July 12, 2004
MEDICALLY NEEDY INCOME LIMITS AND SPEND-DOWN
By: Helga Niesz, Principal Analyst
1. who sets Medicaid income limits and “spend-down” policies for people in the “medically needy” category living in the community,
2. how the spend-down policy works, and
3. when the medically needy income limits were last increased or the spend-down policies changed.
The states set their Medicaid income limits, but within federal restrictions. Generally, under federal law, the income limit for the medically needy category cannot exceed 133% of the state's cash welfare benefit, but states can exceed this limit if they choose to under certain conditions. Connecticut statute ties the income limit to 143% of the Temporary Family Assistance benefit. Federal rules closely prescribe the states' medically needy spend-down policies, but give them some minor flexibility in choosing one of several methods.
Connecticut's Medicaid program has numerous categories of people who are eligible for all or some aspects of the program. People otherwise eligible for Medicaid in certain categories except for income that is still too high after allowed income “disregards” can qualify for the medically needy category by deducting medical bills to spend down to the income limit for people living in the community. For them, a new spend-down period starts every six months and when they have brought their income down to the required level by deducting medical bills, they receive Medicaid assistance for the rest of the six-month period. This spend-down method can also apply retroactively to the three months prior to their application once they become eligible.
The income limit to which medically needy people must spend down varies with the number of people in the family and the region they live in. For instance, a medically needy single elderly, blind, or disabled person living in the community must have monthly income of no more than $476.19 in most of the state and $574.86 in Fairfield County, after deductions of a portion of unearned income and earned income, and, if necessary, medical bills.
Connecticut's medically needy income limit has not changed since 1990. Legislation since then made some technical changes to keep the limits level. The unearned income (e.g., Social Security) disregard has essentially been $183 without an increase since 1991, and that was a reduction from the prior level. The earned income disregard has been $65 plus half the remainder at least since 1988. The spend down policies have also been essentially the same at least since 1988, except for a 1993 change allowing deductions of third party payments for medical bills made by the state or town governments.
The legislature has, over the years, proposed several bills to increase the income limits or the unearned income disregard for the medically needy, but none have passed.
STATE AND FEDERAL AUTHORITY
Medicaid is a state-federal program that pays medical bills for poor families with children, pregnant women, and elderly, blind and disabled people. Federal law allows but does not require states to have a Medicaid program, but, if they do, it sets certain parameters for what they must do as a condition of obtaining federal funding (50% of expenditures for Connecticut). To participate, states must submit their Medicaid state plan to the federal government and obtain approval of the plan from the secretary of the Department of Health and Human Services (42 USC § 1396). Federal law requires coverage of certain groups and allows states to have other optional coverage groups, one of which is the “medically needy” (42 USC. § 1396a). States vary considerably in the groups they cover, income and asset limits, benefits they offer, and other rules. In Connecticut, the state's Department of Social Services (DSS) administers the Medicaid program.
In most states, elderly, blind, and disabled people who receive federal Supplemental Security Income (SSI) are automatically eligible for Medicaid. But Connecticut is one of 11 states, known as “209(b) states” that federal law allows to use a more restrictive option they already had in place in 1972, when the SSI program began. But as a condition of being allowed to use more restrictive limits, federal law requires 209(b) states to allow people to qualify by spending down their income using medical bills (42 USC § 1396a(f)).
Connecticut's Medicaid program has numerous categories of people who are eligible for all or some aspects of the program. Most of these have “categorical” eligibility because they fit into a certain group that meets medical, financial, and other requirements. For instance, families with children who receive cash benefits under the Temporary Family Assistance (TFA) program and elderly, blind, and disabled people who receive cash benefits under the State Supplement Program automatically also receive Medicaid.
People who are not categorically eligible, e.g., children in low-income working families can also receive Medicaid coverage (HUSKY A, which is a managed care program) if their family income is under 185% of the federal poverty level (FPL). Parents in such families can also qualify if family income is less than 100% of FPL. Pregnant women are eligible for coverage with incomes up to 185% of FPL.
The medically needy group includes people who are not receiving cash assistance and who do not meet income limits without using medical bills to spend down their income. For instance, a single elderly, blind, or disabled person living independently in the community can qualify for Medicaid if his monthly countable income (after certain disregards) is no more than $476.19 in most of the state and $574.86 in Fairfield County. Disabled people who have gone back to work can have much higher incomes up to $75,000 annually and higher assets and still keep their
Medicaid coverage under a relatively new federal Medicaid buy-in coverage group, but must contribute a percentage of their income to pay for their care costs. And separate rules and higher income limits apply to people in nursing homes and other residential settings and to those whose incomes are too high but who need certain types of home care to avoid institutionalization.
Medically Needy Income Limit Restrictions
If a state chooses to have a medically needy category, it can set “net income” limits for beneficiaries living in the community within federal restrictions, which Connecticut has done. Federal rules prohibit the state-set income limits for this group from exceeding 133% of the cash welfare benefit – the highest monetary payment most frequently paid to recipients of the state's Aid to Families with Dependent Children (AFDC) with no income or assets in 1996, when federal welfare reform legislation passed. (42 USC § 1396(f)(1)(B), 42 CFR § 435.1007). States that allow higher limits risk losing their federal reimbursement unless they use one of several exceptions allowed under the federal law. In Connecticut, TFA replaced AFDC.
Connecticut received a federal waiver setting its medically needy income limit at 143% of the benefit amount paid to someone with no income receiving TFA because the change was needed to keep the Medicaid income limits from falling when the state reduced the cash welfare benefit in 1995 (CGS § 17b-261(a) and (f); DSS Uniform Policy Manual (UPM) § 4530.15, PA 95-194 and PA 95-351). This waiver expired in 2001 so the current federal limit for Connecticut is again 133%, but no one in Connecticut lost Medicaid coverage due to the change (see below).
State Options to Exceed Federal Income Limits
Federal law gives states opportunities to exceed the 133%, limit under certain conditions. In fact, in order to keep the income limit's actual dollar amount from falling when the waiver expired, DSS applied a cost-of-living increase to the 1996 AFDC payment standard used to calculate it; this change did not affect actual TFA benefits, which are still frozen.
States also have the option to choose a less restrictive limit by disregarding additional amounts or types of income under Section 1902(r) (2) of the Social Security Act, but previously their ability to use this authority was more limited (42 USC § 1396a (r) (2), (42 CFR § 435.601). A 2001 federal interpretation now offers states more flexibility
than before to define eligibility groups and set higher income limits by imposing the 133% cap only after a state applies any less restrictive methodologies instead of before (enclosed and available at http://www.cms.hhs.gov/medicaid/eligibility/elig0501.pdf).
Thus, it appears that the federal restrictions would, for instance, not prevent Connecticut from increasing the current $183 unearned income disregard, which would particularly help more elderly, blind, or disabled people living in the community who are unable to work to qualify for benefits.
HOW MEDICAID SPEND-DOWN REDUCES COUNTABLE INCOME
To be eligible for Medicaid, people's income and assets must be below certain limits. Income limits are fixed, but people with too much income can still qualify by using medical bills to spend down their income to the required levels. The income limits vary depending on the eligibility group the applicant is in, the size of the family, and the region of the state they live in. The amount over the limit is called “excess income.”
A single elderly, blind, or disabled person with assets under $1,600 qualifies if his monthly income is under $476.19 in most of the state and $574.86 in Fairfield County (UPM § P-4530.15). In general, the state allows him to deduct (1) $183 a month in unearned income (UPM §5030.15) and (2) $65 a month ($85 for blind people) in earned income plus half of any remaining earned income (UPM § 5030.10). For example, if someone's only income is $600 in monthly Social Security (unearned income), he qualifies for Medicaid because his “net” income ($600-$183=$417) is less than the $476.19. Also, certain types of income, such as SSI benefits, food stamp benefits, energy assistance, and other miscellaneous payments or benefits, are not counted (UPM § 5015.10). If there is still excess income after these deductions, he can spend-down to the limit by deducting medical bills.
For the spend-down, DSS calculates the income and excess income over a six-month period. Once the excess income is used up by medical bills, the applicant qualifies for Medicaid for the rest of the six months. Near the end of that period, DSS reviews the income again to determine eligibility for the upcoming six months. Federal Medicaid rules require DSS to use budget periods of not more than six months to compute income, as well as to provide medical benefits retroactively for up to three months before the application. This three-month retroactive feature is useful when people accumulate large medical bills and are not aware immediately that they qualify for Medicaid.
The medical bills that can be used for the spend-down must be those that the applicant owes or has recently paid. Federal rules require that if insurance or a third party pays the bills, they cannot be deducted; if insurance pays part of the bill, only the amount the insurance does not cover can be deducted. Premiums for medical insurance can be deducted. But one type of third-party payment that people can deduct is the full amount of a bill paid for the applicant by the state (for instance, in a program such as ConnPACE) or by a local town, as long as no federal money is used to pay it. The UPM sets a certain order in which different types of bills must be deducted (Uniform Policy Manual (UPM) § 5520, 5520.20, 5520.25. p-5520.25, 5520.30, 42 CFR § 435.831, 435.121).
People whose income and assets are over the respective limits cannot use this income spend-down procedure until they first reduce their assets to the required levels.
CHANGES IN MEDICALLY NEEDY INCOME LIMITS AND DISREGARDS
The income limit for the medically needy, which is tied to the cash welfare benefit for families, has remained the same since July 1, 1990, when it rose by 4.8% along with an increase in the cash welfare benefits. Federal law requires this link as a condition of Medicaid reimbursement.
Cash welfare benefits in Connecticut had been rising fairly steadily through the 1980s. But following the 1990 increase, the legislature froze these benefits, effective July 1, 1991, and they have remained the same since that time. Consequently, the medically needy income limit has also remained the same, in spite of the two technical changes previously described, which did not change the actual dollar amounts and were in fact made to avoid reductions in the limits.
Unearned Income Disregard
The unearned income disregard for people living in the community was last substantively changed in October 1991 (PA 01-8, June Special Session, UPM Policy Transmittal No. UP-91-39), but that was a reduction of 9.5% from $202.20 to the current $183. The disregard had been at $202.20 at least since 1988.
1994 legislation briefly reduced the $183 further to $170.10 for a few months starting July 1 until the Finance Advisory Committee approved funding in September to bring it back up and DSS corrected payments for affected clients and made adjustments retroactively to July 1 (PA 94-1, May Special Session, PA 94-1, July Special Session, UPM Policy Transmittal No. UP-94-32, UPM § 5030.15).
Earned Income Disregards
The earned income disregard has been $65 and half the remaining amount for many years (at least since 1988) (UPM 5030.10, P-5030.10).
CHANGES IN SPEND-DOWN POLICY
Once a state decides to have a medically needy category, the spend-down policies are mainly prescribed by federal regulations. At the state level, they are not found in statute, but in DSS's Uniform Policy Manual. Most of the procedures for the medically needy and spend-down policies have not changed since at least 1988 (UPM § 5520.20, p-5520.20, 5520.30). But in 1993, DSS changed the policy manual to conform to a federal change that allows third party payments made by the state or a town on the applicant's behalf to be used as a deduction for the spenddown (UPM §5520.25; Transmittal UP No. 93-16).
We found several proposed bills that, over the years, have attempted to increase the medically needy income limits in some way.
For instance, in the 2000 session, Proposed SB 264 would have amended CGS § 17b-261 to require the DSS commissioner to seek a waiver from federal law to adjust the asset and income limits for inflation for the medically needy. As later approved by the Human Services Committee, the bill (File 312) would have, instead, created a task force to evaluate the necessity of such an adjustment as well as to evaluate the disregards and need levels under the State Supplement Program (these are the same disregards used for the medically needy category). The bill did not pass.
In 2001, proposed SB 333 would have, among other provisions, required Medicaid eligibility levels for the medically needy to be adjusted for inflation consistent with Social Security inflation adjustments. The Aging Committee drafted it as a committee bill but later replaced the text with different, unrelated provisions and approved it in that form, but the bill did not pass. In the same year, Proposed SB 939 would have excluded a spouse's income from being counted when a disabled person applies for Medicaid. The bill died in the Human Services Committee after a public hearing.
In 2003 Proposed SB 142 would have required an annual inflation adjustment for Medicaid income limits. The bill died in the Human Services Committee after a public hearing.
RELATED OLR REPORTS AND OTHER ARTICLES
Additional information can be found in OLR Report Nos.:
2000-R-0139 “Medicaid Spend-Down” 2/2/00
2000-R-0777 “Medicaid, Spend-down, and Indexing 7/28/00
2001-R-0036 “Medicaid Income Eligibility” 1/24/01
2001-R-0371 Medicaid Eligibility and Exclusion of Certain Types of Income 4/12/01
The enclosed DSS publication “State Medical Assistance: The Spend-Down Process” October 2002 provides additional details on the spend-down process.
Information about other states' programs and income limits can be found in an AARP survey at:
Related state summaries are available at: