Qualifying for Medicaid: What Is Spending Down?

“Spending down” refers to the process of reducing one’s assets in order to qualify for Medicaid. Medicaid eligibility requirements are established by each state, so you will need to contact your state’s department of health to learn the present asset limit where you live. There are two different asset limits: one for the “Medicaid Only” program and one for the “Medically Needy” program.

Different rules apply to married couples than to individuals, but in order to qualify for Medicaid nursing home coverage, most states require a single individual have no more than about $2,000 in cash and other resources. Certain assets such as the family home and car are exempt (see Assets Exempt from Spending Down). Medicaid allows the reduction of assets through paying off debt, making home modifications, buying a car and prepaying funeral expenses. Other methods of spending down, however, including giving away assets, transferring property and creating certain annuities, can trigger a penalty. In addition, an applicant who has more than $500,000 in equity in a home may be declared ineligible for Medicaid.

Assets Exempt from Spending Down

Certain assets are exempt from spend down. The home of a single individual is exempt if the person intends to return to it. In some states, Medicaid assumes that the person will not return home if he or she does not return within six months of entering a nursing home, in which case it would not be exempt. However, if the individual in the nursing home is married and the non-institutionalized spouse remains in the home, then the home is exempt from spending down. Similarly, for a married couple with an at-home spouse, the family car is also exempt.

How Medicaid Views Community Spouses & Individuals

The at-home spouse, also known as the “community spouse,” gets a “community spouse resource allowance” which means that he or she gets to keep 50% of the couple’s assets, up to a predetermined maximum. Those assets are exempt from spending down since the spouse is legally permitted to keep them.

Medicaid determines the maximum amount of assets the community spouse is allowed to keep. The amount of spend-down is determined based on the assets of the couple as of the day the institutionalized spouse enters a facility, hospital, nursing home or in some states Medicaid also covers assisted living facility for an extended stay. Medicaid refers to this date as the “snapshot date.” In what is known as the “five-year look back period,” Medicaid officials may review an applicant's financial transactions from the preceding five years to ensure that all transactions meet Medicaid’s eligibility requirements.

Various exemptions and allowances are available to married couples which are not available to single individuals. In addition to the family home and family car exemptions, and the community spouse resource allowance, the community spouse is also entitled to a “minimum monthly maintenance needs allowance.” However, a single individual is only entitled to very modest monthly personal needs allowance and to limited exemptions. The allowances for community spouses are intended to protect them from being reduced to poverty.

Get a Medicaid Planner

We strongly recommends designing a Medicaid/Asset Protection Plan with a professional Medicaid planner. The goal of such a plan is to “dispose” of assets in a manner designed to protect and preserve those assets for related costs in the future, such as for the funeral costs of the institutionalized spouse. These funds can be converted to exempt status and protected from spend-down. Medicaid planning routinely involves the transfer of the funds to a relative (not a spouse) or other trusted beneficiary. Once those funds have been given, they belong to the recipient to do with as they wish, including holding the funds in the event the patient may develop a need that Medicaid will not cover.