Medicaid Spend-Down
The process by which an individual reduces countable assets to below a state's Medicaid eligibility threshold — typically $2,000 — in order to qualify for long-term care coverage.
Medicaid spend-down refers to reducing countable assets to qualify for Medicaid long-term care benefits. For single individuals, the countable asset limit is $2,000 in most states. Countable assets include bank accounts, investments, vacation homes, and most vehicles beyond one. Non-countable (exempt) assets typically include the primary home (if a spouse lives there or the applicant intends to return), one car, personal belongings, prepaid funeral contracts up to state limits, and certain retirement accounts in some states.
Legitimate spend-down strategies include paying off debt (mortgage, car loans, credit cards), making home improvements, purchasing a better car (one car is exempt), prepaying a funeral, purchasing Medicaid-compliant annuities, and setting up qualifying trusts. The 5-year lookback period prohibits disqualifying asset transfers in the 60 months before application — gifts to children or transfers below fair market value are subject to penalty periods.
The spend-down also affects income: if a single individual has income above the Medicaid income limit but below the facility's cost, they may still qualify in "medically needy" states by spending down monthly income on medical bills to below the applicable threshold. This is distinct from asset spend-down.
Real-World Example
A single 84-year-old with $87,000 in savings needed to spend down to $2,000 to qualify for Medicaid in her SNF; she paid $20,000 to eliminate her car loan, made $15,000 in home repairs (to the home her daughter planned to inherit), prepaid $8,000 in funeral costs, and used the remaining $42,000 toward her SNF care until Medicaid eligibility was established.