Understanding Medicaid Home and Community Services: A Primer, 2010 Edition. Effect of Medically Needy Rules on the Ability to Pay for Room and Board


States have the option of covering medically needy beneficiaries under their Medicaid programs. The medically needy are persons who, except for income, would qualify under one of the other Medicaid eligibility groups covered under the State Plan (such as people receiving SSI or the optional aged and disabled poverty level group). Medicaid payments can begin for medically needy persons once they have “spent down”--that is, incurred expenses for medical care in an amount at least equal to the amount by which their income exceeds the medically needy income level. As discussed in the previous section, any family supplementation is considered part of the excess income that must be spent down. If it is paid to a residential care facility, the one-third rule applies and it is still treated as unearned income.

The medically needy eligibility option can allow people who have income greater than 300 percent of SSI to become eligible for Medicaid services. But Federal law imposes two significant constraints on the use of this option:

  • The state must cover medically needy children and pregnant women before it can elect to cover any other medically needy group. Additionally, the state may not place limits on who is eligible for Medicaid by using such characteristics as diagnosis or place of residence. Thus, it cannot use medically needy policies to extend Medicaid services only to HCBS waiver beneficiaries in residential care settings.

  • The maximum income-eligibility limit that a state medically needy program may use is based upon its welfare program for families--levels that are typically lower than SSI. The income level must be the same for all medically needy groups in the state (i.e., states are not permitted to establish higher income-eligibility levels for selected subsets of the medically needy, such as beneficiaries in residential care settings).

These rules have several implications that states need to consider when trying to make the medically needy eligibility option work for higher income individuals in residential care settings. First, these individuals may find it more difficult to incur sufficient medical expenses to meet the spend-down requirements while living in the residential care setting than they would in a nursing home. The higher their “excess” income, the higher the amount of their spend-down, which means that only beneficiaries with extremely high medical expenses may become eligible for Medicaid.

Second, community providers are less willing to deliver services during the spend-down period, since payment cannot be guaranteed and collection may be difficult. Third, spend-down rules combined with low medically needy income-eligibility levels mean that individuals may not have enough total income to pay both the bills they incur under the spend-down provision and room and board. Permitting spend-down to a higher amount --such as 300 percent of SSI instead of a state’s medically needy standard for HCBS waiver eligibility--requires a change in the Medicaid statute.

In summary, room and board costs may present an access barrier to residential care settings for Medicaid beneficiaries unless states take specific steps to make these costs affordable. Several observers have suggested that the Medicaid program be allowed to pay for room and board in residential care settings as it does in nursing homes. To do so, Congress would have to amend the Medicaid statute. It is possible that states would not welcome this change because currently the SSI benefit, which pays for room and board, is 100 percent Federal funding. If Medicaid were to pay for room and board in residential care settings, states would be responsible for part of the cost under Federal Medical Assistance Percentage provisions. (See Chapter 2 for a detailed discussion of Medicaid’s financial eligibility rules.)

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