The good news for same-sex couples is that the rulings handed down on June 26, 2013 by the Supreme Court of the United States (SCOTUS) will expand the definition of spouse for Medicaid purposes to include a same-sex spouse.[1] The opinion resulted in repeal of the Defense of Marriage Act (known as “DOMA”) as it came to federal benefits.
This has great impact in the field of long-term care Medicaid planning in three major areas:
Community Spouse Resource Allowance
One of the major advantages in the Medicaid spenddown is the ability for a married couple to shield a certain amount of funds under the spousal impoverishment statute. This amount is called the Community Spouse Resource Allowance or CSRA for short. For 2013, the maximum amount that a community spouse is $115,920. This is over and above the amount the nursing home patient can keep, which in most states is usually around $2,000.
In a memorandum issued by CMS, the government agency that runs Medicaid and Medicare, it was explicit that the Defense of Marriage Act would prohibit states from giving a same-sex spouse “community spouse” status and the asset protections that came with it. Of course, that didn’t stop a state like New York from expanding at the state level how those benefits were distributed once their state adopted same-sex marriage.
Before the SCOTUS’s opinion, the same-sex spousal relationship was ignored for benefit purposes completely. Each person in the same-sex marriage would have been treated as a single person, having to spend down his or her assets to the paltry personal limit also called the “ICRA” (the Individual Countable Resource Allowance).
Unlimited Transfers Between Spouses
Because married couples’ assets are considered available regardless of ownership, the SCOTUS decision now exposes the assets of the same-sex community spouse to the Medicaid spenddown. That could be a downside if you have a situation where the community spouse has a higher net worth than the patient. Before the ruling, only the patient’s assets would be considered. After the ruling, the total of all the married couple’s assets have to be factored into the spenddown.
While the CSRA will help protect a great deal more than would have otherwise been considered exempt, the door is now open to advance planning concepts that are highly beneficial to married couples – and would now include same-sex couples.
Assets can flow freely between married couples for Medicaid purposes without a penalty. Medicaid assesses divestment penalties for any gifts or uncompensated transfers of assets. There are several exceptions to the transfer rules which include the ability to give assets to a disabled child or a trust for a disabled child. The most useful exemption is the ability to transfer assets to a community spouse without a penalty.
Since those assets are still considered available regardless of which spouse owns them, it would not appear to be a boon. However, when planning for eligibility it is helpful to convert excess resources into an income for the community spouse through the use of a spousal annuity trust or the popular Medicaid Compliant Annuity. In most states, the income of the community spouse does not factor into the patient’s liability (i.e., co-pay for care at the nursing home or assisted living facility).
This is probably the biggest benefit to the same-sex couples facing the long-term care costs and an added tool for Medicaid Planners to assist same-sex couples with planning.
Spousal Income Allowance
When a patient’s liability is determined on Medicaid, they usually get to pay for their health insurance premiums, if any, and keep a small personal needs allowance which is usually between 40 and 60 dollars a month. The rest of the patient’s income becomes the patient’s co-pay to the nursing home. Medicaid then picks up the difference.
A married couple has the advantage that if the community spouse’s income is too low, then part or all of the co-pay can be diverted to the community spouse as part of a spousal income allowance. Without the status as a community spouse, a same-sex couple would not be able to use the patient’s income to support the at-home spouse no matter how destitute he or she is.
Without DOMA, the states will now be able to recognize same-sex spouses for the purpose of transferring income. A patient’s income can now be legally shifted to his or her same-sex spouse. Same-sex spouses will not have to worry about having their needs met if the higher income earner is in the nursing home.
Estate Recovery
States are prohibited from recovering against a patient’s assets is there is a spouse living at the time of the patient’s death. In same-sex marriage states, the Medicaid program was prohibited by DOMA to recognize the same-sex spouse as a community spouse and the automatic protections afforded.
This creates a complicated case where the same-sex spouse is living in a home owned by the deceased patient and the state attempts to recover against the home. Public policy supported the retention of that home by the community spouse, but a same-sex spouse would be at risk of eviction. States where same-sex marriage is legal were starting to liberally apply hardship waivers to allow the same-sex spouses to avoid recovery – but there was no presumption. The same-sex spouse had to show that they would, in fact, face a hardship by having to move.
W ith DOMA’s repeal, the estate recovery exclusions will become automatic for same-sex spouses. This will allow the same-sex community spouse the same protections as ordinary community spouses from liens and estate recoveries that would otherwise have left a same-sex spouse destitute.
Separate But Unequal?
The principle behind overturning DOMA is based on an Equal Protection theory. The two classes of people that were treated different were heterosexual married couples and same-sex couples in the states that allowed same-sex marriage. But around the country, the effect of DOMA in Medicaid was essentially equal treatment for all same-sex couples regardless of whether they were in a same-sex marriage state or not. Now the disparity in treatment will be huge.
The effect of the recent SCOTUS opinion may be a huge benefit – literally and figuratively – to same-sex married couples across America. But only to those who are lawfully married in one of the dozen states that allow for such unions and only for those who seek Medicaid benefits in states that recognize the union.
Under the guise of Equal Protection, now same-sex couples in states without the state recognition of same-sex marriage are going to be treated far differently for the same federal/state benefits than those in states recognizing same-sex marriage. Under the SCOTS opinion, the principles of Federalism recognized that each state could recognize same-sex marriage or not. Only in the states that do allow it, will those same-sex couples be entitled to this equal treatment (i.e., the same as other married couples). So if you don’t live in one of those states, you and your same-sex partner are still out of luck.
This means that not only is there a disparity between the states in recognizing same-sex marriage, but in the availability of equal treatment for Medicaid benefits and the like for same-sex couples.
This creates a huge financial incentive for same-sex couples to relocate to a state that will give them spousal benefit protections, especially later in life. In those states that don’t recognize same-sex marriage it places a huge burden to do Spousal Equivalency Planning so that same-sex partners can still provide for their loved ones.
Planning Opportunities
The SCOTUS decision opens up a whole new range of options to help same-sex couples in states that will now be forced to grant community spouse status to the same-sex spouse. The ability to use the Spousal Annuity and Spousal Trust provisions of the federal Medicaid rules will add more solutions to same-sex spouses.
In states that do not allow for same-sex marriage, there will need to be an emphasis on early pre-planning. Through effective pre-planning strategies there are numerous ways to help a person treat their same-sex partner with love and compassion by supporting them in retirement and still maximize the availability of public benefits. While the same hurdles still exist for same-sex couples in those states after the repeal of DOMA, creative planning solutions will allow same-sex couples to achieve similar results.
The end of DOMA changes the law and expands the coverage and protections for same-sex couples. This will undoubtedly bring more financial security to same-sex couples facing the long-term care Medicaid system. It will also expand the amount of people who can be helped by spousal Medicaid Planning.
[1] United States v. Windsor, 570 U.S. ___ (2013).
