“Spousal Refusal” in New York State

Printed with permission from The Elder Law Report

Copyright 2016 CCH Incorporated. All rights reserved.

By Stephen K. Koldin

Under federal Medicaid law, when the community spouse refuses to contribute her resources towards the institutionalized spouse’s cost of care, and the institutionalized spouse signs over his rights to spousal support to the state (or if the state already has those rights by statute), the application for Medicaid coverage must be considered without regard to the resources of the community spouse. 42 U.S.C. §1396r5(c)(3) provides as follows:

"(3) Assignment of support rights

The institutionalized spouse shall not be ineligible by reason of resources determined under paragraph (2) to be available for the cost of care where—

(A) the institutionalized spouse has assigned to the State any rights to support from the community spouse;

(B) the institutionalized spouse lacks the ability to execute an assignment due to physical or mental impairment but the State has the right to bring a support proceeding against a community spouse without such assignment; or

(C)the State determines that denial of eligibility would work an undue hardship."

The general use of a "spousal refusal" as a Medicaid income- and resource-protection method for the community spouse varies in each state.

Under New York Social Services law, when a legally responsible relative refuses to contribute her income or resources toward the cost of care of a Medicaid applicant, the Medicaid agency is required to determine the applicant’s eligibility based solely on that person’s income and resources, as if the legally responsible relative did not exist. ("Legally responsible relative" typically refers to a community spouse or to a parent of a disabled child under the age of 21.) The community spouse is required, however, to fully disclose her income and resources.

This article reviews the use of a spousal refusal in New York State, the legal implications of such a refusal by a community spouse, and when and how elder law attorneys in New York State may want to counsel clients to submit a spousal refusal as compared to other asset preservation options.

New York Spousal Refusal Law

Section 366(3)(a) of the New York Social Services Law provides:

"Medical assistance shall be furnished to applicants in cases where, although such applicant has a responsible relative with sufficient income and resources to provide medical assistance as determined by the regulations of the department, the income and resources of the responsible relative are not available to such applicant because of the absence of such relative or the refusal or failure of such relative to provide the necessary care and assistance. In such cases, however, the furnishing of such assistance shall create an implied contract with such relative, and the cost thereof may be recovered from such relative in accordance with title six of article three and other applicable provisions of law."

In New York, for 2016, the community spouse is entitled to a community spouse resource allowance (CSRA) of one-half of the couple’s combined resources, but not less than $74,820 and not more than $119,220. The community spouse is also entitled to retain $2,980.50 of the couple’s combined income (Minimum Monthly Maintenance Needs Allowance: MMMNA). If the community spouse’s own income is already above $2,980.50, then the Medicaid agency will "request" that the community spouse contribute 25 percent of the amount over $2,980.50 towards the institutionalized spouse’s cost of care. If the community spouse does not agree to comply with the "request," this will be treated as a spousal refusal.

Also, under the new managed care environment, New York has the same income and resource allowances for the community spouse when the ill spouse is receiving Medicaid-covered home care.

The Medicaid Agency’s Options When a Spousal Refusal is Submitted

Under New York law, the spousal refusal creates an "implied contract" between the community spouse and the Medicaid agency. The implied contract is a statutorily created contractual relationship between the community spouse and the Medicaid agency whereby the community spouse continues to recognize her obligations to pay for the cost of care of the ill spouse to the extent of the community spouse’s financial ability. By failing to contribute toward the cost of care, the community spouse is in "breach" of this implied contract. The Medicaid agency has the option to pursue performance of the implied contract and require the community spouse to spend the excess income or resources, or both, toward the cost of care of the ill spouse. The Medicaid agency could decide not to pursue its rights under the contract where the particular circumstances of the case warrant no action by the agency

Upon receiving a spousal refusal, the county Medicaid agencies will typically respond in one of the following ways:

  • Approve eligibility for the ill spouse and take no further action.
  • Approve eligibility for the ill spouse but commence a legal proceeding against the community spouse to compel contribution toward the cost of care of the ill spouse to the extent of the community spouse’s financial ability.
  • Approve eligibility for the ill spouse with no action against the community spouse during that spouse’s lifetime. After the death of the community spouse, however, Medicaid may then file a claim against the estate of the community spouse. Any future estate planning by the community spouse, such as gifts to children or the establishment of a living trust, could become subject to a recovery action by Medicaid.

Once the Medicaid agency has made the determination to pursue a court action against the community spouse, the court must use its discretion in determining the appropriate order of support, if any, against the community spouse. This raises another important public policy argument in support of permitting spousal refusals: A court is authorized to take specific individual circumstances into account in determining the level of contribution by the community spouse, rather than looking only to the strict language of the statutory allowances. This added buff er of discretion can help the community spouse retain financial integrity; it permits her to show her need to retain the income or resources, or both. Without court involvement, most Medicaid agencies simply follow a mathematical formula to determine the income and resources a community spouse may keep without regard to her true needs.

Some circumstances that a court may consider include: support of minor children, educational support of children in college, whether this is a second marriage of short duration, specific and extraordinary expenses of the community spouse, and the earning capacity of the community spouse.

Spousal Refusal Can Avoid Need for Fair Hearing or Litigation

In New York State, the spousal refusal option accomplishes an important public policy objective: discretion to avoid unnecessary litigation. When the community spouse submits a spousal refusal, the Medicaid agency can then make its own determination as to whether to initiate litigation to pursue a recovery against the community spouse or to honor the spousal refusal. By honoring the spousal refusal, the Medicaid agency is able to make its own determination that the spousal refusal is justified and costly litigation can be avoided. The spousal refusal also permits the elderly to maintain their dignity and avoid stressful court appearances.

Without a spousal refusal option, the community spouse must initiate a fair hearing or litigation to prove undue hardship or to prove that she needs the excess resources above the CSRA to generate enough income to meet the MMMNA, as allowed by 42 U.S.C. §1396r5(e)(2)(c). Since the county Medicaid agencies in New York State cannot on their own agree to allow a higher resource allowance even when they feel it is justified, the only way to avoid litigation is to submit a spousal refusal. Although the Medicaid Agency cannot agree to increase the income or resource allowance without a fair hearing, the Medicaid Agency can agree to not pursue a recovery against the spousal refusal or can agree to a settlement amount that is mutually amenable to all parties.

Spousal Refusal Can Avoid Denials Resulting from Newly Discovered Assets

Some attorneys in New York State routinely have their clients submit a spousal refusal even when the spouse’s income and resources are already below the allowance levels. The reason for this is to protect against newly discovered resources. Some counties in New York take an unreasonably long time to process a Medicaid application. As a result, if the Medicaid agency in its own investigation discovers additional resources, it could be many months after the date of application. If a denial is issued due to excess resources and the nursing home was unpaid for many months, all of the excess resources could become lost toward the cost of care. Had the client and attorney become aware of the newly discovered resources in a timely fashion, there could have been an opportunity for additional asset preservation planning such as a promissory note, annuity, or purchasing exempt items. With a spousal refusal, the Medicaid case would have to be approved if the newly discovered resources belonged to the community spouse. Although there could still be a recovery action by the Medicaid agency, at least there is a possibility for settlement and protection of some of the newly discovered resources. Without the spousal refusal, there may be no opportunity to save the resources due to an outstanding nursing home bill.

Medicaid Rate vs. Private Pay Rate

In New York State there is a substantial difference between the Medicaid rate and the private rate paid to nursing homes. By submitting a spousal refusal, even if the Medicaid agency pursues a recovery action, the community spouse can receive the immediate benefit of the lower Medicaid rate. For example, suppose the community spouse had total excess resources of $200,000 and the Medicaid rate is $7,000 per month and the private pay rate is $12,000 per month. If the community spouse submitted a spousal refusal, the Medicaid case would have to be approved. Now assume that the Medicaid agency sought a recovery against the community spouse and would not settle for any amount less than full recovery of $7,000 per month. Even if the community spouse paid the full $7,000 per month, she is saving $5,000 per month considering the private pay rate. Of course, if the institutionalized spouse lives long enough, even at the reduced cost of care at the Medicaid rate, the community spouse would ultimately lose her excess resources. This planning method is only effective if the Medicaid agency is willing to settle for less than full recovery or if the institutionalized spouse does not live long enough to fully deplete the excess resources. Therefore, before counseling a client to utilize this spousal refusal asset preservation method, the elder law attorney should consider the life expectancy of the ill spouse along with the policy of the county Medicaid agency regarding settling spousal refusal cases for less than full recovery.

Non-liquid Resources

Sometimes the excess resources owned by a community spouse might not be liquid. Some examples could be a summer cottage, a commercial warehouse, or an expensive boat. In this situation the Medicaid application would be denied for excess resources and the nursing home would be unpaid until the illiquid resource was sold or until the incurred medical bills exceeded the value of the illiquid resource. By submitting a spousal refusal, the Medicaid case would be approved without regard to the value of the illiquid resource. The nursing home would be immediately paid by Medicaid. The Medicaid agency and the community spouse would then need to negotiate a settlement or lien for the Medicaid agency. This also allows the community spouse to achieve the benefit of the Medicaid rate instead of the private pay rate for the nursing home cost, as discussed above.

Spousal Refusal Can Provide Funding for Home Care

In New York, Medicaid coverage for home care is often much less than what is truly needed. In upstate New York, it is not unusual for five hours of home aides or less per day to be authorized by the Medicaid agency. If the community spouse were required to spend her resources down to $74,820 and then need to spend her own funds to hire more hours of home aides, the community spouse could be at risk of becoming impoverished. The spousal refusal could allow the community spouse to retain additional resources to provide the funding to purchase additional home care. As discussed above, if the Medicaid agency pursued a recovery, hopefully the need for additional home care funds would persuade the agency to settle for a reasonable amount. Some county Medicaid agencies might also have a general policy of not pursuing recovery for home care cases at least in situations that they consider that course of action justifiable.

Spousal Refusal vs. Other Asset Preservation Options

As discussed above, although the spousal refusal has the potential of protecting income and resources for the community spouse, there is also the risk of being sued by the Medicaid agency in a recovery action. Therefore, the elder law attorney and client should review whether the spousal refusal is the preferred asset preservation method as compared to other options such as promissory note planning, purchasing an annuity, or purchasing exempt items.

Sometimes a combination of the spousal refusal with these other options should be considered. For example, purchasing exempt items such as a new car would reduce the amount of excess resources being refused by the community spouse.

Another consideration is that some counties in New York State have become much more aggressive in pursuing recovery against spousal refusals. Since there is no longer a transfer penalty for home care, a spousal refusal is not as critical as in the past for home care cases. Instead of submitting a spousal refusal, the community spouse can now transfer excess resources and avoid the implied contract caused by the spousal refusal. Also, since the spouse can now receive the community spouse resource allowance when the ill spouse receives home care, the need for the spousal refusal is less compelling because the community spouse can keep higher resources for herself and transfer the excess. Finally, as discussed above, with the annuity option and the promissory note option, there are more considerations that need to be analyzed before electing the spousal refusal option.

Conclusion

It is incorrect to view the spousal refusal as a loophole for asset preservation. Under federal law, the community spouse always has the right to seek a court order to increase the spousal income or resource allowance. The spousal refusal shifts the decision whether to seek court intervention to the county Medicaid agency to decide whether to seek an order of spousal support from the community spouse. The spousal refusal creates a nonjudicial method of achieving the same result by providing the Medicaid agency with the discretion to avoid costly and time-consuming litigation while at the same time assuring prompt and favorable action on the Medicaid application so that the rights of the applicant and the nursing home are not placed in jeopardy.

Stephen K. Koldin is an attorney associated with the Koldin Law Center, P.C., in East Syracuse, New York.