How Does the Medicaid Spend Down Program Work?
To be eligible for Medicaid Long Term Care (LTC), an individual must have income and assets below the limits for the specific Medicaid program for which they are applying. Candidates with income or assets over those limits must “spend-down” their excess money until they meet the limits at which time, they will become eligible. However, applicants cannot give away their money and they must spend it only in ways that are acceptable to the Medicaid program. The Spend-Down process is complicated, and any mistakes can result in a Medicaid denial or penalty. Fortunately, there are approaches that make it possible to get approved for Medicaid LTC and preserve some monies for spouses and family members.
Medicaid Spend Down Overview
It is common that a senior in need of Medicaid LTC benefits can only qualify by first “spending down” their finances in order to meet Medicaid’s financial criteria. More often it is the assets an applicant must spend down, rather than income, but there are strategies in either situation. Complicated, complex, and confusing rules come into play for “spend down” strategies, but if one takes the time, an approval of benefits is likely.
Spending down assets is more complicated than spending down income however spending down assets is a one-time process while spending down income is a monthly activity.
Applicants must spend-down their “countable assets” that are over the Medicaid limit. These include investments and money in one’s bank account (see longer list below), but fortunately one’s house and vehicle are generally considered exempt, meaning they don’t count toward the Medicaid asset limit. For a single applicant, the asset limit is commonly around $2,000 (though it can be much higher in some states), and if one calculates the value of countable assets and it comes out to $50,000, then $48,000 would need to be spent down according to Medicaid rules before an application for benefits could be approved.
A very basic example of when spending down income would be if an elderly woman needs to move into full-time nursing care but can’t afford it. She earns $2,500 per month combining Social Security and retirement, but the state income limit for Nursing Home Medicaid is $2,200. She would need to spend down $300 each month. One simple strategy would be to put $300 per month toward medical expenses like medication, as paying medical bills is one straightforward way to spend down that is allowable by many state Medicaid programs. Other ways of spending down income are described below.
For Which Types of Medicaid Long Term Care Does Spend-Down Apply?
There are three main types of Medicaid Long Term Care benefits in every state. Each of these programs has both income and asset limits for beneficiaries, therefore spending down to meet the limits is relevant to all types of Medicaid Long Term Care.
Nursing Home Medicaid
In 2022, the income limit for Nursing Home Medicaid is often (though not always) $2,523 per month, and the asset limit is often (though not always) $2,000 for a single applicant. If an applicant’s income and/or assets are above those thresholds, then “spend down” financial strategies become necessary. For more on Nursing Home Medicaid, click here.
Home and Community Based Services Medicaid Waivers
In 2022, the financial limits for Medicaid waivers are close to, or the same as, those for Nursing Home Medicaid: $2,523 per month in income and $2,000 in assets (these numbers can always be different depending on which state you live in). Anyone applying for Medicaid waivers whose income and/or assets are above those limits should research “spend down” strategies described on this page. For more information on HCBS waivers, click here.
Aged, Blind, and Disabled Medicaid
The income and asset limits for ABD Medicaid are often lower than other programs that benefit seniors: a common income limit in 2022 is $841 per month, and assets often must be worth less than $2,000. Remember, however, these numbers vary depending on the state. If an applicant gathers the necessary financial materials and realizes their assets and/or income is above the Medicaid thresholds for ABD Medicaid, the “spend down” strategies described on this page can still result in an approval of benefits. For more information on ABD Medicaid, click here.
Understanding the Difference Between Exempt and Countable Assets
Assets are a person’s financial resources, including cash, money in bank accounts, and the value of one’s home. When applying for Medicaid Long Term Care programs, including Nursing Home Medicaid and Home and Community Based Services waivers, one needs to divide their assets into two groups: countable and exempt.
No one applying for Medicaid benefits needs to worry about spending down exempt assets, because they don’t count toward eligibility. It only makes sense to spend down countable assets, because countable assets are considered when Medicaid offices determine whether an application should be approved.
List of Countable Assets
The application for Medicaid must include documentation of one’s countable assets. Countable assets are also called “non-exempt” and include the following:
– Bank accounts
– Vacation homes or properties other than the applicant’s primary home
– Mutual funds
– Most life insurance policies
List of Exempt Assets
The value of exempt assets, or non-countable assets, does not get considered as part of Medicaid’s asset limit. An example of an exempt asset is the applicant’s primary home, so the value of that home does not matter when figuring out whether someone’s assets exceed the state’s Medicaid limit. (Home ownership and exemptions can get complicated if not owner-occupied.)
Other assets that do not count toward the asset limit include:
– Personal vehicles
– Term life insurance policies valued below $1,500
– Personal items including wedding/engagement rings
– Prepaid burial and funeral expenses
Steps Before Spending Down Assets
Prior to developing a Medicaid Spend Down plan, families should take the following steps.
Mind the Look-Back Period
An applicant over the limit has the option to “spend down” their assets in order to become Medicaid-eligible, though the process can be complicated and the applicant must always consider the “look-back period,” which is a timeframe (often 5 years) that will be reviewed by Medicaid officials to make sure applicants have not spent assets in a way that violates Medicaid rules, such as large-sum cash gifts or selling items at less than market value.
Determine Your Asset Limit
The first step of spending down assets is to determine the applicant’s asset limit and then figure out how much must be spent down. Asset limits for Medicaid programs, even those programs that primarily serve elderly individuals, are complicated. Most state Medicaid programs have a blanket figure for a single person (often it’s $2,000) and a married couple (often $3,000), but many other factors must be weighed.
It’s crucial to understand one’s asset limit before applying for Medicaid Long Term Care programs, because a mistake will lead to denial of benefits, and appealing a denial is time-consuming and difficult.
Individual Applicants: A single person applying for Nursing Home Medicaid, a Home and Community Based Services waiver, or Aged, Blind and Disabled Medicaid will usually need to have assets below $2,000, but remember the number varies from state-to-state and you’ll want to check with your local Medicaid office. In New York, for example, the asset limit is much higher, at more than $15,000 in 2022.
Married Applicant Applying as an Individual: If the individual applicant is married to someone who does not need Medicaid benefits, then the applicant will generally need to have assets under $2,000. The spouse who is not applying can retain a much higher number of what are considered the couple’s combined assets. The value of these assets held by the well (non-applicant) spouse is called the Community Spouse Resource Allowance (CSRA), and the figure is usually around $137,000, though be sure to double check this with your local Medicaid office because the amount can vary.
The CSRA is usually an option for married couples with one spouse applying for Nursing Home Medicaid or a Home and Community Based Services waiver. When one spouse applies for Aged, Blind, and Disabled Medicaid, however, the CSRA is not applicable, and the couple’s combined assets must be valued below $3,000 (though of course there is a lot of nuance depending on the state).
For more on CSRA and how marital status affects eligibility, click here.
Married Couples Applying Together: Married couples can usually (though some states are different) have combined countable assets up to $3,000 in order to qualify for Medicaid, but marriage can be a complicating factor when it comes to Medicaid eligibility.
Medicaid Acceptable Ways to Spend Down Assets
An applicant for Medicaid who has assets valued above the allowable limit has some options when it comes to spending down. It’s important to take the time to get these spend-down strategies exactly right, and hiring the service of an elder law attorney or certified Medicaid planner is a good idea because violations of Medicaid’s look-back period will result in a denial of benefits. (Look-back periods are usually 5 years, but in some states the look-back period is 2.5 years.) For more on look-back periods, click here.
Personal Care / Life Care Agreements: A formal life care agreement, also called a personal care agreement, is between a person who has lost independence and their caregiver (usually a close relative or friend). Paying for caregiving, as long as documentation is drafted according to strict rules, can lower assets without violating Medicaid’s look-back period. The caregiver can continue being paid even after the move into a nursing home, as long as they continue advocating for the Medicaid recipient.
Medicaid Exempt Annuities: These annuities basically convert a large amount of money into a steady income stream. Again, it’s important for applicants to be sure they purchase annuities in a way that does not violate Medicaid look-back rules.
Paying Off Debt: Accrued debt such as credit card bills, vehicle loans, and mortgages can be paid off without violating the Medicaid look-back period.
Medical Equipment: Assets may be spent on medical devices that aren’t covered by insurance, such as glasses and hearing aids.
Home Modifications: Repairing or upgrading the home to improve access and safety is a way to lower assets by large amounts without violating Medicaid’s look-back period.
Vehicle Repairs or Sale: Paying to fix a vehicle, for instance tuning up the engine or replacing the tires, does not violate Medicaid’s look-back period. Selling a vehicle at fair-market value to purchase a new one is also allowed.
Irrevocable Funeral Trusts: Paying ahead of time for one’s burial and funeral costs can lower one’s assets significantly without violating the look-back period, though depending on the state there can be a maximum amount that may be spent on these funeral trusts.
Medicaid Acceptable Ways to Spend Down Income
Someone who earns above the monthly income limit can still be approved for Medicaid benefits if they spend down correctly. The option to spend down income to become Medicaid-qualified is often called the “medically needy pathway” (though the name varies depending on state, so it could also be “share of cost,” “excess income,” or something else). In states with this option, the amount of income that puts an applicant above the Medicaid limit may be spent on medical costs like prescriptions, past-due bills, health insurance premiums, and doctors’ appointments, and then the applicant becomes eligible. To put it basically, in states where spending down of income is allowed, an applicant’s excess income must go toward healthcare in order to become eligible.
In states where that medically needy pathway for spending down income is not available, someone with income above the limit may still become eligible through Qualified Income Trusts (QITs) or Miller Trusts. These are accounts into which the applicant deposits their excess income, and then a third-party trustee controls that money and may only release it to be spent in specific ways, including paying for medical and/or long-term-care expenses.