What is Medicaid Spend-Down & How Does It Work?

Introduction & Definitions

To qualify for Medicaid or Medicaid long term care, seniors must meet several eligibility requirements, including having a need for care and having limited income and assets. These limits vary by state, by marital status (single versus married) and, in many states, by program. For instance, the income and asset limits might be different for the regular state Medicaid program versus a Home and Community Based Services (HCBS) Medicaid waiver or nursing home Medicaid. If all eligibility requirements for Medicaid are met, with the exception of income and / or assets, one may still qualify for Medicaid. This is done via a program that is most commonly referred to as Medicaid “Spend-Down.”

In this article, we will define income spend-down, asset spend-down and discuss what can be done to meet these requirements. However, the majority of the article will focus on asset spend-down, as that is the more complex topic and what most people think of when hearing the phrase “Medicaid Spend-Down.”

Income Spend-Down

When an elderly individual or married couple has monthly income in excess of the Medicaid eligibility requirement for their state, this does not automatically equate to Medicaid disqualification. Via income spend-down, excess income can be “spent down” on medical bills each month in order to qualify for Medicaid. Medical bills can include:

• Health insurance premiums
• Prescription drugs
• Physician visits
• Unpaid medical bills

While commonly known as a “spend-down” program, some states refer to it by different names, including:

• Surplus Income
• Excess Income
• Share of Cost
• Medically Needy

Please note that not all states have a medically needy pathway. Or, stated differently, not all states allow applicants to “spend down” their extra income on medical expenses.

Some states, which are called income caps states, allow applicants with excess income to qualify for Medicaid by converting their extra income into a Qualified Income Trust (QIT), also called a Miller Trust. In simple terms, excess income, income over the Medicaid income limit, is directly deposited into an account each month. It is then spent on the elderly individual’s care and / or medical expenses. To learn more about this option, click here. As with the medically needy option, not all states allow QITs. Learn if your state is an income cap/categorically need state or a spend-down/medically needy state.

Asset Spend-Down

Having assets over the Medicaid asset limit does not mean a single senior or married elderly couple will not be able to receive Medicaid benefits. It should be noted that assets are also referred to as “resources,” and not all assets are “countable.” For example, one’s home and vehicle are exempt / non-countable assets. If all other eligibility requirements are met, one will have to simply “spend-down” their assets in order to reach the Medicaid asset limit set by their state. While asset limits vary by state, all states allow asset spend-down.

Countable vs. Non-Countable Assets 

When thinking about asset spend-down for Medicaid eligibility, it is extremely important to know which assets are considered countable and which ones are considered non-countable. Non-countable assets are also called “exempt” assets. And countable assets are sometimes referred to as “available” assets. Non-countable assets do not count toward the Medicaid asset limit.

All states have a countable asset limit, but the limit depends on the state. Generally speaking, most states allow a single Medicaid applicant to retain up to $2,000 in countable assets. And married applicants, where both spouses are applying for Medicaid, are able to keep up to $3,000. In January 2024, California eliminated asset limits and no longer considers an applicant’s assets when determining eligibility.

As a side note, some states consider married applicants applying for an HCBS Medicaid waiver or nursing home Medicaid as single applicants. Therefore, each spouse is allowed the asset limit of a single applicant.

Married couples, where only one spouse is applying for long term care Medicaid, have different asset limits. Typically, the spouse who is applying for Medicaid is able to keep $2,000 in non-exempt assets, while the healthy spouse can keep up to $148,620 (in 2024). Again, the asset limits vary by the state in which one resides. Thus, it is extremely important to know the asset limit for one’s state of residence.

Countable Assets include:

• Cash
• Savings / Checking Accounts
• Property (while one’s primary home is considered a non-countable asset, property that is above and beyond one’s primary residence, such as a vacation home, is considered a countable asset) 
• Retirement Accounts
• IRAs / 401Ks are sometimes considered countable assets unless they are currently paying out. However, this varies depending on the state in which one resides. For instance, some states do not count the non-applicant spouse’s IRAs, while some states do not count the applicant spouse’s or the non-applicant spouse’s IRAs.
• CDs, Mutual Funds, Bonds, and Stocks

Non-Countable Assets include:

• Primary Home – In order for the home to be exempt, the Medicaid applicant must live in their home (or have an “intent” to return to their home) or have a spouse who lives in it. Some states also set a limit to the equity value of one’s home for exemption purposes. For example, in 2024, in Alabama, one’s home is exempt up to a value of $713,000, and in Washington, one’s home may be valued up to $1,071,000. Note that if a spouse continues to live in the home, there is no home equity value limit. 
• Pre-Paid Funeral / Burial Expenses 
• One Vehicle
• Whole Life Insurance Policies with a Combined Cash Value under $1,500
• Term Life Insurance
• Household Effects / Appliances / Personal Items
• Jewelry, Engagement, and Wedding Rings & Family Heirlooms

Calculating the Spend Down Amount

While one may know it’s necessary to spend-down some of their countable assets to qualify for Medicaid, the exact amount that needs to be spent down may be unclear. This is because the asset limit varies by state, as well as if one is single or married, and if married, if one or both spouses are applying for Medicaid. While the preceding factors are relatively simple to calculate, states also vary in the way they calculate the amount of countable assets a healthy spouse can keep. This adds to the complexity of the calculation.

Individuals
The asset limit for a single elderly individual for long-term care is $2,000 in most states. However, there are some exceptions. For example, as of 2024, the asset limit for a single individual in Connecticut is $1,600, in D.C. it is $4,000, and in Illinois it is $17,500. And California has eliminated the asset rule altogether.

Married Couples with Both Spouses Applying for Medicaid
When a couple is married, all assets are considered joint assets. Learn more about joint assets here. In most states, the asset limit for a couple where both spouses are applying for Medicaid is $3,000. Again, there are exceptions to this rule. For instance, in 2024, the asset limit in this situation for long-term care is $4,000 in Arizona and $6,000 in North Dakota.

Married Couples with Only One Spouse Applying for Medicaid
In the case where only one spouse is applying for long term care Medicaid, the spouse who is applying for benefits is generally able to retain $2,000 in assets. Again, this figure varies by state. The “healthy spouse” is also allowed to keep some assets, referred to as a spousal resource allowance. As of 2024, this amount is between $30,828 and $154,140. Furthering the complexity is the fact that there are 50% states, 100% states, and 100% special rule states.

• 50% States – In 50% states, the spouse who is not applying for Medicaid is able to keep up to 50% of the couple’s combined assets (generally all assets are considered joint assets) up to the 2024 maximum amount of $154,140. In addition, the spouse applying for Medicaid is able to retain a set amount. In most cases, this amount is $2,000. However, if the couple’s joint assets are under the 2024 minimum of $30,828, the healthy spouse is able to retain all of the assets.
• 100% States – In 100% states, the spouse applying for Medicaid is able to retain their portion (generally $2,000). And the healthy spouse is able to keep up to 100% of the rest of the couple’s combined assets, up to the $154,140 maximum. As of 2024, the following states are 100% states: Alaska, Colorado, Florida, Georgia, Hawaii, Illinois, Louisiana, Maine, Minnesota, Mississippi, Nevada, South Carolina, Vermont, and Wyoming.
• 100% Special Rule States – In just two states, in 2024, the maximum amount of assets the “healthy spouse” is able to retain is different from the $154.140 that most states allow. South Carolina allows the “healthy spouse” to keep up to 100% of $66,480, and Illinois allows up to $129,084. The spouse applying for Medicaid is still able to receive a portion of the couple’s assets. Again, this amount is generally $2,000. 

Strategies to Spend Down Assets to Gain Medicaid Approval

When one is over the Medicaid asset limit, it becomes imperative to spend down excess, non-exempt assets in order to qualify for Medicaid. In general, any spending is fine, so long as one’s assets are not given away or sold for significantly less than they are worth. Gifting one’s assets can put one in violation of Medicaid’s 5-Year Look-Back Period, resulting in a period of Medicaid ineligibility. It should also be mentioned that one should not spend down non-exempt assets by purchasing other non-exempt assets. Because those newly purchased assets would still be counted.

Below is a list of common ways that individuals and / or couples can spend-down in order to gain Medicaid eligibility without violating the look-back period. It is suggested one contact a Medicaid expert before undertaking any of the following purchases. Subtleties exist that can result in ineligibility for the program.

Home Improvements
Since one’s home is considered a non-countable asset, it makes sense to put extra assets into it, which may even be seen as an investment. Home improvements include:

• Putting on a new roof
• Adding a wheelchair ramp or a stairlift
• Building a handicap-accessible bathroom
• Updating plumbing
• Building a shed in the backyard

Vehicle Repairs or Purchase
One’s vehicle is also considered an exempt asset, so putting money into making repairs to it is another way to spend-down assets. For example, one might put on a new muffler, fix the air conditioner, or purchase new tires. Or one could simply sell their old car and purchase a new one. However, remember that only one vehicle is an exempt asset.

Uncovered Medical Devices
Examples include hearing aids, dentures, and eyeglasses.

Pay Off Debt
One can pay off credit card debt, their mortgage loan, their automobile loan, etc.

Hire a Family Member to Provide Care
A Family Caregiver Contract is an agreement between an elderly individual and, in most cases, a family member. This is a way to compensate a relative or close friend (on a monthly basis) in order to provide care. While this type of arrangement is most common for an adult child to care for an aging parent, other types of arrangements can be made. Make note, the pay must be reasonable for the area in which one resides.

Create a Life Care Agreement
Life Care Agreements, also called Personal Care Agreements, are formal contracts between an elderly individual and, generally, a family member or close friend. Generally, the caregiver is paid a lump sum for agreeing to care for the senior for their life expectancy. Make note, the pay, with consideration of the senior’s life expectancy, must be fair and reasonable. Learn more here.

Purchase an Irrevocable Funeral Trust
An irrevocable funeral trust is a contract between an individual and, in most cases, a funeral home. The money that is put into the trust cannot be used for anything aside from funeral / burial expenses. This might include:

• Funeral director services
• Casket
• Burial plot

The amount one can put in an irrevocable funeral trust depends on the state in which one resides. In most cases, this amount is up to $15,000 per spouse. Learn more here.

Purchase an Annuity
Annuities are a way to convert non-exempt assets into a stream of income. Basically, an individual pays a lump sum of money. In exchange, they or their spouse will receive monthly payments for a set period of time or the duration of their life.

Cancel Life Insurance Policies with a Cash Value Over $1,500
Since life insurance policies with a cash value of $1,500 or less are exempt, it makes sense to cancel insurance policies that have a cash value over $1,500. Another option is to decrease the cash value to $1,500 or less. When one cancels their policy or decreases the cash value of the policy, the extra cash value goes to the policyholder, and must be spent. One way to do so is to purchase an irrevocable funeral trust with the funds.

Medicaid Spend-Down Examples

Example 1 – Billy is a single, elderly resident of Arkansas who requires long-term Medicaid care in his home. The asset limit is set at $2,000 in 2024, and he has a total of $10,000 in liquid assets, meaning assets that can be converted into cash. This puts him at $8,000 over the Medicaid asset limit for Arkansas, which means he must spend the excess $8,000 in order to qualify for Medicaid. He buys a new pair of hearing aids for $3,000, fixes the leaks in his roof for $2,500, and uses the remaining $2,500 to pay off credit card debt. Therefore, he has “spent-down” the excess $8,000 in assets and is eligible for Medicaid.

Example 2 – Michael and his spouse, Joann, are both in their 80’s and are in poor health. Both are applying for long term care Medicaid. Michael will soon require nursing home care, but Joann’s health is better than Michael’s, and with assistance, she can continue to live in the home.

Living in South Carolina, the asset limit for a married couple with both spouses applying for long term care Medicaid is $4,000 in 2024. As a couple, they have $46,000 in countable assets. In this case, $42,000 must be “spent down” in order for them to be eligible for Medicaid services.

The couple has an adult child who is willing to care for Joann at home, so a caregiver agreement is drawn up for 15 months at $2,880 / month ($18 / hour, 8 hours a day, 5 days / week). In this case, the monthly wages paid to the adult child (15 x $2,880 = $43,200) more than covers the amount of excess assets that the couple needs to spend down, allowing the couple to become Medicaid eligible.

Professional Medicaid Assistance

If you or your loved one is over the asset limit for your state, that does not automatically mean that you will be denied Medicaid benefits. However, it is strongly advised that you seek a professional Medicaid planner, as applying for Medicaid can be a complicated process, particularly if you have excess assets. If you’re married and only one spouse is applying for Medicaid, a professional Medicaid planner can assist in helping the “healthy” spouse get the maximum resource allowance.

It’s always best to plan for the future. So one should not hesitate to seek professional advice well in advance of when one thinks they might be close to becoming financially eligible for Medicaid.

While one may think to request assistance from their local Area Agency on Aging (AAA) office, this is not a good option. They cannot offer advice on how to gain Medicaid eligibility. For this type of assistance, one needs to turn to the private sector, such as a professional Medicaid planner. Individuals in this profession have practical experience in asset spend-down and can assist you and / or your loved ones in appropriately spending down assets in order to qualify for Medicaid.