What Is a Medicaid Spend Down?

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A Medicaid spend down is a way to become eligible for Medicaid even if you make too much money to qualify normally. To spend down, you must spend any money that you have beyond the Medicaid eligibility limits on medical costs that your insurance doesn't cover, such as unpaid hospital bills or installing support bars in your bathroom.

If you're 65 or older and struggling to manage long-term care costs, a Medicaid spend down could help you gain access to assisted living or nursing home coverage. Medicaid spend-down rules vary from state to state. It's important to understand the laws in your area to avoid eligibility problems and penalties.

What is a Medicaid spend down?

A spend down lets you qualify for Medicaid even if you make or have too much money to meet the normal eligibility requirements. For example, in California, you can enroll in Medi-Cal if you make $20,783 per year or less. Someone who makes $22,000 per year could spend $1,217 on expenses that qualify, such as an unpaid medical bill, to become eligible for Medicaid.

Medicaid is a government health insurance program that covers people with low incomes. Eligibility requirements and coverage vary from state to state.

Some states also use different names for their Medicaid programs. In California, the program is called Medi-Cal, while in Georgia, it's the Peach State Health Plan.

To qualify for a Medicaid spend down, you must also meet certain basic Medicaid eligibility requirements, which aren't the same in every state. For example, some states only let parents with minor children, pregnant women and the elderly sign up for Medicaid. Other states have expanded eligibility requirements to cover everyone who doesn't meet certain income limits.

Medicaid spend downs are sometimes known as the medically needy pathway because they only apply to people with large medical costs.

Medicaid spend-down rules

Each state has its own rules on what qualifies for a Medicaid spend down. However, in general, you'll need to spend on out-of-pocket medical costs, such as your deductible, copay or coinsurance. Some states let you qualify for a spend down by paying for medically necessary services, equipment and household upgrades not covered by insurance, such as a wheelchair ramp for your home.

You can dual enroll in Medicare and Medicaid if you're eligible for both programs. Medicare pays out first, and Medicaid may assist with your remaining costs.

However, if you're enrolled in both programs, it's important to remember that Medicare does not normally cover assisted living or nursing home costs, whereas Medicaid does.

Depending on your state, you may also qualify for a Medicaid spend down by placing your extra income or assets in a special trust, also known as a Miller trust or qualified income trust. The money in your trust can only be spent on qualified medical costs. For example, you might use it to pay for your prescription drug copay.

The number of people in your household will also affect your Medicaid eligibility. Larger households typically have higher income and asset limits. Some states treat married couples as a single unit while other states let the non-applying spouse keep more of their assets or income.

If you qualify for Medicaid through a spend down, you may also be eligible for Extra Help, a government program that lowers your out-of-pocket drug costs.

Some states (such as Missouri) have a Medicaid spend-down calculator available online. These handy tools will give you a sense of how much you'll need to spend to become eligible for Medicaid. Since Medicaid eligibility requirements are state-specific, it's important only to use a calculator that takes your state's rules into account.

After you apply for Medicaid, you'll undergo what's known as a look-back period. A Medicaid employee will go over everything valuable that you've sold or given away in the past five years. The look-back period is designed to stop people from cheating the system by giving away assets to their close friends or relatives.

If you gave away an asset during this period and didn't get an equal-value payment in exchange, then your application may be denied. You won't be able to re-apply for a set amount of time.

Types of Medicaid spend down

Medicaid eligibility is based on your income and your assets. Depending on your situation, you may need to spend down either one or both to become eligible for Medicaid.

Assets

California has no Medicaid asset limit as of January 1, 2024.

In many states, you cannot qualify for Medicaid if you have more than $2,000 in total assets ($3,000 for married couples). However, the rules make a distinction between countable and noncountable assets. Noncountable assets typically include your home and car, while countable assets include things like savings and investment accounts.

However, some states require you to draw on your home's equity if it's valued above a certain dollar amount. To access your home equity, you may need to sell your house or take out a home equity loan.

Retirement savings accounts like 401(k)s and IRAs are typically countable assets unless they're actively paying out.

Income

Income refers to more than your paycheck. For example, both Social Security payments and 401(k) withdrawals factor into your total income. Most states set their Medicaid eligibility limits as a percentage of the federal poverty line, typically 38% more, which is $20,783 per year for a single person ($43,056 per year for a family of four) in 2024.

Medicaid buy-in program

In some states, people with disabilities can enroll in Medicaid even if they make too much money to qualify normally by participating in a "buy-in program." Medicaid buy-in programs charge a monthly rate just like private health insurance programs. However, you'll likely pay less for more coverage under a Medicare buy-in program than you would with individual health insurance.

If your state doesn't offer a Medicaid buy-in program, find out if you qualify for health exchange subsidies (premium tax credits). These subsidies make buying an individual health plan more affordable for people with low incomes.

Frequently asked questions

What is a Medicaid spend down?

A Medicaid spend down lets you qualify for Medicaid if you don't meet the eligibility requirements because you earn too much money or your net worth is too high. You must spend your excess money on approved costs like medical equipment and services that aren't covered by your

What is the highest income to qualify for Medicaid 2023?

In most locations, the Medicaid income threshold for a single person is 138% of the federal poverty line, which is $20,783 ($43,056 for a family of four) per year in 2024. Medicaid eligibility requirements vary from state to state.

What happens if my income increases while on Medicaid?

If your income increases while you're on Medicaid, you're required by law to report it. Consider using the spend-down method to avoid losing your Medicaid eligibility if you have very few assets.

Sources and methodology

ValuePenguin compiled information from the Centers for Medicare & Medicaid Services (CMS), the Kaiser Family Foundation (KFF) and the California Department of Health Care Services.

Editorial note: The content of this article is based on the author's opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.