What is spousal refusal, and how does it work?

KEY TAKEAWAYS

• New York’s spousal refusal law allows a community spouse to legally refuse to make available income and resources to a Medicaid applicant spouse. 
• The Medicaid applicant qualifies based only on their own income and assets. The assets and income of the refusing spouse are not counted toward eligibility.
• New York retains a right of recovery against the refusing spouse. Obtaining Medicaid benefits creates an implied contract, and the State may refer the matter to court to recover the cost of services, at the agency's option. The refusing spouse must still disclose their resource information to Medicaid. While the spouse can refuse to contribute, refusing to provide the information to determine eligibility is grounds for denying the applicant's Medicaid. 

Most states consider a married couple's combined assets and income when calculating Medicaid eligibility. New York and Florida are the only states allowing spousal refusal—the right of a healthy spouse to make their assets unavailable to pay for the other spouse’s long-term care. However, there are drawbacks to spousal refusal, and it should never be done without the help and advice of a Medicaid planning attorney.

How Does Spousal Refusal Work?

Applicants must meet certain income and asset requirements to be eligible for Medicaid. All of a married couple’s assets and income will be counted even if one spouse needs care and the other doesn’t. In New York, the healthy spouse (known as the community spouse) can keep about $3,000 in income and $137,000 of the couple’s joint assets. In addition to these limits, New York law requires the community spouse to contribute 25% of their excess income toward their spouse's long-term care.

These limits can place significant restraints on community spouses. Fortunately, spousal refusal can ease the burden on a community spouse. If a couple has assets exceeding the Medicaid eligibility limit, we can make the most of spousal refusal by:

• Moving excess assets to the community spouse. The ill spouse can meet the asset limit by transferring all their assets to the community spouse. This will not violate the five-year look-back period because Medicaid allows applicants to transfer assets to their spouses without penalty.
• Signing a spousal refusal. The community spouse signs a document indicating that they refuse to contribute to the care of the ill spouse since they will need all the income and assets for their own care.
• Filing the application. The application and the spousal refusal document must be filed promptly with the Department of Social Services (DSS). As long as the ill spouse is otherwise eligible, Medicaid cannot legally deny care to the ill spouse, allowing the community spouse to keep significantly more assets.

Documentation Required to Execute Spousal Refusal in New York

There is specific documentation the refusing spouse must provide to legally refuse to contribute assets and income to the Medicaid applicant. This documentation is executed using the state's official Declaration of Legally Responsible Relative (Form MAP-2161a) or an equivalent, properly-worded legal declaration. Here are the parameters of that documentation:

• Executing the spousal refusal requires a formal written statement signed by the refusing spouse.
• This document must be submitted directly to the county Medicaid office along with the applicant's Medicaid application.
• The written refusal statement must clearly state that the refusing spouse refuses to make their resources available for the care of the institutionalized spouse and acknowledge that the state of New York has the right to bring a recovery action.
• The statement should be carefully drafted by an attorney to ensure it meets HRA's requirements and is properly documented in the Medicaid application record.
• Aside from the refusal statement, the Medicaid application must still show that the institutionalized spouse's own assets and income are within the eligibility limits. The refusing spouse's assets must be separately documented and excluded from the eligibility calculation.
• The timing of the refusal statement is critical: it should be executed and submitted before or at the time of application, not as an afterthought.

When Is Spousal Refusal the Right Strategy?

Spousal refusal is most beneficial in crisis planning situations. If you’re a married person about to enter a nursing home or live in one already, and you haven’t completed any advanced Medicaid planning, spousal refusal may be your best strategy. 

Because spousal refusal is usually a last-minute approach, it can work where other standard Medicaid planning tools (Medicaid Asset Protection Trusts and/or five-year advance transfers) can’t. These types of tools aren’t available because the 60-month look-back period can’t be satisfied in time. 

Spousal refusal removes the refusing spouse’s resources and assets from the eligibility calculation, allowing the institutionalized spouse to qualify for Medicaid immediately without waiting for the couple to spend down assets. This is most valuable when the couple's combined assets exceed the Community Spouse Resource Allowance (CSRA), and the couple can’t quickly reduce assets to meet Medicaid requirements through legitimate means. 

Can the State Sue the Refusing Spouse After Spousal Refusal?

New York’s Social Services Law gives the state the right to bring a legal action against a spouse who has exercised spousal refusal. However, in practice, the state's pursuit of these recovery actions is limited and often inconsistent.

New York's Department of Social Services has the legal right to file an action in Family Court seeking reimbursement from the refusing spouse for Medicaid paid on the institutionalized spouse's behalf. The Family Court has discretion to order reimbursement after evaluating the refusing spouse's financial circumstances, including the following:

• The spouse's income
• The spouse’s assets
• The spouse’s needs
• The spouse’s standard of living

 Family Court judges consider the refusing spouse's reasonable living expenses and financial needs in determining any reimbursement amount, which means a refusing spouse with significant ongoing expenses, such as medical expenses, housing, and dependent children, may face a reduced obligation or no reimbursement at all.

Who Should Consider Spousal Refusal for Medicaid Planning?

The ability to be approved for benefits in months instead of years makes spousal refusal a key strategy in Medicaid crisis planning. Spousal refusal is also helpful when the community spouse has a high monthly income.

There are some drawbacks to spousal refusal. For one, DSS may file a lawsuit against the community spouse (or their estate) to recover the cost of care. The spousal refusal also removes the community spouse’s right to receive a spousal income or resource allowance from the Medicaid beneficiary.

Depending on your situation, you might benefit from additional planning tools such as:

• Spending down excess assets. There are many ways to turn your constable assets into exempt assets without violating Medicaid’s look-back rules. A few standard methods include paying off debt (such as the mortgage on your home or credit cards), making modifications and updates to your home, or buying medical devices that are not covered by insurance (such as canes, wheelchairs, or hearing aids).
• Pre-paying funeral costs. Applicants and spouses can lower their countable assets by purchasing burial plots, urns, funeral services, and other funeral and burial expenses.
• Medicaid Asset Protection Trusts. A Medicaid trust offers all of the benefits of spousal refusal without the threat of a lawsuit or lien to recover care costs. Keep in mind that the trust must be created and funded at least five years ahead of time to protect your property and life savings.

Start Medicaid Planning Now While You Still Have Options

Medicaid planning can be done at any point in the benefits process, but pre-planning is always the best way to keep as much of your assets as possible. The elder law attorneys at Landskind and Ricaforte Law Group, P.C. have years of experience helping people get Medicaid benefits and protecting their loved ones’ inheritances. Contact us today through our online form to get started or order our free guide, Estate and Medicaid Planning in New York: What Everyone Needs to Know.