Medicaid: Spousal Refusal Risks

In the current environment of budget deficits, and the mandate handed down by the State to the Counties to pursue recoveries from community spouses, and the estates of Medicaid recipients and their spouses, litigation by the Department of Social Services over the payment of Medicaid benefits is on the upswing. Once a spousal refusal has been submitted, there are issues which a community spouse should be aware of. The most significant risks to the effectiveness of your long term care planning include the following:

1) The execution of a spousal refusal by an excess-resourced community spouse.

A spouse who is deemed to have excess resources may be sued by the Department of Social Services for support on behalf of the institutionalized spouse. Even when this does occur, however, the community spouse almost always still comes out ahead because of the difference between the private pay rate and the Medicaid pay rate, which translates into a significant savings to the community spouse even if full support is required.

2) Claims against the estate of the community spouse.

A community spouse who is found to have had excess resources at the time benefits were paid may be found to have an “implied contract ” with the State to pay back the benefits paid out on behalf of the institutionalized spouse. This implied contract may ultimately be enforced as a claim against the estate of the community spouse.

3) The spousal elective share right.

If the community spouse dies before the Medicaid spouse, the Medicaid spouse will have a statutory right of election against the estate of the community spouse. A Medicaid Trust of the community spouse will be considered to be a testamentary substitute, and therefore included in calculating the net elective estate for elective share purposes. However, even if the Department of Social Services does move to enforce this right, only one-third (1/3) of the net elective estate is required to be paid out to the institutionalized spouse, and given proper planning it may be possible to preserve up to fifty percent (50%) of the elective share amount for family members. If possible, Waivers of the right of election should be signed by both spouses in advance of the Medicaid application.

4) Transfers After Medicaid Eligibility is Determined.

Once a spousal refusal Medicaid Application is accepted, under current New York law the community spouse may transfer assets without penalty. The federal Center for Medicare and Medicaid Services (CMS), however, has indicated that a state may treat any transfers or gifts made by the community spouse as a disqualifying transfer for the Medicaid recipient. At this time New York State’s regulations do not adopt this policy, but there is a risk that the Department of Social Services may attempt to recover resources that have been gifted by a community spouse based upon New York’s Debtor and Creditor Law, by alleging that the transfers are fraudulent. Therefore, any asset transfers done “post-eligibility” must be carefully planned and executed.


This Memorandum is based on current law and is for informational purposes only. It is important that you discuss all legal options and consequences with a qualified elder law attorney prior to any action. Should you wish to discuss your situation with us, please call (631) 424-2800 for a consultation. For additional Memoranda, please call or visit our website at www.elderlaw.pro.