What Is Medicaid's Income-First Rule and Why Is It Important?

In 2002, the U.S. Supreme Court ruled that states may use the 'income-first' method to raise the income of spouses of Medicaid applicants to minimum levels.  The ruling has had repercussions ever since for couples in certain states where one spouse needs Medicaid long-term care coverage.

The court's decision weakened financial protections that Congress had put in place in 1988 to ensure that the spouses of Medicaid applicants -- so-called "community spouses" -- do not become impoverished when their husband or wife enters a nursing home. The decision meant that in states that use the 'income-first' approach, a community spouse could quickly be thrown into poverty following the death of the spouse in the nursing home. This could force spouses to play the role of at-home caregiver longer than they otherwise would, and it could even compel elderly couples to divorce, as was often the case before 1988.

Background of the Case

In general, the community spouse of a couple qualifying for Medicaid may keep one half of the couple''s total "countable" resources up to a maximum of $128,640 in some states (in 2020). But in many cases, the community spouse has very little income to live on because most of the couple's income is in the name of the institutionalized spouse. This is frequently the case if the husband is the one requiring nursing home care and the wife is healthy and living in the community. To protect against the community spouse becoming impoverished in such cases, Congress established a minimum income level for community spouses, called the minimum monthly maintenance needs allowance (MMMNA). If a community spouse's income is below her MMMNA, the shortfall can be made up in one of two ways: by transferring income from the institutionalized spouse (called the "income-first" approach) or by allowing the community spouse to keep resources above the allowable level, so that that the additional funds can be invested to generate more income (the "resource-first" approach). Some states follow the income-first approach, while others allow the resource-first route, and courts had been divided on which approach federal Medicaid law actually called for.

Why Does It Matter?

The stakes are actually quite high for some community spouses. If the income-first approach is used, the community spouse is relying on income from the institutionalized spouse to live on. If the institutionalized spouse dies, the community spouse suddenly loses that income and as a result may quickly fall into poverty. If the resource-first approach is employed instead, the community spouse has enough investment income to maintain her standard of living even if the institutionalized spouse passes away.

The Case Before the Court

In the case before the U.S. Supreme Court in 2002, a Wisconsin court ruled that the state's use of the income-first rule to bring the community spouse's income up to the MMMNA violates federal Medicaid law. The plaintiff in the case, Irene Blumer, was admitted to a nursing home in 1994 and applied for Medicaid in 1996. Mrs. Blumer's local Medicaid agency denied her application because it said that she and her husband had too much money. But Mr. Blumer's monthly income was below his MMMNA. Mrs. Blumer appealed, arguing that because her husband's resources did not generate enough income to meet his MMMNA, he should be allowed to keep more of the couple's resources. The Wisconsin Court of Appeals agreed, ruling that the federal Medicaid statute does not allow states to use the income-first rule. Thus, the court said, Mr. Blumer should be permitted to raise his income by keeping more resources. The State of Wisconsin appealed to the U.S. Supreme Court.

The Court's Ruling

In a majority opinion written by Justice Ruth Bader Ginsburg, the Supreme Court ruled that Wisconsin's use of the income-first method to bring a community spouse's income up to minimum levels does not conflict with federal law. Chief Justice Rehnquist and Justices Kennedy, Souter, Thomas and Breyer joined Justice Ginsburg in the decision. Justices Stevens, Scalia and O'Connor dissented, contending that the federal statute "expressly authorizes the resource-first approach without mentioning the income-first rule. . . "

In endorsing the income-first approach, however, the Court made it clear that it was not rejecting the resource-first approach, which is employed by some states. It said that Medicaid law gives states leeway in this area and noted that the Department of Health and Human Services had preliminarily determined that both the income-first and resources-first methods were acceptable.

Your elder law attorney can tell you whether your state uses the income-first rule and, if so, how you may be able to avoid its devastating effects.  

The read the Court's opinion in Wisc. Dep't of Health and Family Services v. Blumer, 534 U.S.473 (2002), Feb. 20, 2002,click here.

For more on protections for the community spouse, click here.

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