Medicaid Spend Down: An Overview
For Medicaid eligibility for long-term care, an applicant must have income and assets under a specified amount (as well as have a functional need for long-term care). If the applicant’s income or countable assets exceed Medicaid’s financial limits in their state, it is possible to become eligible by “spending down” one’s income or assets to the point where they become financially eligible. However, there are many Medicaid spend down rules about how one can legally spend down their financial resources, and if these rules are violated, the applicant will be denied Medicaid.
The income and asset limits for Medicaid do not remain consistent across the United States, nor do they remain the same even within each state. The limits often vary based on the specific Medicaid program and on one’s marital status. However, one fact remains the same: all Medicaid programs for the elderly require either restricted income or assets or both. This holds true if one is applying for in-home care via a state’s regular Medicaid program, institutional Medicaid / nursing home care, or assisted living services under a Home and Community Based Services (HCBS) Medicaid Waiver.
This article discusses spend down of both income and assets, but the main focus will be on asset spend down, which is more complicated than income spend down. Furthermore, asset spend down is applicable across the 50 states, while income spend down is only relevant in some of the states.
Asset Spend Down
An applicant must have assets, also called resources, under a certain amount to qualify for Medicaid. However, being over the asset limit does not mean one cannot qualify for Medicaid benefits. When considering one’s assets, it’s important to be aware that some assets are exempt, or said another way, not counted towards the asset limit. (Further detail is below under Countable Assets and Non-Countable Assets). If one is over the asset limit after considering all non-countable assets, one will have to “spend down” assets in order to meet Medicaid’s asset limit. That said, one needs to proceed with caution when doing so. Medicaid has a look-back period in which all past transfers are reviewed. If one has gifted assets or sold them under fair market value during this timeframe, a period of Medicaid ineligibility will ensue.
Income Spend Down
As previously noted, in order for applicants to be eligible for Medicaid, they must have limited income. If one has income above the qualifying limit, one can still qualify for Medicaid via spend down. In many states, this option is known as the “Medically Needy Pathway”. Depending on the state in which one resides, “medically needy” may be called something different. For example, the program might be called any of the following: Share of Cost, Excess Income, Surplus Income, or simply, Spend Down. Regardless of name, these programs allow applicants to spend excess income on medical bills and expenses, such as past due medical charges, prescription medications, health insurance premiums, and doctors’ appointments. Once Medicaid applicants have spent their excess income (the amount over the income limit) on medical expenses, they will be Medicaid eligible for the remainder of the “spend down” period, which is between 1 and 6 months.
Not all states have a medically needy pathway. These states are called income cap states, and in these states, Medicaid applicants can still become income eligible via Qualified Income Trusts (QITs). Commonly called Miller Trusts, an applicant’s excess income is directly deposited into an irrevocable trust, which means it cannot be changed or dissolved. A third party, called a trustee, controls the QIT. The money in the trust is exempt from Medicaid’s income limit, and it is only available for very limited purposes, such as paying for the senior applicant’s long-term care and medical related expenses.
Understanding Exempt vs. Non-Exempt Assets
Not all assets held by the applicant are counted towards Medicaid’s asset limit. When determining if one is over the asset limit, it’s critical to know which assets are counted and which are not.
Countable (non-exempt) assets are counted towards the asset limit. They are also sometimes referred to as liquid assets, which are assets that are easily converted to cash. Countable assets include cash, bank accounts (checking, money market, savings), vacation houses and property other than one’s primary residence, 401K’s and IRA’s that are not in payout status (depending on the state in which one resides, this isn’t always the case), mutual funds, stocks, bonds, and certificates of deposit.
Non-Countable (exempt) assets are not counted towards Medicaid’s asset limit. Exempt assets include one’s primary home, given the individual applying for Medicaid, or their spouse, lives in it. Some states allow “intent” to return home to qualify the home as an exempt asset. There is also a home equity value limit for exemption purposes. (Home equity value is the market value of one’s home minus any debt against it). As of 2020, the equity value cannot exceed $595,000, or $893,000, depending on the state in which one resides. However, there is no equity value limit if a Medicaid applicant’s spouse lives in the home. Another exception to the rule is California, which has no home equity value limit whatsoever (for certain types of Medicaid). Other exempt assets include pre-paid burial and funeral expenses, an automobile, term life insurance, life insurance policies with a cash value no greater than $1,500 (this limit can be the combined face value of multiple small life insurance policies), household furnishings / appliances, and personal items, such as clothing and engagement / wedding rings.
Determine Your Asset Limit and How Much Must be Spent Down
When considering the gray line between exempt and non-exempt assets and the complicated rules governing single applicants versus married applicants, it can be difficult to determine if one is over the Medicaid asset limit, and if so, by how much. Furthering the complexity is the fact that asset limits vary based on the state in which one resides.
It is fairly standard that a single elderly applicant is limited to $2,000 in countable assets, but again, this figure varies based on the state in which one resides. For instance, in Connecticut, single applicants can keep only $1,600 in assets, Mississippi allows up to $4,000 in assets, and New York has a much higher asset limit of $15,750 (in 2020).
In most cases, married couples (with both spouses as applicants) are able to retain up to $3,000 of their combined countable assets. As with individual applicants, there are exceptions to this rule based on the state in which one resides. Furthermore, the asset limit sometimes differs based on the Medicaid program in which the couple is applying. For example, the above $3,000 asset limit is common when both spouses apply for their state’s regular Medicaid program. (For the elderly, this program is often called Aged, Blind and Disabled Medicaid). For couples who are applying for nursing home Medicaid or a HCBS Medicaid Waiver, states often consider each spouse as a single applicant, allowing each spouse $2,000 in assets, as Oklahoma does. Put differently, together a couple can often keep up to $4,000 in assets. Other exceptions exist. North Dakota allows married couples to keep up to $6,000 in assets, regardless of if they are applying for regular Medicaid, nursing home Medicaid, or a HCBS Medicaid Waiver. Rhode Island couples applying for regular Medicaid can retain up to $6,000 in assets and up to $8,000 in assets if they are applying for nursing home Medicaid or a HCBS Medicaid Waiver.
Married Couples with One Applicant
Even when only one spouse of a married couple is applying for Medicaid, the couples assets are considered jointly owned and counted towards the asset limit. In the case of one spouse applying for nursing home Medicaid or long-term care via a HCBS (Home and Community Based Services) Medicaid waiver, the applicant spouse is generally able to retain up to $2,000 in assets. The non-applicant spouse, commonly called the community spouse, is able to retain a higher number of the couples’ combined assets. As of 2020, this figure, called the Community Spouse Resource Allowance (CSRA), can be as great as $128,640. That said, there are a few exceptions, such as Illinois, which only allows a community spouse to keep up to $109,560 in assets, and South Carolina, which allows the community spouse to keep assets up to $66,480.
The CSRA is further complicated by the fact that some states are 50% states, while others are 100% states. In very simplified terms, in 50% states, the community spouse can keep up to 50% of the couples’ assets, up to the maximum allowable amount. (As mentioned above, this figure, as of 2020, is $128,640 in most states). There is also a minimum resource allowance, which as of 2020, is $25,728. This means that if the combined assets of the couple are at or below $25,284, the community spouse is able to retain 100% of the assets up to this figure. In 100% states, the community spouse is able to retain 100% of the couples’ joint assets, up to the maximum allowable amount. (Again, this figure, as of 2020, is $128,640 in most states).
Please note that when only one spouse of a married couple applies for regular Medicaid (Aged, Blind and Disabled Medicaid), there is no Community Spouse Resource Allowance. In this case, the couple is generally limited to $3,000 total in assets. As with individual applicants and married couples in which both spouses are applying, there are some exceptions.
How to Spend Down Assets to Become Eligible
If an applicant is over the asset limit for Medicaid eligibility, spending down excess non-exempt assets becomes paramount. As mentioned above, one must proceed with caution in order to avoid violating Medicaid’s look-back period, which is 60-months in every state but California. (California has a 30-month look-back period). Fortunately, there are many ways for one to spend down assets without violating the look-back rule, and hence, avoid being penalized with a period of Medicaid ineligibility.
- One can pay off accrued debt, such as loans (vehicle, mortgage, personal, etc.) and credit card balances.
- One can purchase medical devices that are not covered by insurance, like dentures, eyeglasses, and hearing aids.
- One can make home reparations and modifications to improve access and safety, as well as build on to their existing home, such as adding a first floor bedroom or bathroom.
- Vehicle repairs, such as replacing the battery, getting an engine tune-up, or replacing old tires are also a way to spend down assets, as is selling an existing car at fair market value and purchasing a new one.
- One can create a formal life care agreement, often referred to as personal care agreement. This type of agreement is generally between an elderly care recipient and a relative or close family friend. It allows the care recipient to spend down their excess assets while receiving needed care. It is vital this type of contract is drafted properly and that pay is reasonable for the area in which one lives. If it isn’t, one could be in violation of Medicaid’s look-back period.
- One can purchase an annuity, which in simple terms, is a lump sum of cash converted into a monthly income stream for the Medicaid applicant or their spouse. The payments can be for a set period shorter than one’s life expectancy or equal to the beneficiary’s life expectancy.
- One can purchase to purchase an irrevocable funeral trust, which can only be used for the expenses of a funeral and burial. In general, up to $15,000 per spouse can be placed in a funeral trust. However, this amount varies by state.
- One can also cancel life insurance policies that have a cash value over $1,500. (Remember, life insurance policies with a combined face value of $1,500 or less are exempt from Medicaid’s asset limit). Therefore, if one has a policy with a cash value over $1,500, it’s best to cancel the policy or decrease the cash value. However, when canceling a policy or decreasing the cash value, the policyholder is paid either the cash value or the difference in cash value. Therefore, the cash received must be spent on exempt assets, such as those mentioned above.
Seek Assistance from a Medicaid Planning Professional
Asset and income spend down can be complicated, and if not carefully done, can result in Medicaid ineligibility. Professional Medicaid planners are extremely instrumental in assisting one in the Medicaid application process, particularly if one is over the income and / or asset limit(s). As mentioned above, being over the limit(s) does not mean one cannot become Medicaid eligible. Professional Medicaid planners are able to assist one in reallocating income and / or assets, maintaining maximum assets for healthy spouses, and “spending down” assets without violating Medicaid’s look-back period. Click here for assistance in finding a Medicaid planner.