After Medicaid eligibility is established, 42 C.F.R. § 435.725 addresses how income is treated. For clarity, if the Medicaid recipient is married,income of the non-recipient spouse does not count toward eligibility and is not part of the patient cost share. Specifically, 42 U.S.C. § 1396r-5(b)(1) states “no income of the community spouse shall be deemed available to the institutionalized spouse.” We address this because one Medicaid Myth in the community is that the healthy spouse’s income must be paid toward nursing home bills, or that it is included when determining whether a QIT is necessary. The community Spouse’s income is only relevant when determining whether some of the institutionalized spouse’s income should be diverted to the community spouse.

Subsection (a)(2) of 42 C.F.R. § 435.725 provides that the vendor payment authorized by 42 C.F.R. § 413.53 is reduced by the recipient’s income, subject to certain deductions. Those deductions include a personal needs allowance (currently $70 in Georgia), spousal income support and expenses not subject to third party payment. The primary subject of this post relates to this last deduction, medical expenses that are not paid by someone else. These are known as incurred medical expenses (IMEs).

The federal Medicaid Statute requiring State Medicaid agencies to reduce a Medicaid recipient’s cost share by IME amounts is found at 42 U.S. Code § 1396a(r)(1)(A). It reads are follows:

(r) Disregarding payments for certain medical expenses by institutionalized individuals

The legislative history of the current statute is discussed in Maryland Dep’t of Health and Mental Hygiene v. Centers for Medicare and Medicaid Services, 542 F.3d 424 (4th Cir. 2008). Prior to 1988, the Centers for Medicare and Medicaid Services (CMS) required States to deduct “Necessary medical or remedial care recognized under State law but not covered under the State’s Medicaid plan, subject to reasonable limits the agency may establish on amounts of these expenses.” See old 42 C.F.R. § 435.726(c)(4) (1987); See § 435.831(c)(ii) (1987). States were unhappy with the regulation so it was changed in 1988 to give States maximum flexibility in deciding whether to limit, or eliminate entirely, deductions for incurred medical expenses when calculating a nursing home resident’s post-eligibility income. “Congress’ reaction was swift and negative. In July 1988, it enacted 42 U.S.C. § 1396a(r)(1)(A), which incorporated in whole CMS’s prior regulatory language regarding the post-eligibility treatment of incurred medical expenses. Congress also made § 1396a(r)(1)(A) retroactive to April 8, 1988.”

“A House Conference Report commenting on § 1396a(r)(1)(A) recognized that, until February 1988, CMS’s longstanding policy had required states to deduct uncovered medical expenses from the income of nursing home residents before calculating their post-eligibility contribution to care. H.R.Rep. No. 100-661, at 266 (1988) (Conf. Rep.), as reprinted in 1988 U.S.C.C.A.N. 923, 1044. Noting that CMS’s amendment permitted states to substantially reduce or eliminate this deduction, the Report stated that Congress’ avowed purpose in enacting § 1396a(r)(1)(A) was to “reinstate” CMS’s prior rule. Id.

Consistent with that prior rule, § 1396a(r)(1)(A) allowed states to set “reasonable limits” on the age of incurred medical expenses to be deducted post-eligibility. § 435.726(c)(4) (1987). It did not, however, define the contours of such limits or state explicitly whether they were subject to CMS’s approval. Nevertheless, the House Conference Report emphasized that any limits “must ensure that nursing home residents are able to use their own funds to purchase necessary medical or remedial care not covered by the State Medicaid program, while minimizing opportunities for providers to take financial advantage of either the program or the residents.” H.R.Rep. No. 100-661, at 266.”

In Weldon v. Meadows (Fulton Superior Court Case No. 08-CV-154469 April 30, 2009), a Medicaid recipient sought IME coverage for outstanding nursing home bills, reducing their patient cost-share by an amount sufficient to cover the outstanding bills. Medicaid denied the request, pointing to its policy stating that no IME can be deducted for a month in which a vendor payment is not made. The plaintiffs challenged Medicaid’s position, arguing that it violated federal law. The Superior Court, citing Maryland v. CMS , super, agreed with the plaintiffs and granted summary judgment against Georgia’s Medicaid agency. Although the agency may impose reasonable limits, it violated federal law by refusing to allow deduction of any IMEs in a month when no Medicaid vendor payment is made.

Seeing thew writing on the wall, Georgia updated Supplement 3 to Attachment 2.6-A of Georgia’s State Plan around the time of the Weldon decision to impose reasonable limits on IMEs. The State Plan now provides:

1. Effective July 1, 1990, costs for all necessary medical and remedial care recognized under state law, but not covered under the Medicaid, and services which would be covered except for exceeding service limitations of amount, duration or scope (thus becoming uncovered services), are allowed as income deductions, if these costs are the legal obligation of the individual and if these costs are not subject to third party payments. The costs allowed as income deductions up to specific dollar limits as to specific services and items. The dollar limits represent reasonable fees for services and items for this state as determined by Georgia medical and dental care industries. The deduction for incurred medical expenses is included in the patient liability budget each applicable month and is based on an averaging methodology whereby actual expenses and income of the preceding three months are averaged and included on a three month basis with reconciliation to actual  expenditures occurring in the fourth month, except that significant changes, defined as a change of $20.00 or more, will result in a reconciliation for that month and establishes a new three month averaging cycle.
2. Effective April 1, 2006, the deduction for medical and remedial care expenses that were incurred as the result of imposition of a transfer of assets penalty period is limited to zero.
3. Effective April 1, 2009, institutional long-term care medical expenses incurred more than three months prior to the month of application for Medicaid are disallowed as a deduction. Institutional long-term care medical expenses incurred within three months prior to the month of application may be allowed as a deduction at an amount equal to the Medicaid reimbursement rate.

Of note, Maryland v. CMS makes it clear that any limitation on IME deductions must be approved by CMS. Since the only limit CMS has expressly approved is the State Plan, any limit in Georgia more stringent than the plan language quoted above is illegal.

Georgia’s Medicaid Manual includes several section relating to budgeting and IME coverage which are as follows:

• 2551 – Patient Liability/Cost Share Overview
• 2552 – Patient Liability/Cost Share Deductions
• 2553 – Protection of Income
• 2554 – Diversion of Income
• 2555 – Incurred Medical Expenses
• 2557 – Averaging Income and Incurred Medical Expenses
• 2558 – Significant Change in Income or IME
• 2559 – Patient Liability/Cost Share Budgeting

Manual Section 2555 now expressly allows IME coverage for long term care expenses as long as they were incurred within three month prior to the month of application unless they were incurred during a month when a transfer penalty was imposed. Sections 2557 and 2559 provide for a three month averaging/reconciliation to determine the patient cost share during months when IME deductions are allowed. The bottom line is that the patient cost share is reduced for a period of time sufficient to allow the Medicaid recipient’s income to retire outstanding medical debt incurred within three months prior to the application date. It is also reduced ongoing for the cost of health insurance premiums, deductibles, or coinsurance. Although Form 968 appears to relate to another class of assistance, it generally tracks instructions in the manual so the patient liability would be calculated over the three month budgeting period as follows:

1. List applicant’s gross income
2. Adjust gross income to allow for mandatory deductions (See Section 2505)
3. Subtotal lines 1 and 2
4. Subtract Medicare premium (if applicable)
5. Subtotal lines 3 and 4
6. Subtract protected income (See Section 2553)
7. Subtotal lines 5 and 6
8. Subtract personal needs allowance
9. Subtotal lines 7 and 8
10. Subtract diverted income (e.g., Community Spouse income allowance; see Section 2554)
11. Subtotal (Line 9 minus Line 10)
12. Subtract IMEs
13. Remainder is Patient Liability

(Note: Form links are for downloadable PDFs; if they don’t open, you should be able to download them by pasting the URL it into your browser)

In Georgia, IME coverage is verified using Form 942. Instructions provided to caseworkers indicate that IME coverage is denied unless the service was ordered in writing by a doctor and the Medicaid recipient is financially obligated to pay the bill. “Financially obligated means the item or service is not covered by Medicare or other health insurance and liability for the item or service has not been written off or forgiven by the provider.” Deductions are limited by an IME Pricing Document.