Medicaid Spenddown Program

Medicaid Spenddown Program

No matter which state you live in, Medicaid eligibility comes down to your income and resources.

Long-term care includes care at home, in the community, or in a nursing home. To be eligible for Medicaid long-term care, an applicant must show their income and assets are under a specified amount. In some cases, an applicant’s income or countable assets exceed Medicaid’s financial limit, making them ineligible for coverage. However, it’s possible to become financially eligible by “spending down.”

Read on to learn more about what Medicaid spenddown is and how the program works.

Types of Medicaid spenddown

“Spending down” can refer to decreasing income and/or assets to become eligible for Medicaid coverage. Spending down assets is more common because it’s applicable in all 50 states, while income spenddown is only available in some states.

Income spenddown

In order to be eligible for Medicaid, an applicant must have a limited monthly income. However, even if their income is above this qualifying limit, they can still qualify for Medicaid if they “spenddown.” This can also be called the “Medically Needy Pathway,” share of cost, excess income, or surplus income.

This program allows applicants to spend “excess” income on medical bills and expenses so that their income is down to the medically needy income limit (MNIL). This will then make them eligible for Medicaid for the remainder of the spenddown period (which is between one and six months).

Qualifying expenses can include:

  • Medical bills
  • Past due medical charges
  • Monthly premiums
  • Prescription medications
  • Copays and coinsurance

Some states do not have a medically needy pathway, but Medicaid applicants can still become eligible via Qualified Income Trusts (QITs).

In this case, excess income is directly deposited into a trust that cannot be changed or dissolved. It’s then controlled by a third party (trustee). These funds are exempt from Medicaid’s income limit, but they are only available for very limited purposes (such as paying for long-term care or medically related expenses).

Asset spenddown

Applicants must also have assets, or resources, under a certain amount to qualify for Medicaid (though not all assets are counted toward the limit). However, like income, being over the asset limit does not mean you can’t qualify.

If you’re over the asset limit, you may have to “spenddown” assets to meet the limit. It’s important to do this carefully – Medicaid has a look-back period in which all past transfers are reviewed, and if someone gifted assets or sold them under fair market value during that period, they have a penalty period of ineligibility for Medicaid.

For most states the look-back period is 60 months, though some states have a 30-month look-back.

Assets that are countable (non-exempt) are also called liquid assets and they can be converted to cash. This can include things like:

  • Cash
  • Bank accounts
  • Vacation houses and property
  • Mutual funds
  • Stocks
  • Bonds
  • Certificates of deposit (CDs)

In some states, retirement accounts and IRAs are also countable assets. Other states allow them to be exempt, but they must be in pay out status (meaning you’re receiving the minimum required distribution).

On the other hand, non-countable assets are exempt, meaning they are not counted toward the asset limit. Examples include:

  • One’s primary home
  • Pre-paid burial and funeral expenses
  • A vehicle
  • Term life insurance
  • Household furnishings/appliances
  • Personal items

Assets held in an irrevocable trust are also exempt, but they must be created well in advance to avoid penalties from the look-back period.

How to determine your asset limit

The rules of Medicaid spenddown are complicated, and it can be tricky to determine if you’re over the asset limit, if so by how much, and how to spenddown correctly without breaking the rules. In general:

Individual applicants are limited to $2,000 in countable assets, though this can depend on the state you live in.

Married couples with both spouses as applicants can keep up to $3,000 of their combined countable assets, though again, there are some exceptions based on your residential state. The limit can also depend on the Medicaid program you’re applying for.

Married couples with one applicant are still treated as a married couple with both spouses as applicants. Even if only one spouse applies, all assets are considered jointly owned and are counted toward the asset limit. The limit can differ by state and by Medicaid program, and there can be different rules and exceptions, so check with your state to learn more.

How to spenddown assets

Again, spending down assets correctly to avoid penalty can be tricky, but it’s also an important step to ensure you’re able to keep your Medicaid coverage. The good news is there are several ways to do this without being penalized.

For example, you can pay off accrued debt such as personal loans, auto loans, mortgages, and credit card balances.

You can purchase medical devices that aren’t covered by insurance (like dentures, eyeglasses, and hearing aids) or make home modifications to improve access and safety.

Make vehicle repairs, purchase an annuity, or purchase an irrevocable funeral trust to be used for funeral and burial expenses.

You can also create a formal life care agreement, also called a personal care agreement, which allows the care recipient to spend down their excess assets while receiving needed care.

Medicaid redetermination in 2023

Medicaid redetermination, also called Medicaid renewal, Medicaid unwinding, and Medicaid recertification, is the process through which people with Medicaid report their household income to the local County Department of Job and Family Services. This happens every 12 months to redetermine eligiblity for Medicaid and make sure they still qualify.

At the beginning of the COVID-19 pandemic, Congress passed legislation that ensured families would not lose Medicaid coverage during that time, and even if they weren’t eligible for Medicaid, they could stay on it. This protection, called the Families First Coronavirus Response Act, is ending on March 31, 2023.

Beginning April 1, 2023, states will begin to re-evaluate Medicaid eligibility for those families who no longer qualify for the program. This could affect millions of people, though it will take some time for states to complete the redetermination process.

Your state will give you at least a 10-day notice before your coverage officially ends.

If you’re impacted by the redetermination, you may now be eligible for Medicare. If you’re 65 or older, enroll in Medicare when you’re first eligible to avoid late enrollment penalties. You can also re-submit your Medicaid redetermination form.

Learn More: Redetermination for Medicaid

Are you dual eligible for Medicare?

If you qualify for both Medicare and Medicaid, you're what's known as dual eligible. Not only will your state Medicaid plan cover your Part B premium, but you may qualify for a Special Needs Medicare Advantage plan known as a D-SNP. Call us toll-free at 888-992-0738 to learn more.

Additional resources

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