How a Medicaid spend down helps you qualify for benefits

You must meet Medicaid eligibility requirements to get benefits like long-term care.

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Key Takeaways

  • Medicaid can help pay for long-term care, but it has financial eligibility requirements that vary by state

  • You can spend down your excess income and assets to qualify for Medicaid

  • Spend downs should be conducted at least five years before you apply for Medicaid because of the Medicaid look-back period

  • Long-term care services like nursing homes are expensive so it is important to plan ahead

Medicaid is a public program that provides health insurance for vulnerable and low-income americans. It can also help pay for long-term care, like nursing homes (skilled nursing facilities) or in-home care.

Long-term care services can be very expensive, so many people try to get Medicaid to cover long-term care instead. But in order to qualify for Medicaid and receive these benefits, you must meet certain eligibility requirements. Medicaid applicants must make under a certain amount of income and the value of their assets must be limited. For example, you may only qualify in your state if you make under $2,000 a month and your assets are worth $3,000 or less. Luckily some assets, like a car may not count towards the limit.

If you earn or own in excess of these limits, you can still qualify for Medicaid benefits by implementing what’s known as a Medicaid spend down. This is a strategy to either “spend down” or decrease your income or your assets to meet the Medicaid eligibility requirements in your state.

Every state runs their own Medicaid program with different income and asset restrictions and spend down rules. You can start learning about your state’s Medicaid requirements here.

Medicaid income spend down

In some states, if you have too much monthly income you can “reduce” your monthly income by spending the excess on qualified medical expenses.

You can use the surplus income to pay for current and past medical bills and medical expenses for yourself, your spouse, or your children. (If you pay a lot in medical bills, you might be able to deduct medical expenses on your tax return.)

Qualified medical expenses include:

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Not all states allow for an income spend down and others may limit who can take part in a spend down. For example, income spend downs may only be an option for older adults or people who are blind or disabled. Some states may refer to the income spend down as Medicaid eligibility through a medically needy pathway or medically needy program.

If you don’t have medical bills, in some states you might be allowed to redirect your excess income into a special trust, called a QTIP trust.

Medicaid asset spend down

When you’re applying for Medicaid, you’ll also need to disclose your resources, or the value of your assets. Every state Medicaid program specifies a certain dollar amount.

Not all types of assets are counted toward the Medicaid asset limit.

Resource limits can vary widely depending on the state and what assets are counted. For example, the resource limit for Medicaid in New York is quite high (over $22,000 for married couples) but it may include the equity value of your house.

Married couples may have a higher resource limit if they both apply for Medicaid at the same time. If only one spouse applies for Medicaid, the other spouse (called the community spouse) may be able to claim a portion of the joint assets up to a certain amount so these assets don’t interfere with the other spouse’s eligibility for Medicaid. It’s a good idea to consult someone like an elder law attorney who knows more about your situation and the state Medicaid eligibility requirements, since they can get complicated.

Countable assets

The follow types of assets are typically counted toward your resource limit:

Non-countable assets

The follow assets are typically exempt from the medicaid asset limit:

  • Car

  • Primary residence (up to a certain amount based on equity, depending on the state)

  • Retirement accounts, like an IRA or 401(k) that you’re getting distributions from

  • Pre-paid funeral or burial expenses

  • Some types of life insurance policies, up to a certain value

  • Personal belongings and valuables

How to spend down assets

If the total of all your countable assets is in excess of the the Medicaid asset limit, you’ll need to spend them down. While you can sell off your assets, any cash earnings you receive will still count toward the asset limit again. Additionally, if you sell any assets for much less than they’re worth, Medicaid may realize what you’re doing and disqualify you.

Here are some tips and ideas on how to spend down your assets:

  • Make home or auto improvements, since these will be viewed as investments.

  • Pay off debts.

  • Gift assets to loved ones. Keep in mind that you will have to pay a gift tax if you give more than $15,000 to any individual.

  • Open a Medicaid trust. Opening this particular irrevocable trust and transferring countable assets into it is a common strategy to qualify for Medicaid long-term care coverage.

Medicaid institutes a five year look-back period; that means you must spend down your assets at least five years before you apply for Medicaid. If you spend down your assets today and apply for medicaid tomorrow, you will be disqualified.

Alternatives to Medicaid

If you need health insurance coverage and don’t qualify for Medicaid, you may be able to receive a health insurance subsidy.

If you need long-term care coverage and don’t qualify for Medicaid benefits, the best option is to buy long-term care insurance. However, the insurance premiums get prohibitively expensive the older you are when you apply, which is why it’s important to plan ahead. Preparing for retirement and end-of-life scenarios can help you save more money to pass along to your loved ones as part of your estate plan instead of spending it on nursing homes.