As your elder law attorney advised, current medical expenses are deductible from the Medicaid-covered nursing home resident’s obligation to pay virtually all of her income to the facility, often referred to as the “patient pay amount.” Medicaid is a joint federal-state program. Each state has its own Medicaid program and sets the rules within limits set by the federal government, either by statute or regulation. As long as the state program meets the federal requirements, the federal government reimburses the state’s Medicaid expenses, the amount of reimbursement depending on the Medicaid program and the state’s financial well-being, poorer states being reimbursed at a higher rate than wealthier states.
All of this is to explain that there are both federal and state statutes and regulations related to this issue. The relevant federal statute is 42 USC Sec. 1396a(r)(1)(A). It reads in relevant part:
[W]ith respect to the post-eligibility treatment of income of individuals who are institutionalized . . . there shall be taken into account amounts for incurred expenses for medical or remedial care that are not subject to payment by a third party, including – (i) medicare and other health insurance premiums, deductibles, or coinsurance, . . .
Your state should have similar statutes or regulations putting this federal law into effect.