The Obama administration on Friday extended Medicaid's financial protections to gay and lesbian couples.

The new regulations were laid out in a letter to state Medicaid agencies written by The Centers for Medicare & Medicaid Services (CMS), an agency under the direction of the department of Health and Human Services (HHS).

Currently, Medicaid policies protect the financial assets of married straight couples when a spouse enters a nursing home or care facility.

“Low-income same-sex couples are too often denied equal treatment and the protections offered to other families in their greatest times of need,” said HHS Secretary Kathleen Sebelius. “This is now changing. Today's guidance represents another important step toward ensuring that the rights and dignity of every American are respected by their government.”

The letter, in effect, encourages states to recognize the spouses of gay men and lesbians, even though federal agencies are banned from recognizing such unions under the Defense of Marriage Act (DOMA).

DOMA defines marriage for federal agencies as a heterosexual union. Medicaid polices refer to DOMA in defining who qualifies as a spouse.

The law gives states the flexibility not to pursue liens when the gay spouse of a Medicaid beneficiary continues to reside in the home the couple once shared, the CMS asserted.

“States choosing not to pursue liens when the same-sex spouse or domestic partner beneficiary continues to lawfully reside in the home would exercise their existing discretion in determining the scope or circumstances, either prior to, or when pursuing liens,” the agency wrote.

States are also encouraged to recognize gay couples in other circumstances, including estate recovery and transfers of assets.

“The exemptions for transferring assets to a spouse cannot be directly applied to same-sex spouses or partners as a result of DOMA,” the agency concedes in its guidance. “However … a transfer of assets penalty period will not be applied if the State determines, under procedures established by the State, that denial of eligibility would create an undue hardship.”

“Because of the flexibility afforded to States in determining undue hardship, we believe that States may adopt criteria, or even presumptions, that recognize that imposing transfer of assets penalties on the basis of ownership interests in a shared home to a same-sex spouse or domestic partner would constitute an undue hardship.”

Gay rights groups praised the new guidance but added that DOMA remains the law.