A spend down is the process of reducing countable assets to meet Medicaid’s financial eligibility requirements for long term care benefits. Because Medicaid is a needs-based program it is only available to people with limited income and assets. When a person has assets above the Medicaid eligibility limit they must spend down those excess assets before Medicaid will begin paying for their care.
Understanding how the spend down process works and what assets can and cannot be used in a spend down can help families navigate this challenging aspect of Medicaid eligibility planning.
Why spend down is necessary
Medicaid long term care benefits — the type that covers nursing home care and home and community based services — are only available to people who meet strict financial eligibility requirements. In most states the asset limit for a single individual applying for Medicaid nursing home benefits is approximately $2,000 in countable assets.
For many people this limit is well below the value of their savings, investments, and other assets. Before Medicaid will begin paying for their care they must reduce their countable assets to the eligibility limit through a process called spend down.
What assets are counted
Not all assets are counted toward Medicaid eligibility. Countable assets — those that must be spent down — typically include:
- Cash and checking and savings account balances
- Certificates of deposit
- Stocks, bonds, and mutual funds
- Investment accounts
- Additional real estate beyond the primary home
- Cash value of life insurance above certain limits
- Retirement accounts in some states
What assets are exempt
Certain assets are exempt from Medicaid’s asset calculations and do not need to be spent down. Exempt assets typically include:
- The primary residence — subject to certain conditions including that the applicant intends to return home or a spouse or dependent relative lives there
- One vehicle regardless of value in most states
- Personal belongings and household furnishings
- Prepaid funeral and burial arrangements up to certain limits
- Term life insurance with no cash value
- Certain retirement accounts in some states
Legitimate ways to spend down assets
When a spend down is necessary it is important to use countable assets for legitimate purposes rather than simply giving them away which could trigger a Medicaid penalty period. Legitimate spend down strategies include:
- Paying off debt — using countable assets to pay off a mortgage, car loan, credit card debt, or other outstanding obligations reduces countable assets without triggering a penalty
- Home repairs and modifications — spending money on repairs, renovations, or accessibility modifications to the primary residence converts countable assets into an exempt asset
- Prepaying funeral and burial expenses — prepaying funeral and burial arrangements up to allowable limits converts countable assets into an exempt asset
- Purchasing exempt assets — converting countable assets into exempt assets such as a vehicle or household furnishings
- Paying for care — using assets to pay for medical care, home care, or other care related expenses before Medicaid eligibility begins
- Medical equipment and supplies — purchasing medically necessary equipment and supplies
- Legal and professional fees — paying for elder law attorney fees, financial planning, and other professional services related to Medicaid planning
What not to do during a spend down
It is critical to avoid transferring assets for less than fair market value during the spend down process. Giving money or property to family members, friends, or charities for less than fair market value during the five year look-back period can trigger a Medicaid penalty period — a period of ineligibility during which Medicaid will not pay for care.
Common mistakes to avoid include:
- Making large cash gifts to children or grandchildren
- Transferring ownership of the home to a family member for little or no compensation
- Selling assets for significantly less than their fair market value
- Adding family members to bank accounts and then transferring funds to them
Spend down for married couples
When one spouse needs nursing home care and the other remains at home the spend down rules are more favorable. Federal spousal impoverishment protection rules allow the community spouse — the one remaining at home — to keep a portion of the couple’s combined countable assets called the community spouse resource allowance — CSRA.
The CSRA varies by state but is typically between approximately $29,000 and $148,000 as of recent years. This means that the couple does not need to spend down all of their combined assets — only the amount above the community spouse’s protected share plus the nursing home spouse’s $2,000 allowance.
Spend down and income
In addition to asset limits Medicaid also has income limits. In most states a person applying for nursing home Medicaid must apply virtually all of their monthly income toward the cost of their care — called the patient pay amount — with Medicaid covering the remainder. Some states use a medically needy spend down for income meaning that people with income above the Medicaid limit can qualify by spending their excess income on medical bills.
Working with an elder law attorney
The spend down process can be complex and mistakes can be costly. Working with an elder law attorney who specializes in Medicaid planning can help families:
- Identify which assets are countable and which are exempt
- Develop a legitimate spend down strategy that protects as many assets as possible
- Avoid transfers that could trigger penalty periods
- Understand the spousal impoverishment protections available to married couples
- Navigate the Medicaid application process
Key terms to know
- Spend down — the process of reducing countable assets to meet Medicaid eligibility requirements
- Countable assets — assets that are included in Medicaid’s asset calculations
- Exempt assets — assets that are not counted toward Medicaid eligibility
- Look-back period — the five year period during which Medicaid reviews asset transfers
- Penalty period — a period of Medicaid ineligibility resulting from disqualifying asset transfers
- Community spouse resource allowance — CSRA — the amount of assets the community spouse is allowed to keep
- Patient pay amount — the portion of a nursing home resident’s income that must be applied toward the cost of care
- Medically needy spend down — a Medicaid eligibility pathway for people with income above the standard limit who can qualify by spending excess income on medical bills
Sources
- Medicaid.gov — Official U.S. Government Medicaid Information
- Centers for Medicare and Medicaid Services
- National Academy of Elder Law Attorneys — naela.org
- USA.gov
This article is for general informational purposes only and does not constitute legal or financial advice. Medicaid spend down rules vary significantly by state and are subject to change. Consult a licensed elder law attorney for guidance specific to your situation.