What is Medicaid Spend-Down?

The Medicaid program is a valuable health care resource for those who need long term care or nursing home care, but there are strict limits on how much income or assets a person can have and still be eligible for the program. A person may become eligible for the program by reducing their amount of income or assets. This is the process of Medicaid spend-down. Medicaid spend-down is a financial process that allows individuals and married couples with assets or income above Medicaid eligibility limits to qualify by reducing their countable assets. This article focuses on asset spend-down.

Only countable, or non-exempt, assets are considered when determining if one is over the asset limit for Medicaid. Countable assets include cash, bank accounts, vacation homes, mutual funds, stocks, bonds, and certificates of deposit. In most states, a person’s IRA or 401(k) is a countable asset. Exempt assets include your primary residence, personal belongings, and household items, one vehicle, and prepaid funeral contracts and trusts that are irrevocable. An irrevocable funeral contract or trust is one that cannot be altered or canceled.

If a Medicaid applicant is over the asset limit for eligibility, completing the spend-down process is especially important. A person must know what assets can be exempt and must be mindful of Medicaid’s 5-year Look-Back Period. Medicaid reviews all past transfers of assets during this Look-Back Period. If an asset is gifted or sold for less than fair market value during this period, the Medicaid applicant may incur a period of ineligibility for Medicaid. Here are ways to spend-down assets to qualify for Medicaid benefits:

·       Purchase or improve your primary residence, vehicle, and/or personal property.

·       Pay off debts.

·       Purchase a preneed funeral contract or trust. These policies are generally exempt from Medicaid eligibility limits, and they also set aside funds for the family to use when a funeral becomes necessary. Most states allow up to $17,500 dollars for each member of an immediate family to have a funeral trust. These products must be irrevocable, meaning that they cannot be changed, or canceled, or they would violate the Look-Back Rule.

·       Purchase a Medicaid Compliant Annuity. This is a single premium immediate annuity that converts assets into a monthly income stream, allowing one to become eligible for Medicaid quickly while preserving some economic value for the applicant. This annuity can be used as the only spend-down tool, or as part of the others above.

Medicaid spend-down is a vital process for individuals and married couples who need nursing home care and have medical expenses, but have income or assets above Medicaid eligibility limits. Medicaid planners can assist with navigating state-specific Medicaid rules and requirements on spend-down amounts, asset transfers and penalties. It is highly recommended that you consult with an elder law attorney or Medicaid planner who is knowledgeable about Medicaid eligibility and spend-down.