What is Medicaid Spend Down?
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- Article Summary
- What is Medicaid’s Income Limit?
- What Counts as Income for Medicaid Eligibility?
- What is Medicaid Income Spend Down?
- What are Income Cap States, QITs, and Miller Trusts?
- What are Medicaid’s Asset Limits?
- Which Assets are Exempt from Medicaid?
- What is Medicaid Asset Spend Down?
- What are Spousal Impoverishment Rules?
- Consult with a Medicaid Planner to Spend Down Strategically
- Medicaid Eligibility Tools and Resources
This article provides an overview of Medicaid eligibility requirements, including income and asset limits, and how to use Medicaid Spend-down to qualify for coverage.
- Medicaid eligibility requirements vary from state to state.
- Income and asset limits must be met in order to qualify for Medicaid coverage.
- Spend-down strategies can be used to reduce countable assets and qualify for Medicaid.
Medicaid is a program that provides health insurance and long-term care for low-income Americans. It’s jointly run by the federal and state governments. Specific benefits, program details, and eligibility requirements vary from state to state.
Generally speaking, in order to receive Medicaid-funded health insurance, your loved one must meet their state’s financial eligibility requirements. For Medicaid to cover long-term care, your loved one must also meet the “functional eligibility” criteria, which is determined by a medical specialist.
In many cases, older adult meets the functional eligibility criteria, meaning that they require long-term care, but they have too much income or assets to qualify for coverage. This is where the process of Medicaid Spend-down comes in.
This article will discuss both income and asset spend-down, along with an overview of the key concepts you’ll need to understand as you consider helping your loved one apply for Medicaid.
What is Medicaid’s Income Limit?
Like so much in the Medicaid world, the income limit varies depending on factors such as your loved one’s state of residence and marital status. Be sure to check your state’s specific eligibility requirements, as they may differ from the generalized figures listed here.
- Individual applicants: Income is generally limited to $2,523 per month for applicants over 65 years in age.
- Two married applicants: In most cases, each spouse is allowed $2,523 each month ($5,046 together).
Married couples with only one applicant: Usually, only the income of the applicant is considered, and it’s typically limited to $2,523 per month. The non-applicant spouse’s income is not usually considered. However, if they have very little income, the applicant can sometimes allocate income to them under the Minimum Monthly Maintenance Needs Allowance (MMMNA).
What Counts as Income for Medicaid Eligibility?
Medicaid uses the Modified Adjusted Gross Income (MAGI) to determine income for eligibility purposes. This includes taxable income such as:
- Self-employment income
- IRA distributions
- Unemployment payments
They don’t count non-taxable income, such as SSI payments, veteran’s benefits, gifts, or beneficiary payments.
What is Medicaid Income Spend Down?
If your loved one’s income exceeds their state’s Medicaid eligibility limit, they can sometimes “spend down” to meet it by deducting medical expenses from their total income.
For example: If your loved one’s income is $500 above their state’s income limit, but they have over $500 in qualifying medical expenses, they may still meet Medicaid’s eligibility requirements.
Qualifying medical expenses typically include:
- Health insurance premiums
- Prescription medications
- Visits to the doctor
- Unpaid medical bills
Some states use different terms for income spend-down, including:
- Medically needy pathway
- Share of cost
- Excess income
- Surplus income
Not all states allow income spend down.
What are Income Cap States, QITs, and Miller Trusts?
Certain states – called income cap states – don’t allow spending down. However, they may allow Medicaid applicants with excess income to qualify for coverage by converting their surplus income into special types of trusts, called Qualified Income Trusts (QITs) or Miller Trusts. Funds in these special trusts can be spent only on the person’s medical expenses or care.
What are Medicaid’s Asset Limits?
The asset limits listed here can give you a general idea of what to expect but bear in mind that limits vary from state to state and program to program. Be sure to check with your state’s Medicaid agency or a professional Medicaid planner for the exact numbers you need to know.
- Individual applicants: The asset limit in most states is around $2,000.
- Two married applicants: In most states, when both spouses apply for nursing home care they may retain $3,000 of countable assets. When applying for regular Medicaid health insurance, each applicant can usually keep $2,000 ($4,000 together).
- Married couples with only one applicant: When applying for nursing home Medicaid, the applicant spouse is usually allowed to retain $2,000 in countable assets, while the non-applicant “community” spouse can keep a higher amount, called the “Community Spouse Resource Allowance” or CSRA. (Read more about the CSRA below.)
When applying for regular Medicaid health insurance, there is no CSRA and, in most cases, the couple is limited to $3,000 in joint assets.
Which Assets are Exempt from Medicaid?
Some assets (or “resources”) don’t count toward Medicaid’s asset limit. These are called “non-countable” or “exempt” assets.
- Primary home (if the applicant or their spouse lives there)
- One automobile
- Prepaid funeral or burial expenses
- Household furnishings and appliances
- Personal items, such as clothing
- Wedding and engagement rings
- Assets held in irrevocable Medicaid Asset Protections trusts (must be set up years in advance of applying for Medicaid)
- Term life insurance, or life insurance policies not exceeding $1,500 in total cash value
- Checking and savings accounts
- Retirement accounts
- IRAs and 401ks (in some states)
- CDs, Mutual Funds, Stocks and Bonds
- Property (except the primary home)
What is Medicaid Asset Spend Down?
If your loved one meets all other Medicaid requirements, every state allows them to “spend down” their assets to qualify.
Asset spend-down is a strategy used by many Medicaid applicants to reduce their countable resources by converting them to non-countable resources and/or by paying for eligible expenses.
- Not all expenditures are allowable. If your loved one breaks the spend-down rules, they’ll be ineligible for Medicaid for several years, so it’s vital to understand how they can safely spend down their money.
Which Expenses are Allowed for Medicaid Spend-down?
Certain expenses are allowable for Medicaid spend-down while others are not.
Prohibited Spend-down Expenses
The main expense to avoid when spending down for Medicaid is transferring assets for less than market value – for example, giving or selling a car, house, or other property to someone for less than its worth.
Although this may sound straightforward enough, it can get nuanced and grey at times – and any mistake can result in ineligibility for the look-back period (typically five years.) Therefore, it’s recommended to consult with a Medicaid planner for guidance on the spending down process.
Allowable Spend-down Expenses
Generally, Medicaid applicants can spend their money on things that truly benefit them.
- Non-countable assets (including purchasing or replacing a primary home or vehicle)
- Home or vehicle repairs
- Updating personal belongings (clothing, furniture, electronics, or other needed items)
- Paying off mortgage, loans, or debts
- Medical care
- Medical equipment
- Prepaid funeral expenses
- In-home care (be sure to sign a life care agreement for any care provided by family or informal caregivers)
What are Life Care Agreements?
A life care agreement (sometimes called a personal care agreement) is a written contract between an older adult and a caregiver (usually a family member, friend, or other informal carer).
Paying informal or family caregivers without a life care agreement can affect eligibility for coverage because Medicaid will likely determine that these payments were actually gifts.
- Always obtain caregiving agreements in writing, pay fair market value and ensure taxes are paid properly on these earnings.
What are Medicaid-Compliant Annuities?
Buying a Medicaid-compliant annuity (MCA) helps some seniors spend down their assets to achieve Medicaid eligibility. It can be an especially good move for couples in which only one spouse is applying for coverage.
An annuity is a contract with an insurance company in which an individual gives the company a large sum of money. In turn, the company provides that person – or their named beneficiary – with a reliable monthly income lasting either a defined period of time or the rest of their life.
Regulations regarding annuities differ from state to state, and it’s recommended to consult with a Medicaid Planner when purchasing an annuity for Medicaid spend-down purposes.
- Ensure that the annuity is Medicaid-compliant
Be careful that the annuity doesn’t put your loved one over the income limit (if their spouse is not an applicant, putting the annuity in their name may help keep this income exempt)
What are Spousal Impoverishment Rules?
Because nursing home care is so expensive, it can quickly drain a couple’s assets and resources. In the past, this left the “community spouse” without enough assets or income to live on, as everything went to pay for the care needed for the “nursing home spouse”. Now the government protects the community spouse from destitution with their spousal impoverishment rules.
Community Spouse Resource Allowance (CSRA)
In addition to any non-countable assets, the community spouse is permitted to retain a certain amount of countable assets. The maximum “community spouse resource allowance” (CSRA) varies from state to state, but it can’t exceed the limits set by the federal government. In 2021, no state could set the CSRA at less than $26,076 or more than $130,380.
In most states, the community spouse can keep half of the couple’s countable assets, up to the maximum CSRA. The applicant’s half must be spent down (at least to the $2,000 exemption allowed) before they reach eligibility requirements. Some states have different rules, so be sure to check with yours.
- Maximize the community spouse’s resource allowance by waiting until the applicant spouse moves into a nursing home to start the spending down process.
- Consult with a Medicaid Planner to ensure the applicant spouse qualifies for coverage as early as possible, while also protecting the community spouse’s assets.
Consult with a Medicaid Planner to Spend Down Strategically
Medicaid spend-down is a complicated process. The rules change frequently, and vary depending on the state your loved one lives in, their marital status, and the program they’re applying for. Furthermore, even a small mistake can render them ineligible for coverage for years.
If your loved one’s assets and income don’t exceed the limitations set by Medicaid, applying for service is fairly straightforward. However, most applicants don’t immediately qualify for coverage and need to engage in some sort of Medicaid planning to achieve eligibility.
Consulting with a Medicaid planning professional is a smart move that can ultimately make a huge difference in the overall outcome, including how soon your loved one qualifies for coverage and how much income and resources their spouse is able to retain.
In the meantime, these helpful tools can help you quickly gauge your loved one’s eligibility and locate your state’s eligibility requirements.