRA 93, P.L. 103-66) included several provisions to restrict access
to Medicaid LTSS to only those individuals who were low-income or to those who applied their
assets toward the cost of their care. The Deficit Reduction Act of 2005 (DRA, P.L. 109-171) was
the most recent action taken by Congress to amend the SSA by further limiting the ability of
individuals to divest their assets for the purpose of qualifying for Medicaid LTSS.
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Medicaid Financial Eligibility for Long-Term Services and Supports

This report provides an overview of the financial requirements used for determining eligibility for
Medicaid LTSS. It first provides background information on the Medicaid program, including
general eligibility requirements. Then it describes federal statute as well as selected regulations
and guidance regarding these financial eligibility requirements, including rules related to spousal
impoverishment, asset transfers, treatment of certain assets, post-eligibility treatment of income,
and estate recovery.

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Medicaid Financial Eligibility for Long-Term Services and Supports

Contents
Introduction ...................................................................................................................................... 1
Medicaid Financial Eligibility for Long-Term Services and Supports ............................................ 2
General Asset Rules ......................................................................................................................... 4
Home Equity Rule ..................................................................................................................... 5
Spousal Impoverishment Protections ............................................................................................... 6
Asset Transfers ................................................................................................................................. 7
Treatment of Certain Types of Assets ........................................................................................ 9
Annuities ............................................................................................................................. 9
Fees for Continuing Care Retirement Communities ......................................................... 10
Life Estates ........................................................................................................................ 10
Promissory Notes, Loans, and Mortgages ......................................................................... 10
Trusts ................................................................................................................................. 11
Post-Eligibility Treatment of Income ............................................................................................ 11
Estate Recovery ............................................................................................................................. 12

Contacts
Author Contact Information........................................................................................................... 14

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Medicaid Financial Eligibility for Long-Term Services and Supports

Introduction
Long-term services and supports (LTSS) refer to a broad range of health and health-related
services and supports needed by individuals who lack the capacity for self-care due to a physical,
cognitive, or mental disability or condition. Often the individual’s disability or condition results
in the need for hands-on assistance or supervision over an extended period of time. LTSS includes
services provided in institutional settings such as nursing homes as well as services provided in
home and community-based residential settings such as private homes and assisted living
facilities.
The cost of obtaining paid LTSS may far exceed many individuals’ financial resources. In 2014,
the median annual cost of nursing home care was just over $77,000 for a semi-private room and
almost $88,000 for a private room.1 For those receiving paid LTSS at home, the cost for these
services can vary depending on the amount and duration of care provided. Assuming 18 hours of
care per week, the median annual cost of home health aide services would have been over
$19,000 in 2014.2 Large personal financial liabilities associated with paying for LTSS may leave
some individuals and their families at financial risk. As a result, some individuals may turn to
public programs for assistance with the high costs of needed LTSS.
Medicaid is a means-tested entitlement program that finances the delivery of health care and
LTSS to certain eligible low-income individuals. Established under Title XIX of the Social
Security Act (SSA), the Medicaid program is state-operated within broad federal guidelines, and
is jointly funded by the federal government and states. Medicaid is also the largest payer of LTSS
in the United States. In 2012, the program paid 42.0% of all LTSS expenditures at $136.3 billion,
out of a total of $324.2 billion.3 LTSS expenditures also represent a significant portion of total
Medicaid expenditures, comprising more than one-third (35.3%) of the total spent on Medicaid in
that year. The most recent data available estimated that 4.2 million Medicaid beneficiaries (or
6.4%) of the 60 million total enrolled Medicaid population received LTSS in 2010, accounting for
over one-third of the costs.4 Some states are reexamining their Medicaid programs in an effort to
control state LTSS spending.
Historically, Medicaid has covered LTSS for individuals who are unable to afford the cost of their
care. Moreover, federal and state governments have a financial interest in ensuring that only
eligible individuals receive Medicaid coverage for LTSS. In response, Congress has enacted
several laws over the years aimed at limiting the ability of individuals to divest financial
resources in an effort to protect them (e.g., preserve them for a family member), thereby meeting
financial requirements for Medicaid and any applicable LTSS. The Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA, P.L. 97-248) was the first such legislation enacted to limit
the actions of individuals who divest resources for this purpose. The Omnibus Budget and
Reconciliation Act of 1993 (OBRA 93, P.L. 103-66) included several provisions to restrict access

1 Genworth Financial, Genworth 2014 Cost of Care Survey: Home Care Providers, Adult Day Health Care Facilities,
Assisted Living Facilities and Nursing Homes, 2014.
2 Ibid.
3 CRS analysis of National Health Expenditure Account (NHEA) data obtained from the Centers for Medicare &
Medicaid Services (CMS), Office of the Actuary, prepared December 3, 2013.
4 Medicaid and CHIP Payment and Access Commission (MACPAC), Report to the Congress on Medicaid and CHIP,
June 14, 2013, pg. 102.
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Medicaid Financial Eligibility for Long-Term Services and Supports

to Medicaid LTSS to only those individuals who were low-income or to those who applied their
financial resources toward the cost of their care. The Deficit Reduction Act of 2005 (DRA, P.L.
109-171) was the most recent action taken by Congress to amend the SSA by further limiting the
ability of individuals to divest their resources for the purpose of qualifying for Medicaid LTSS.
This report provides an overview of the financial requirements used for determining eligibility for
Medicaid LTSS. It first provides background information on the Medicaid program, including
general eligibility requirements. Next, it describes federal statute as well as selected regulations
and guidance regarding these financial eligibility requirements, including rules related to spousal
impoverishment, asset transfers, treatment of certain assets, post-eligibility treatment of income,
and estate recovery.
Medicaid Financial Eligibility for Long-Term
Services and Supports
Eligibility for Medicaid is determined by both federal and state law, whereby states set individual
eligibility criteria within federal minimum standards. Individuals must meet categorical (e.g.,
individuals aged 65 and over, individuals with disabilities, children, pregnant women, parents,
certain nonelderly childless adults) and financial (i.e., income and sometimes resource limits)
criteria. The categorical groups most often associated with the need for Medicaid-covered LTSS
are the aged, blind, and disabled (ABD). Individuals must also meet other non-financial eligibility
criteria, including federal and state residency requirements, immigration status, and
documentation of U.S. citizenship. In addition to categorical and financial eligibility criteria,
individuals in need of Medicaid-covered LTSS must also meet state-based functional eligibility
criteria.5
Federal Medicaid law requires states to cover certain population groups (mandatory eligibility
groups) and gives states the flexibility to cover other population groups (optional eligibility
groups).6 The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended)
included the ACA Medicaid expansion, which, at state option, extends Medicaid eligibility
beyond the historical categorical eligibility groups to individuals under age 65 with income up to
133% of the federal poverty level (FPL), effectively 138% FPL (after adjusting for a 5% income
disregard for individuals at the highest income limits for coverage).7

5 To define level-of-care criteria, states may use “functional” criteria such as an individual’s ability to perform certain
Activities of Daily Living (ADLs, e.g., eating, bathing, dressing, and walking) or to perform certain Instrumental
Activities of Daily Living (IADLs, e.g., shopping, housework, and meal preparation) that allow an individual to live
independently in the community. Other states may use “clinical” level-of-care criteria that include diagnosis of an
illness, injury, disability or other medical condition, treatment and medications, and cognitive status, among other
information. Most states use a combination of functional and clinical criteria in defining the need for LTSS. For further
information on state specific level-of-care criteria, see L. Hendrickson and G. Kyzr-Sheeley, “Determining Medicaid
Nursing Home Eligibility: A Survey of State Level of Care Assessment,” Rutgers Center for State Health Policy,
March 2008.
6 For more information, see CRS Report R43357, Medicaid: An Overview, coordinated by Alison Mitchell.
7 On June 28, 2012, the U.S. Supreme Court issued a decision in National Federation of Independent Business v.
Sebelius. The Court held that the federal government cannot terminate current Medicaid program federal matching
funds if a state does not expand its Medicaid program, effectively making the ACA Medicaid expansion for this new
“adult” group optional.
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The rules for determining financial eligibility for individuals who need Medicaid-covered LTSS
are complex. Eligibility for the program’s benefits has traditionally been linked to eligibility for
cash assistance programs. For example, under federal Medicaid law, states are required to provide
coverage to ABD individuals receiving cash-assistance through the Supplemental Security
Income (SSI) program. In doing so, the Medicaid program uses SSI program rules as the basis for
determining financial eligibility. However, federal law gives states the option to use financial
eligibility criteria that are more restrictive than SSI.8 These SSI coverage requirements are
referred to as the SSI-related mandatory eligibility groups. For 2015, the SSI rules specify that
recipients must have monthly income at or below $733 for an individual (or $1,100 for a couple),
about 75% of the federal poverty level (FPL).9 SSI rules also limit the countable resources
individuals may have to $2,000 for an individual (or $3,000 for a couple).10
States may also extend Medicaid coverage to other ABD individuals, referred to as optional
eligibility groups. For ABD individuals potentially eligible for Medicaid through these optional
eligibility groups, states may use SSI program rules or they may use more liberal standards for
determining financial eligibility than those specified under SSI.11 Most states use these Medicaid
statutory provisions to ignore or disregard certain types of income and/or resources, thereby
extending Medicaid eligibility to ABD individuals with higher asset levels. For example, states
may extend Medicaid coverage to individuals who have income up to three times the basic SSI
payment level (referred to as the 300% rule) and reside in a nursing facility or other institution.
Medicaid also provides states the option of covering elderly and disabled persons who are not
poor by SSI standards but who need assistance with medical expenses. Under the medically
needy pathway, individuals can qualify for Medicaid if they have income and resources that
exceed the standards established by the states for the medically needy programs, but only if they
incur medical expenses that “spend-down” or deplete their income and resources to specified
levels.
In contrast, the rules for determining financial eligibility for most of Medicaid’s non-elderly
population (i.e., parents, children, pregnant women) use modified adjusted gross income (MAGI).
These MAGI rules also apply to those individuals eligible under the ACA Medicaid expansion.12
In this report, individuals who are determined eligible for Medicaid using MAGI rules are
collectively referred to as “MAGI individuals.” There are no additional resource requirements
used to determine Medicaid financial eligibility for MAGI individuals (i.e., no resource limit).
According to CMS, in ACA Medicaid expansion states individuals under age 65 with disabilities

8 States that use this alternative to SSI program rules are typically referred to as “209(b) states,” which refers to the
statutory authority in the Social Security Amendments of 1972 (SSA 72, P.L. 92-603) that allows states to use more
restrictive eligibility criteria than the SSI program, but no more restrictive than those criteria in effect on January 1,
1972. In these states, SSI receipt does not guarantee Medicaid eligibility. There are 11 209(b) states: Connecticut,
Hawaii, Illinois, Indiana, Minnesota, Missouri, New Hampshire, North Dakota, Ohio, Oklahoma, and Virginia.
9 CMS, 2015 SSI and Spousal Impoverishment Standards, http://medicaid.gov/medicaid-chip-program-information/by-
topics/eligibility/downloads/2015-ssi-and-spousal-impoverishment-standards.pdf.
10 The SSI resource limit is not subject to annual increases and has not changed since 1989.
11 Section 1902(r)(2) of the SSA gives states flexibility to modify SSI program rules with respect to counting assets for
the purposes of determining Medicaid eligibility.
12 MAGI is defined as the Internal Revenue Code’s adjusted gross income (AGI, which reflects a number of
deductions, including trade and business deductions, losses from sale of property, and alimony payments) increased (if
applicable) by tax-exempt interest and income earned by U.S. citizens or residents living abroad. For more information,
see CRS Report R41997, Definition of Income for Certain Medicaid Provisions and Premium Credits in ACA,
coordinated by Christine Scott.
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who have LTSS needs are likely to continue to qualify for Medicaid under optional eligibility
groups related to disability.13,14 These “non-MAGI individuals” are still subject to the financial
eligibility rules associated with those eligibility groups (i.e., both income and resource limits).
Nevertheless, some adults with disabilities who need LTSS may still qualify and receive
Medicaid-covered LTSS under the ACA Medicaid expansion. These individuals would be subject
to MAGI financial eligibility rules (i.e., income limit, but no resource limit). For example,
individuals who meet the categorical requirements for disabled and have income under 138% FPL
but resources above the level required to otherwise qualify through other optional groups may be
eligible under the Medicaid ACA expansion.
In general, states are not required to offer LTSS for individuals in the ACA Medicaid expansion
group. However, the ACA Medicaid expansion affords states options to include LTSS or
otherwise make available state plan Medicaid-covered LTSS to certain newly eligible enrollees.
States that chose to implement the ACA Medicaid expansion are required to provide coverage
through Alternative Benefit Plans (ABPs), which must include the 10 essential health benefits
(EHBs). However, specific groups are exempt from mandatory enrollment in ABPs (e.g., those
with special health care needs such as disabling mental disorders or serious and complex medical
conditions). These individuals must be offered the option of a benefit plan that includes Medicaid
state plan services.15 For most adult beneficiaries receiving state plan services, they may be
eligible for certain mandatory LTSS (e.g., nursing facility services, home health services) and
optional state plan LTSS (e.g., personal care services). In addition, some states may choose to
include LTSS in their ABPs.
Prior to the ACA Medicaid expansion, eligibility pathways available to adults with disabilities in
need of LTSS required both income and resource limits. Under the ACA Medicaid expansion,
adults with disabilities may be able to receive LTSS without specified resource limits. For these
MAGI Individuals to potentially retain financial resources that could be applied toward the cost
of their care raises beneficiary equity issues within the Medicaid program. On February 19, 2014,
CMS released guidance to states on how the LTSS-related resource rules apply to MAGI
individuals.16 This information is included in the report, where applicable.
General Asset Rules
Assessment of an applicant’s assets for the purposes of determining Medicaid eligibility can be
complicated, depending on how much and what type of assets an individual possesses. Under the
Medicaid program, assets fall into one of two categories: (1) income or (2) resources. In general,
income includes earned income such as wages, self-employment earnings, and royalties, as well
as unearned income, which includes payments from annuities, pensions, and trusts. Resources are

13 State Medicaid Directors Letter SMDL#14-001, ACA #29, Centers for Medicare & Medicaid Services, Department
of Health and Human Services, February 21, 2014, http://www.medicaid.gov/Federal-Policy-Guidance/Downloads/
SMD-14-001.pdf.
14 In addition, CMS regulations enable individuals with disabilities who may need LTSS and are eligible under the
ACA Medicaid expansion, as well as other optional eligibility pathways, to choose to enroll under an optional
eligibility pathway which better meets their needs. Centers for Medicare & Medicaid Services, “Medicaid Program;
Eligibility Changes Under the Affordable Care Act of 2010,” 77 Federal Register 17194 and 17208, March 23, 2012.
15 For a discussion of Medicaid coverage of LTSS and alternative benefit plans (ABPs), see CRS Report R43328,
Medicaid Coverage of Long-Term Services and Supports, by Kirsten J. Colello, pp. 10-11.
16 Ibid.
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generally defined as cash and other liquid assets or personal property that an individual (or a
spouse) owns and could convert to cash.17 States have the flexibility to determine income and
resource requirements for different Medicaid eligibility groups within broad federal guidelines.
For the SSI-related mandatory eligibility groups, states rely on SSI program rules for determining
financial eligibility, with options to use more restrictive requirements in 209(b) states. States have
further flexibility to modify SSI program rules in determining income and resource requirements
for other optional eligibility groups.
Under SSI program rules, resources may be (1) counted based on their entire value, (2) excluded
for their entire value, or (3) excluded for part of their value.18 Resources that are counted for their
entire value generally include liquid assets that the applicant owns and could convert to cash (e.g.,
money in bank accounts, stocks and bonds, mutual fund investments, and certificates of deposit).
Resources excluded for their entire value include a primary residence, personal and household
items (e.g., furniture, appliances, personal computers, personal jewelry, personal care items, or
items of cultural or religious significance), certain property essential to income-producing
activity, and the value of a burial space. Further, one automobile, regardless of value, is excluded
so long as it is used for transportation of the applicant or a member of the applicant’s household.
Resources that are excluded for part of their value include burial funds and the “face value” of
certain life insurance policies (up to $1,500).19
Home Equity Rule
While a primary residence, regardless of value, is not a countable resource for the purposes of
Medicaid eligibility under SSI program rules, the equity value of a home may affect whether or
not an individual receives Medicaid covered LTSS. For beneficiaries applying for Medicaid
coverage for nursing facility services or home and community-based services, federal Medicaid
law restricts eligibility if the applicant’s equity interest in the home exceeds a statutorily
determined amount ($552,000 in 2015).20 At state option, this threshold could be higher (up to
$828,000 in 2015).21 Such thresholds do not apply to individuals who have a spouse, child under
the age of 21, or a child with a disability of any age residing in the home. Also, states can choose
not to apply this rule if it is determined that doing so would cause an undue hardship in a given
case. Similarly, MAGI individuals whose home equity exceeds the state threshold are not eligible
for LTSS coverage.22

17 20 CFR 416.1201.
18 Section 1613 of the SSA specifies items that are excluded from resource counting rules. Federal regulation 20 CFR
416.1210 further clarifies under what conditions resources may be excluded.
19 Life insurance is counted as a resource to the extent of its cash surrender value. If the total face value of all life
insurance policies does not exceed $1,500, no part of the cash surrender value is considered. In determining the face
value of life insurance, term insurance and burial insurance are not considered (20 CFR 416.1230).
20 CMS, 2015 SSI and Spousal Impoverishment Standards, http://medicaid.gov/medicaid-chip-program-information/by-
topics/eligibility/downloads/2015-ssi-and-spousal-impoverishment-standards.pdf. The equity interest in a home is the
fair market value of the home (i.e., what an individual could sell the home for on the open market) minus the amount of
any outstanding debts, such as a mortgage or home equity loan.
21 Section 1917(f) of the SSA. Through 2010, federal law limited eligibility for Medicaid LTSS if the applicant’s equity
interest in the home was greater than $500,000. At state option, this threshold could be as high as $750,000. Starting in
2011, these thresholds increase each year based on the percentage increase in the consumer price index for all urban
consumers (CPI-U), rounded to the nearest $1,000.
22 State Medicaid Directors Letter SMDL#14-001, ACA #29, Centers for Medicare & Medicaid Services, Department
of Health and Human Services, February 21, 2014, http://www.medicaid.gov/Federal-Policy-Guidance/Downloads/
(continued...)
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For purposes of qualifying for Medicaid LTSS, individuals who have home equity above the
state-specified threshold could use a reverse mortgage or home equity loan to reduce their total
equity interest in the home. In order for the proceeds of a reverse mortgage or home equity loan
to be excluded from countable resources for the purposes of obtaining Medicaid coverage, federal
guidance specifies that the Medicaid applicant must either spend the transaction amount or repay
it to the lender in the month received.23 Any amounts not spent or repaid in the following month
are counted as resources against the state’s threshold; therefore, the amount would have to be
depleted before qualifying for Medicaid LTSS.
Spousal Impoverishment Protections
Adding to the complexity of determining financial eligibility for Medicaid LTSS is the treatment
of the assets of a couple, when one spouse needs institutional care (the institutional spouse) and
the other is able to remain in the community (the community spouse). Medicaid specifies rules for
equitably allocating how much income and resources, as well as which resources, are to be
credited to each spouse for the purposes of determining Medicaid LTSS eligibility. Commonly
referred to as spousal impoverishment rules, they are intended to prevent the impoverishment of
the spouse remaining in the community.24 In general, states must establish minimum income and
resource allowances within federal limits that a community spouse may hold that may not be
applied toward the institutional spouse’s Medicaid eligibility determination or LTSS costs.
Regarding income, federal Medicaid law exempts all of a community spouse’s income in his or
her name from being considered available to the other spouse. That is, for any month the
institutionalized spouse is residing in an institution, income solely attributable to the community
spouse is not considered available to the institutionalized spouse.25 For community spouses with
limited income, federal law allows institutionalized spouses to transfer income to the community
spouse up to a state-determined minimum monthly income threshold, referred to as the minimum
monthly maintenance needs allowance, that is set within federal limits. In 2015, the community
spouse’s minimum monthly maintenance needs allowance must be at least $1,966, but no more
than $2,980, as determined by the state.26 Following a hearing requested by either the
institutionalized or community spouse, states may raise the minimum amount on income that a
community spouse may retain in cases of severe hardship. Finally, Medicaid provides for

(...continued)
SMD-14-001.pdf.
23 In determining the value of home equity, states follow SSI program rules. With respect to guidance on SSI loan
policy, see SSR 92-8p: Policy Interpretation Ruling Title XVI: SSI Loan Policy, Including its Applicability to
Advances of Food and/or Shelter, http://www.socialsecurity.gov/OP_Home/rulings/ssi/03/SSR92-08-ssi-03.html.
24 As per, Section 1924 of the SSA.
25 In some cases, income that is jointly held may be attributable to the institutionalized spouse. For example, if a
payment of non-trust income is made in the names of both the institutional spouse and the community spouse, half of
the income is attributable to each spouse. If the income is paid from a trust, the income is considered available to each
spouse depending on provisions of the trust. In the case where no provision is made on how trust income is divided and
payment of income from the trust is made to each spouse, half of the income is deemed available to each spouse.
26 CMS, 2015 SSI and Spousal Impoverishment Standards, http://medicaid.gov/medicaid-chip-program-information/by-
topics/eligibility/downloads/2015-ssi-and-spousal-impoverishment-standards.pdf.
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additional income allowances for excess housing costs and when dependents live with the
community spouse.27
In terms of resources, federal Medicaid law allows states to select the amount of resources a
community spouse may be allowed to retain within federal limits. For 2015, this threshold must
be at least $23,844 but no more than $119,220.28 For purposes of determining the amount of
resources the community spouse can retain, all resources of the couple are combined, counted,
and split in half, regardless of which of the two spouses has ownership of the individual
resources. If the community spouse’s resources are less than the state threshold, then the
Medicaid applicant must transfer his or her share of the resources to the community spouse until
the community spouse’s share reaches the threshold. All other non-exempt resources tied to the
applicant must be depleted before the applicant can qualify for Medicaid. Similar to the treatment
of income, no resources of the community spouse are considered available to the institutionalized
spouse once the institutionalized spouse is determined to be eligible for Medicaid.
Prior to enactment of the ACA, spousal impoverishment rules applied only in situations where the
Medicaid recipient was receiving LTSS in an institutional setting, such as a nursing facility.
Section 2404 of the ACA requires states to extend spousal impoverishment rules to beneficiaries
receiving certain home and community-based services (HCBS).29 Beginning in 2014, the
expansion of spousal impoverishment rules apply to individuals who (1) receive HCBS through
SSA waiver authorities such as Section 1115 Research and Demonstration waivers, Section
1915(c) HCBS waivers, and the Section 1915(d) HCBS waivers for the elderly; (2) receive
services through the Section 1915(i) state plan amendment option to provide HCBS; (3) are
determined “medically needy”;30 or (4) receive personal attendant services under the Community
First Choice Option under Section 1915(k).31 This provision remains in effect for the five-year
period beginning on January 1, 2014.
Asset Transfers
For persons seeking Medicaid LTSS eligibility, federal Medicaid law requires states to apply rules
regarding the transfer of assets prior to qualifying for Medicaid.32 These rules attempt to ensure
that Medicaid applicants apply their assets toward the cost of their care and do not divest them to

27 The minimum income threshold is increased to include an excess shelter allowance if the community spouse’s cost of
rent or mortgage payment, taxes, insurance, and utilities exceeds 30% of the amount of the minimum monthly
maintenance needs allowance. A community spouse may retain additional income for every dependent family member
who resides with the community spouse, so long as each family member’s income is less than the minimum income
threshold.
28 CMS, 2015 SSI and Spousal Impoverishment Standards, http://medicaid.gov/medicaid-chip-program-information/by-
topics/eligibility/downloads/2015-ssi-and-spousal-impoverishment-standards.pdf.
29 For the purposes of spousal impoverishment rules, Section 2404 of ACA redefines an “institutionalized individual”
under Section 1924(h) of the SSA to include persons receiving home and community-based services (HCBS) for the
five-year period beginning on January 1, 2014.
30 The medically needy include individuals eligible for medical assistance under Section 1902(a)(10)(C) of the SSA.
States may offer the medically needy pathway to individuals who are aged, blind, or disabled and have high medical
expenses (including LTSS expenses) who deplete their income to specified levels.
31 For a description of the various SSA waiver authorities and state plan LTSS coverage options, see CRS Report
R43328, Medicaid Coverage of Long-Term Services and Supports, by Kirsten J. Colello.
32 See Section 1917(c) of the SSA for requirements regarding the transfer of assets for less than fair market value.
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gain Medicaid eligibility sooner than would occur otherwise. Specifically, Medicaid may require
states to delay Medicaid eligibility for applicants seeking institutional and certain home and
community-based LTSS who have disposed of certain assets for less than fair market value
(FMV) on or after a “look-back” period, or period of time prior to application for services. This
look-back period is five years prior to application for Medicaid.33 In other words, transfers for
less than FMV may be, but are not always, prohibited during the five-year period prior to
application for Medicaid. Federal Medicaid law also prohibits spouses of applicants from
transferring assets for less than FMV during this same period. These asset transfer rules apply to
MAGI individuals who seek coverage for Medicaid LTSS.34
In order to determine whether a transfer for less than FMV occurred, applicants are first asked
whether they made any transfers of monetary value during the five-year “look-back” period. If at
least one transfer has occurred during this period, the state must determine whether the transfer
was made for FMV. If the transfer was made for less than FMV (often referred to as an improper
transfer), a penalty is imposed on the applicant in the form of months of ineligibility. To calculate
the penalty period, the monetary value of the transfer, or portion of the transfer, that was made for
less than FMV is divided by the average monthly private pay rate for nursing facility services in
the state (or at state option, the rate in the community in which the individual resides). For
example, an improper transfer of $20,000 divided by an average monthly private pay rate in a
nursing facility of $5,000 results in a four-month period of ineligibility for Medicaid LTSS.
The penalty period begins either on the first day of the month in which assets have been
transferred for less than FMV, or the date on which the individual is eligible for Medicaid and
would otherwise be receiving an institutional level of care, whichever is later. In addition, states
may waive penalties for asset transfers if the applicant can demonstrate to the state that he or she
either (1) intended to transfer assets for FMV; (2) transferred assets for a purpose other than to
qualify for medical assistance; or (3) recovered the assets that had been previously transferred.
Also, ineligibility for Medicaid coverage is limited to certain LTSS, and individuals may still be
eligible for other Medicaid services.35
Not all asset transfers during the five-year look back period are subject to penalties.36 For
example, asset transfers for FMV, transfers to spouses of any value, and certain transfers to other
individuals, such as children with disabilities, are not subject to penalties. Also, a home may be
excluded from asset transfer penalties if it is transferred to certain individuals, including a spouse,
a child under the age of 21, a child who is blind or permanently and totally disabled, or a son or

33 The Deficit Reduction Act of 2005 (DRA, P.L. 109-171) lengthened the look-back period from three years to five
years for all asset transfers that occurred on or after the date of enactment (February 8, 2006).
34 State Medicaid Directors Letter SMDL#14-001, ACA #29, Centers for Medicare & Medicaid Services, Department
of Health and Human Services, February 21, 2014, http://www.medicaid.gov/Federal-Policy-Guidance/Downloads/
SMD-14-001.pdf.
35 The services for which the penalty applies in the form of ineligible months for institutionalized individuals include
nursing facility services; services provided in any institution in which the level of care is equivalent to those provided
by a nursing facility; and Sections 1915(c) and (d) HCBS waiver services. For non-institutionalized individuals, states
may extend asset transfer penalties to other state LTSS available under the state plan.
36 Exceptions are made for transfers to a third-party by the applicant’s spouse for the sole benefit of the spouse or
transfers to a disabled or blind child for the sole benefit of the disabled or blind child. These transfers may include the
establishment of a trust, such as a special needs trust or a pooled trust, for a disabled or blind child. These exceptions
allow a spouse or parent of a disabled child to retain a source of financial support for another spouse or disabled child.
States may waive asset transfer penalties for persons who would suffer undue hardship as a result of the penalty,
according to criteria established by the HHS Secretary.
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daughter who has resided in the home for at least two years immediately before the date the
individual enters an institutional facility and has provided care that permitted the individual to
delay institutionalization. These rules are intended to ensure that certain family members would
not be without housing or lose their homes in order for another family member to obtain
Medicaid coverage.
Treatment of Certain Types of Assets
For the purposes of Medicaid asset transfer rules, all resources (and income) of an individual or
couple are evaluated to determine whether the establishment, purchase, sale, or transfer of an
asset has occurred for less than FMV. Generally, states follow SSI program rules concerning the
treatment of most asset types that individuals possess at the time of application to Medicaid.
Although Medicaid law does not contain provisions specifying how all assets should be treated, it
does include special rules about how states must treat certain types of assets, such as annuities,
fees for Continuing Care Retirement Communities (CCRCs), life estates, promissory notes, loans,
mortgages, and trusts. Also, the Secretary of the Department of Health and Human Services
(HHS) has the authority to issue guidance to states on other categories of transactions that may be
treated as transfers of assets for less than FMV. States must apply the rules relating to these
transactions to MAGI individuals in the same way they are applied to non-MAGI individuals.37
Annuities
An annuity is a financial product that provides the investor with the right to receive fixed,
periodic payments, either for life or for a specified term of years. For the purposes of determining
Medicaid eligibility, federal Medicaid law describes when annuities should be treated as
countable resources and when they should not.38 In general, annuities are treated as transfers for
less than FMV, and thus subject to penalties, except when the state is named as a beneficiary of
the annuity for at least the amounts paid by Medicaid for certain LTSS (or as a secondary
beneficiary after the community spouse, or minor or disabled child and such spouse or
representative of the child does not dispose of the remainder of the annuity for less than FMV).
Certain annuities may be excluded from penalties if they (1) are irrevocable and non-assignable,
actuarially sound, and provide for payments in equal amounts during the term of the annuity (with
no deferral and no balloon payments); or (2) fall into certain categories specified in Section 408
of the Internal Revenue Service Code of 1986 (IRC). Annuities that are defined as individual
retirement accounts under federal tax code or purchased with the proceeds of certain retirement
accounts and meet certain federal tax code requirements are not considered transfers for less than
FMV if purchased by or on the behalf of an individual who applied for Medicaid coverage for
LTSS.
Individuals seeking Medicaid LTSS are required to submit a financial disclosure statement of any
interest the individual (or community spouse, if applicable) has in an annuity or similar financial
product, regardless of whether the annuity meets the criteria for exclusion from countable

37 State Medicaid Directors Letter SMDL#14-001, ACA #29, Centers for Medicare & Medicaid Services, Department
of Health and Human Services, February 21, 2014, http://www.medicaid.gov/Federal-Policy-Guidance/Downloads/
SMD-14-001.pdf.
38 DRA amended Section 1917(c)(1)(F) and (G) of the SSA to specify when the purchase of annuities should not be
treated as a disposal of assets for less than FMV.
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resources.39 All annuities are penalized as transfers for less than FMV if the applicant fails to file
the necessary disclosure documentation from the financial institution, employer, or employer
association that issued the annuity.40
Fees for Continuing Care Retirement Communities
Continuing Care Retirement Communities (CCRCs) or life care communities offer a range of
housing and services, including LTSS, to older individuals as their care needs change over time.
Generally, CCRCs provide housing with various levels of LTSS arrangements such as
independent living, assisted living, and nursing facility care. CCRCs are paid primarily with
private funds, but a number also accept Medicaid payments for certain services, such as nursing
facility care. Residents of CCRCs or life care communities are required to spend their resources,
declared when applying for admission, on their care before they apply for Medicaid. Federal
Medicaid law requires states to consider certain entrance fees for CCRCs or life care communities
as countable resources for the purposes of determining an individual’s eligibility for Medicaid.41
Life Estates
Generally, a life estate entitles an individual to possess, use, and obtain profits from a property for
as long as he or she lives, even though the actual ownership of the property has passed on to
another. For example, an individual may transfer home ownership to a son or daughter, but retain
the use of the home throughout their lifetime. Such a transaction would give the child a
“remainder interest” in the home, while the older individuals retained a “life estate.” Upon death,
the title of the home automatically passes on to the son or daughter without the need for probate.
With respect to Medicaid asset transfer rules, the purchase of a life estate is considered a transfer
for less than FMV, and subject to an asset transfer penalty, when the value of the transferred
property is greater that the value of the rights conferred by the life estate.42 The purchase of a life
estate is also considered a transfer of assets for less than FMV unless the purchaser resides in the
home for at least one year after the date of purchase.43
Promissory Notes, Loans, and Mortgages
Funds used to purchase a promissory note, loan, or mortgage are considered a transfer of assets
for less than FMV unless the repayment terms are (1) actuarially sound; (2) provide for payments
to be made in equal amounts during the term of the loan (with no deferral or balloon payments);
and (3) prohibit the cancellation of the balance upon the death of the lender.44 Should the

39 Section 1917(e) of the SSA.
40 State Medicaid Directors Letter SMDL #06-018, Centers for Medicaid and State Operations, Department of Health
and Human Services, July 27, 2006, http://downloads.cms.gov/cmsgov/archived-downloads/SMDL/downloads/
SMD072706b.pdf.
41 Section 1917(g) of the SSA.
42 Section 3258.9 of the State Medicaid Manual, http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/
Paper-Based-Manuals-Items/CMS021927.html.
43 The DRA amended Section 1917(c)(1)(J) of the SSA to specify the treatment of life estates for the purposes of
Medicaid asset transfer rules.
44 Section 1917(c)(1)(I) of the SSA.
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promissory note, loan, or mortgage not satisfy the above requirements, the penalty amount is the
amount of the outstanding balance due at the time the individual applies for Medicaid.
Trusts
Most trusts are considered assets available to the individual for the cost of their care, and, if
transferred, could be considered assets that have been transferred for less than FMV.45 An
individual is considered to have established a trust if the individual’s assets were used to form all
or part of the trust and if certain persons established the trust, including the individual, the
individual’s spouse, or a person with legal authority to act on behalf of the individual or spouse.
Medicaid law establishes rules for the treatment of assets in two types of trusts: revocable and
irrevocable.
A revocable trust can be altered after it is established (i.e., assets may be added or new
beneficiaries may be named), whereas an irrevocable trust cannot be altered once it is established.
In the case of a revocable trust, the assets used to establish the trust are deemed resources
available to the individual. Payments from the trust to or for the benefit of the individual must be
considered income of the individual. Any other payments from the trust are considered assets
disposed of by the individual and subject to asset transfer rules. In the case of an irrevocable trust,
if there are any circumstances under which payments can be made from the trust for the benefit of
the individual, then the assets used to establish the trust and payments from the trust are
considered income and resources of the individual. Any other payments from the trust are
considered assets disposed of by the individual and subject to asset transfer rules. An irrevocable
trust from which no portion of the trust could be considered payment to the individual shall be
subject to asset transfer rules, as of the date of the trust’s establishment or date on which payment
occurred, whichever is later. States are required to establish procedures for waiving the
application of these rules in cases of undue hardship.
Post-Eligibility Treatment of Income
Medicaid has another set of rules for the treatment of income after a person has become eligible
for coverage and is either living in an institution, such as a nursing facility, or is receiving Section
1915(c) HCBS waiver services while living in the community. These rules are commonly referred
to as the post-eligibility treatment of income (PETI) rules. In general, beneficiaries qualifying
through certain eligibility groups are required to apply their income exceeding specified amounts
toward the cost of their care. Within federal guidelines, a beneficiary may retain a certain amount
of income for personal use based on the services one receives. The amounts a beneficiary may
retain vary by care setting.
For beneficiaries receiving Medicaid LTSS in an institutional facility, a monthly personal needs
allowance (PNA) is permitted.46 The PNA is an amount that is considered reasonable to cover

45 Under current law, some personal savings vehicles, such as special needs trusts and pooled trusts, are available to
individuals with disabilities for disability related expenditures. These trusts allow individuals with disabilities to
maintain eligibility for public benefits, such as SSI and Medicaid. Thus, they provide funding for expenditures that
would supplement, but not supplant, benefits provided by the Medicaid and SSI programs. Exemptions to asset transfer
rules apply to such trusts [Section 1917(d) of the SSA].
46 Section 1902(q) of the SSA.
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various personal care items not included in the institution’s basic charge. Beneficiaries may retain
a monthly PNA from their income for clothing and other personal expenses. The beneficiary then
applies the remainder of his or her income toward the cost of care. When receiving nursing
facility services, Medicaid statute requires states to allow individuals to retain a minimum PNA of
at least $30 per month for an institutionalized individual, though the amount can be higher and
varies by state.
For beneficiaries living in the community and enrolled in Section 1915(c) HCBS waivers, a
monthly maintenance needs allowance (MMNA) is permitted.47 The MMNA is an amount that is
considered reasonable to cover various living expenses in the community. Beneficiaries may
retain an MMNA from their income for housing, food, and other personal expenses. The
beneficiary then applies the rest of his or her income toward the cost of care. Federal regulations
require states to set a maximum amount for the MMNA based on a reasonable assessment of
need.48 In 2009, the most recent year for which data are available, this amount ranged from $600
to $2,022 per month across states.49
CMS guidance regarding the application of PETI rules to MAGI individuals states that such rules
are limited to certain eligibility groups that rely on the financial methodologies from the SSI and
former Aid to Families with Dependent Children (AFDC) cash assistance programs. Thus, these
post-eligibilty rules do not apply to Medicaid beneficiaries whose eligibility is based on MAGI
methodologies. CMS states that the statute provides authority to “expand the reach” of the post-
eligibility regulations to include MAGI individuals who receive LTSS coverage as there are
“equity reasons to consider the application of these rules to MAGI individuals.”50Accordingly, the
agency is considering rulemaking on this issue.
Estate Recovery
Other provisions in Medicaid seek to recover Medicaid costs through estate recovery programs.
Federal Medicaid law requires states to recover from beneficiary estates any amounts paid for
certain LTSS and other related services upon a beneficiary’s death.51 Specifically, states are
required to pursue the estates of
• individuals receiving services in a nursing facility or intermediate care facility for
the developmentally disabled (ICF/DD), regardless of age upon the sale of
property subject to a lien, and
• individuals aged 55 and older who received Medicaid assistance in nursing
facilities, HCBS, and related hospital and prescription drug services.

47 Section 1915(c) of the SSA.
48 42 CFR 435.735.
49 CRS Report R41899, Medicaid Eligibility for Persons Age 65+ and Individuals with Disabilities: 2009 State
Profiles, by Kirsten J. Colello and Scott R. Talaga.
50 State Medicaid Directors Letter SMDL#14-001, ACA #29, Centers for Medicare & Medicaid Services, Department
of Health and Human Services, February 21, 2014, p. 6, http://www.medicaid.gov/Federal-Policy-Guidance/
Downloads/SMD-14-001.pdf.
51 Section 1917(b) of the SSA describes estate recovery provisions.
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States also have the option to recover funds spent on other items or services covered under the
Medicaid state plan for individuals aged 55 and older.
Estate recovery is limited to the amounts paid by Medicaid for services received by an individual
and is limited to only those assets owned by the beneficiary at the time of recovery. As a result,
estate recovery is generally applied to a beneficiary’s home, if available, and certain other assets
within a beneficiary’s estate. For purposes of these estate recovery requirements, Medicaid statute
defines an estate as all real and personal property subject to a state’s probate law. Under certain
circumstances, annuities are included in this definition.52 States may expand the definition of
estate to include other real or personal property and other assets to which the Medicaid
beneficiary has legal title or interest at the time of death.53 Estate recovery may be made only
after the death of the individual and his or her surviving spouse, if any, and only at a time when
there is neither a surviving child under age 21 nor a child, of any age, who is blind or
permanently and totally disabled.
To aid in estate recovery, states are authorized to impose liens on the property of certain
beneficiaries prior to or after the beneficiary’s death.54 Liens may be imposed only when the
individual resides in a nursing facility, ICF/DD, or other medical institution determined by the
state; after notice of and opportunity for a hearing is given; and it is determined that the
individual cannot reasonably be expected to return to the home. Liens may also be placed on
property when, based on a court’s judgment, Medicaid payments have been improperly paid on
behalf of the individual. States are prohibited from pursuing liens under certain circumstances.
For example, the state cannot place a lien on an individual’s home if any of the following
individuals reside in the home: a surviving spouse; a child under the age of 21 or a blind or
permanently disabled child of any age; or a sibling of the individual who has equity interest in the
property and has resided in the home at least one year prior to the individual entering an
institution. Medicaid law also requires states to dissolve any lien placed on a home if the
individual is discharged from the institution and returns home. In addition, liens can apply only to
beneficiaries receiving institutional care who are also subject to the post-eligibility treatment of
income (PETI) rules described in the previous section. Thus, liens cannot be applied to MAGI
individuals who are not subject to PETI rules. However, as previously mentioned, CMS is
considering rulemaking to expand PETI rules to include MAGI individuals who receive LTSS
coverage.55
Furthermore, federal Medicaid law provides for exemptions from estate recovery in situations
when such recovery would create undue hardship. Medicaid guidance allows for state flexibility
in establishing procedures for an undue hardship waiver.56 In addition to exemptions for undue

52 Annuities are exempt from the definition of estate if issued by a financial institution or other business that sells
annuities as part of its regular business.
53 A person’s legal title or interest includes assets conveyed to a survivor, heir, or through the assignment of joint
tenancy, tenancy in common, survivorship, life estate, living trust, or other arrangements.
54 Section 1917(a) of the SSA and Section 3810.F of the State Medicaid Manual describe circumstances in which a lien
may be imposed on the property of certain beneficiaries, http://www.cms.gov/Regulations-and-Guidance/Guidance/
Manuals/Paper-Based-Manuals-Items/CMS021927.html.
55 State Medicaid Directors Letter SMDL#14-001, ACA #29, Centers for Medicare & Medicaid Services, Department
of Health and Human Services, February 21, 2014, p. 6, http://www.medicaid.gov/Federal-Policy-Guidance/
Downloads/SMD-14-001.pdf.
56 Section 3810.C of the State Medicaid Manual, http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/
Paper-Based-Manuals-Items/CMS021927.html.
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hardship, Medicaid permits states to forgo estate recovery in cases where it would not be cost-
effective.57 Federal Medicaid law also prohibits estate recovery in cases when a lien has been
placed on the home when certain individuals reside in the home. Such instances include (1) a
sibling of an individual who has resided in the home at least one year prior to the individual
entering an institution, and (2) an adult child who has resided in the home for at least two years
prior to the parent’s institutionalization, has resided there continuously since that time, and can
establish to the state’s satisfaction that the adult child provided care to the parent that delayed the
need for nursing facility services. Special provisions apply to persons who become eligible for
Medicaid under a more liberal asset standard used in certain states for those who purchase long-
term care insurance.58
MAGI individuals who were 55 years of age or older when they received Medicaid benefits are
not exempt from these estate recovery provisions; however, the above exemptions from estate
recovery also apply. In guidance issued on February 21, 2014, CMS states that Medicaid estate
recovery may create a potential barrier to enrollment for some newly eligible individuals in ACA
Medicaid expansion states. The guidance further articulates the agency’s intention to explore
options and use existing authorities to eliminate estate recovery for MAGI individuals who
receive Medicaid benefits other than LTSS. CMS also notes that states have existing authority to
limit the scope of estate recovery to Medicaid beneficiaries 55 and older who receive LTSS.59

Author Contact Information

Kirsten J. Colello

Specialist in Health and Aging Policy
kcolello@crs.loc.gov, 7-7839



57 Section 3810.E of the State Medicaid Manual, http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/
Paper-Based-Manuals-Items/CMS021927.html.
58 DRA expanded exemptions from estate recovery for those who received benefits under the Medicaid Long-Term
Care Insurance Partnership Program as per Section 1917(b)(1)(C) of the SSA. As such, a private LTCI policy under the
Partnership program provides a predetermined amount of assets that are disregarded, for the purposes of determining
Medicaid eligibility, in the event that the lifetime benefit of the insurance plan is depleted. For example, an individual
who had a dollar-for-dollar Partnership policy whose lifetime benefit is $100,000 would, upon exhausting the benefit,
have $100,000 in resources exempt from Medicaid resource limits and estate recovery upon applying for Medicaid
LTSS. Some Partnership policies in the original partnership states of Indiana and New York have offered policies that
have total asset protection. Such policies disregard all assets of any value for the purposes of Medicaid eligibility and
exempt all assets from estate recovery.
59 State Medicaid Directors Letter SMDL#14-001, ACA #29, Centers for Medicare & Medicaid Services, Department
of Health and Human Services, February 21, 2014, p. 6, http://www.medicaid.gov/Federal-Policy-Guidance/
Downloads/SMD-14-001.pdf.
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