42 CFR §435.735

1. (a)The agency must reduce its payment for home and community-based services provided to an individual specified in paragraph (b) of this section, by the amount that remains after deducting the amounts specified in paragraph (c) of this section from the individual's income.
2. (b)This section applies to individuals who are eligible for Medicaid under § 435.217, and are eligible for home and community-based services furnished under a waiver of State plan requirements specified in part 441, subpart G or H of this subchapter.
3. (c)In reducing its payment for home and community-based services, the agency must deduct the following amounts, in the following order, from the individual's total income (including amounts disregarded in determining eligibility):
   1. (1)An amount for the maintenance needs of the individual that the State may set at any level, as long as the following conditions are met:
      1. (i)The deduction amount is based on a reasonable assessment of need.
      2. (ii)The State establishes a maximum deduction amount that will not be exceeded for any individual under the waiver.
   2. (2)For an individual with only a spouse at home, an additional amount for the maintenance needs of the spouse. This amount must be based on a reasonable assessment of need but must not exceed the higher of—
      1. (i)The more restrictive income standard established under § 435.121; or
      2. (ii)The medically needy standard for an individual.
   3. (3)For an individual with a family at home, an additional amount for the maintenance needs of the family. This amount must—
      1. (i)Be based on a reasonable assessment of their financial need;
      2. (ii)Be adjusted for the number of family members living in the home; and
      3. (iii)Not exceed the higher of the need standard for a family of the same size used to determine eligibility under the State's approved AFDC plan or the medically needy income standard established under § 435.811 for a family of the same size.
   4. (4)Amounts for incurred expenses for medical or remedial care that are not subject to payment by a third party, including—
      1. (i)Medicare and other health insurance premiums, deductibles, or coinsurance charges; and
      2. (ii)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.