Finds that through the medicaid program, state and federal government fund long-term care and medical services for many elderly persons and people with disabilities, both in institutions and in community alternatives.

Finds that a significant portion of these individuals' social security benefits is retained by the state to assist with the cost of their care. The legislature intends that these individuals retain for their own use a reasonable personal needs allowance which may be used to purchase clothing, postage, barber services, travel, and other personal items not covered by their care setting, in order to ensure their autonomy and dignity.

Declares an intent to adjust the personal needs allowance annually to reflect cost-of-living adjustments to federal social security benefits for medicaid-eligible residents in institutions and community-based residential settings receiving long-term care, developmental disabilities, or mental health services.

Requires that, effective July 1, 2008, and each fiscal year thereafter, the personal needs allowance shall be adjusted for economic trends and conditions by increasing the allowance by the percentage cost-of-living adjustment for old-age, survivors, and disability social security benefits as published by the federal social security administration. However, in no case shall the personal needs allowance exceed the maximum personal needs allowance permissible under the federal social security act.