Spending Down Assets to Become Medicaid Eligible for Nursing Home / Long Term Care

Last updated: January 26, 2024

 

What is Medicaid Spend Down

To be eligible for Medicaid long-term care (at home, in the community, or in a nursing home), an applicant must have income and assets under a specified amount. If the applicant’s income or countable assets exceed Medicaid’s financial limits in their state, they can “spend down” their income and / or assets to become financially eligible. There are, however, Medicaid Spend Down rules about how one can “spend down” their financial resources. One such rule prohibits gifting, and if this rule, or any of the other rules are violated, the applicant will be denied Medicaid.

While the “Spend Down Program” can refer to both income and assets, it is much more common when discussing assets. Therefore, the majority of this article will focus on Asset Spend Down.

Income and asset limits for Medicaid are not consistent across the United States, nor do they remain the same even within each state. Asset Spend Down is applicable across the 50 states, while Income Spend Down is only relevant in some states. 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, Institutional Medicaid / nursing home care, or assisted living services under a Home and Community Based Services (HCBS) Medicaid Waiver.

 A Medicaid Spend Down Calculator is available here that will give an applicant an estimate of how much of their retirement savings and assets must be spent to become Medicaid-eligible.

 

Asset Spend Down

An applicant must have assets, also called resources, under a certain amount to qualify for Medicaid. If one is over the asset limit after considering all non-countable assets, one can “spend down” assets in order to meet Medicaid’s asset limit. This should be done with caution. 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 Penalty Period of Medicaid ineligibility will be established.

California has no asset limit (eff. 1/1/24), and therefore, Asset Spend Down is not relevant for this state.

 

Income Spend Down

An applicant must have limited monthly income to be eligible for Medicaid. If one has income above the qualifying limit, one can still qualify for Medicaid via spend down. In many states, this option is called the “Medically Needy Pathway”. Depending on the state, “medically needy” may 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 (i.e., medical charges, prescription medications, health insurance premiums, doctors’ appointments). Once Medicaid applicants have spent their income down to the medically needy income limit (MNIL) on medical expenses, they will be Medicaid-eligible for the remainder of the “spend down” period, which is between 1 and 6 months. Learn more about the Medically Needy Pathway and see MNILs by state.

States that do not allow the Medically Needy Pathway are called Income Cap States. 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. The funds are only available for very limited purposes, such as paying for the senior applicant’s long-term care and medical related expenses.

 Names and Misnomers
Medicaid is called by different names in different states. Spend down in California is called “Medi-Cal Spend Down”. In Illinois and other states, it is called “Medical Assistance Spend Down”. “Medicare Spend Down” is simply a misnomer. Medicare has no asset limit, and therefore, Medicare Spend Down does not exist.

 

Understanding Exempt vs. Non-Exempt Assets

Not all assets owned by the applicant are counted towards Medicaid’s asset limit. When determining if one is over the asset limit, it is critical to know which assets are counted and which are not.

Countable Assets
Countable (non-exempt) assets are counted towards the asset limit. Sometimes called liquid assets, these assets are easily converted to cash. They include cash, bank accounts (i.e., checking, money market, savings), vacation houses and property other than one’s primary residence, mutual funds, stocks, bonds, and certificates of deposit. In approximately 37 states, an applicant’s 401K / IRA is a countable asset. The remaining states allow them to be exempt, but many states require they be in pay out status. This means the owner of the account is receiving the required minimum distribution. Furthermore, approximately 29 states count a non-applicant spouse’s retirement account. More.

Non-Countable Assets
Non-Countable (exempt) assets are not counted towards Medicaid’s asset limit. Exempt assets include one’s primary home, given certain conditions are met. The home is automatically exempt if a non-applicant spouse lives in it. If not, the Medicaid applicant must live in their home, or have Intent to Return home, and in 2024, their home equity interest generally must be no greater than $713,000 or $1,071,000. Home equity value is the market value of one’s home minus any debt against it. Equity interest is the portion of the home equity value owned by the applicant. Other exempt assets include pre-paid burial and funeral expenses, an automobile, term life insurance, life insurance policies with a combined cash value limited to $1,500, household furnishings / appliances, and personal items, such as clothing and engagement / wedding rings. Assets held in irrevocable trusts or Asset Protections Trusts are not counted towards the asset limit. However, they do violate Medicaid’s Look-Back Period, and therefore, must be created well in advance of the need for Medicaid-funded long-term care.

 

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 that asset limits vary based on the state in which one resides. One easy method is to use our Medicaid Spend Down Calculator.

Individual Applicants
In most states, a single elderly applicant is limited to $2,000 in countable assets. This figure may vary based on the state in which one resides. As an example, in 2024, the following states have the following asset limits: Connecticut ($1,600), Mississippi ($4,000), Illinois ($17,500), and New York ($30,182).

Married Couples
Generally, married couples (with both spouses as applicants) can keep 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 for 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. In Arizona, Oklahoma, and Oregon, each spouse is allowed $2,000 in assets (a combined $4,000). 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 keep $6,000 in assets. However, if they are applying for Nursing Home Medicaid or a HCBS Medicaid Waiver, they can keep $8,000 in assets.

Married Couples with One Applicant

Even when only one spouse of a married couple applies for Medicaid, the couple’s assets are considered jointly owned and are counted towards the asset limit. When one spouse applies for Nursing Home Medicaid or long-term care via a HCBS (Home and Community Based Services) Medicaid Waiver, the applicant spouse is generally limited to $2,000 in assets. The non-applicant spouse, commonly called the community spouse, can keep a higher amount of the couples’ combined assets as a Community Spouse Resource Allowance (CSRA). In 2024, this can be as much as $154,140. There are a few exceptions and the following states limit their CSRA as follows: Illinois ($129,084) and South Carolina ($66,480).

Complicating calculation of the CSRA is that there are both 50% states and 100% states. Simplified, in 50% states, the community spouse can keep half of the couple’s assets, up to the maximum allowable CSRA ($154,140 in most states). These states also have a Minimum Community Spouse Resource Allowance. In 2024, this is generally $30,828. If the non-applicant’s half of the assets falls under this figure, they are able to keep all of the couple’s assets up to $30,828. In 100% states, the non-applicant spouse can keep all of the couples’ joint assets, up to the maximum allowable amount of $154,140 (in most states).

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 applicants, there are some exceptions.

 The CSRA is further complicated by state, it is recommended one consult with a Medicaid Planning professional.

 

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. However, one must know the allowable Medicaid Spend Down items and they must proceed with caution in order to avoid violating Medicaid’s 60-month Look-Back Period. Note that California has a more lenient Look-Back Period of less than 30-months and will eliminate it altogether by June of 2026. Additionally, New York currently has no Look-Back Period for long-term home and community based services, but will be implementing a 30-month “look back” no sooner than March 31, 2024. 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.

Allowable Medicaid Spend Down Items (Effective Jan. 2024)
Accrued Debt Pay off accrued debt (i.e., personal and vehicle loans, mortgages, and credit card balances).
Medical Devices Purchase medical devices that are not covered by insurance (i.e., dentures, eyeglasses, and hearing aids).
Home Modifications Make home reparations and modifications to improve access and safety, as well as build on to one’s existing home (i.e., adding a first floor bedroom or bathroom).
Vehicle Repairs Make vehicle repairs (i.e., replacing the battery, getting an engine tune-up, or replacing old tires). Sell an existing car at fair market value and purchase a new one.
Life Care Agreements Create a formal Life Care Agreement, often called a 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 the contract be 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.
Annuities 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.
Irrevocable Funeral Trusts Purchase an Irrevocable Funeral Trust, which can only be used for funeral and burial expenses. In general, up to $15,000 per spouse can be placed in a funeral trust. However, this amount varies by state.
 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. When canceling a policy or decreasing the cash value, the policyholder is paid either the cash value or the difference in cash value. The cash received must be spent on exempt assets, such as those mentioned above.

 

Seek Assistance from a Medicaid Planning Professional

Asset Spend Down can be complicated. If not carefully done, it can violate Medicaid’s Look-Back Rule and result in a Penalty Period of Medicaid ineligibility. Professional Medicaid Planners can be extremely instrumental in assisting one in the Medicaid application process, particularly if one is over the income and / or asset limit(s). Being over the limit(s) does not mean one cannot become Medicaid-eligible. Professional Medicaid Planners can 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. Find a Medicaid Planner.

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