Medicaid - Meeting Eligibility Thresholds

Medicaid is a needs-based program. To qualify, applicants must meet specific financial criteria, which include both income limits and asset (resource) limits. These limits vary significantly by state and by the type of Medicaid program (e.g., standard Medicaid for low-income individuals vs. Medicaid for long-term care).

• Asset Limits: For long-term care Medicaid, the asset limit for a single individual in most states is very low, often around $2,000. For married couples where one spouse is applying, there are special rules (Community Spouse Resource Allowance - CSRA) that allow the non-applicant spouse to retain a much higher amount of assets.

• Income Limits: Income limits also vary. Some states have a "Medically Needy" program or "Spend Down" program for income, while others use a "Medicaid Income Cap."

If an individual's income or assets exceed these limits, they must "spend down" the excess to become eligible.

How Medicaid Spend Down Works: Two Main Types

"Spend down" can apply to both income and assets, though the mechanics differ.

1. Asset Spend Down (Reducing Countable Assets)

This involves reducing your countable assets to fall below the state's asset limit.

What are "Countable" vs. "Exempt" Assets?

Not all assets are counted by Medicaid. It's crucial to distinguish:

• Countable Assets: These are assets that Medicaid considers when determining eligibility. They include:

  • Cash

  • Savings and checking accounts

  • Stocks, bonds, mutual funds

  • Certificates of Deposit (CDs)

  • Retirement accounts (IRAs, 401ks) if they are not in "payout status" or exceed certain values, or if not structured properly.

  • Second homes or vacation properties

  • Certain life insurance policies (typically those with a cash surrender value over a certain limit, often $1,500)

  • Other valuable personal property that is not considered essential.

• Exempt (Non-Countable) Assets: These assets are generally not counted towards the Medicaid asset limit. They typically include:

  • Primary Residence: The applicant's primary home is usually exempt if its equity value is below a certain limit (which varies by state, e.g., $713,000 to over $1 million in 2024/2025), and the applicant, their spouse, or a dependent relative lives there, or they express an "intent to return home" (even if they are in a nursing facility).

  • One Vehicle: Usually, one automobile of any value is exempt if it's used for the transportation of the applicant or a household member.

  • Household Goods & Personal Effects: Furniture, appliances, clothing, and reasonable personal jewelry are generally exempt.

  • Prepaid Funeral Plans/Burial Funds: Irrevocable prepaid funeral plans are often exempt, up to certain limits (e.g., $15,000 in many states). Funds specifically set aside for burial expenses may also be exempt.

  • Certain Annuities: Specifically structured Medicaid-compliant annuities can convert a lump sum (countable asset) into an income stream, which is then subject to income rules.

  • Some Retirement Accounts: If in payout status or structured correctly.

  • Special Needs Trusts: For individuals with disabilities, assets placed in certain types of special needs trusts are exempt.

Common Asset Spend Down Strategies (and the "Look-Back Period"):

When spending down assets, the goal is to convert countable assets into non-countable assets or use them to pay for legitimate expenses. However, this must be done carefully to avoid violating Medicaid's "Look-Back Period."

The Look-Back Period is typically 5 years (60 months) in most states. Medicaid reviews all financial transactions made by the applicant (and their spouse) for the five years immediately preceding the Medicaid application date. If assets were transferred for less than fair market value (e.g., gifted to family members), a penalty period of Medicaid ineligibility will be imposed. The length of the penalty is calculated by dividing the uncompensated transfer amount by the average monthly cost of nursing home care in that state.

Acceptable Asset Spend Down Methods (that generally don't violate the Look-Back Period):

• Paying for Medical Expenses: This includes out-of-pocket medical bills, prescription drugs, dental care, hearing aids, glasses, and other medically necessary items not covered by insurance. This is often the most direct way to spend down.

• Paying Off Debts: Legitimate debts like mortgages, credit card bills, and car loans can be paid off.

• Making Home Modifications: Necessary repairs or modifications to the primary residence for accessibility or safety (e.g., wheelchair ramps, walk-in showers, stair lifts) can be paid for.

• Purchasing Exempt Assets: Using excess funds to buy items that are considered exempt, such as:

  • Purchasing an irrevocable prepaid funeral plan.

  • Paying off a mortgage on the primary residence.

  • Buying a new, more reliable vehicle if the current one is old and inefficient.

  • Purchasing personal care items or household goods.

• Paying for Long-Term Care: Directly paying for nursing home care or in-home care until assets are below the limit.

• Medicaid-Compliant Annuities: As mentioned, these can turn a lump sum into a future income stream.

• Personal Care Agreements: Paying a family member or friend for care services they provide, under a formal, written agreement that details the services and reasonable payment. This must be done carefully to avoid being seen as a gift.

2. Income Spend Down (Medically Needy Programs)

Some states operate "Medically Needy" programs (also called "Excess Income" or "Share of Cost" programs). In these states, if your income exceeds the Medicaid income limit but you have significant medical expenses, you can "spend down" your excess income.

• How it Works: It's like a deductible. You are responsible for paying medical bills equal to the amount your income exceeds the state's "Medically Needy Income Limit" (MNIL) each month (or over a longer "spend down" period, often 1-6 months). Once your out-of-pocket medical expenses for that period reach your spend-down amount, Medicaid will cover the remaining medical costs for that period.

• Qualifying Expenses: These typically include:

  • Medicare premiums (Parts A, B, and D)

  • Medicare deductibles and co-insurance

  • Prescription drug costs

  • Unpaid medical bills from past months

  • Nursing home costs not covered by other insurance

  • Home health care costs

• Process: You submit your medical bills to the Medicaid agency. Once the sum of these bills meets your spend-down amount, Medicaid eligibility for that period is activated, and they will pay for additional covered services. If you don't meet the spend-down in a particular period, you won't have Medicaid coverage for that time.

States Without an Income Spend Down:

In states that do not have a Medically Needy (income spend down) program, if an applicant's income is over the limit, they generally cannot qualify for long-term care Medicaid unless they use an Income Cap Trust (also known as a "Miller Trust" or Qualified Income Trust - QIT). This is an irrevocable trust into which excess income is deposited, legally diverting it so it doesn't count towards the Medicaid income limit. The money in the trust can only be used for specific purposes, like paying the applicant's "personal needs allowance" or the nursing home's "patient liability," with the state typically named as the beneficiary for any funds remaining upon the individual's death (to recoup Medicaid costs).

Key Considerations and Risks:

• Complexity: Medicaid rules are highly complex and vary significantly by state. Mistakes can lead to periods of ineligibility, significant financial penalties, or denial of benefits.

• Look-Back Period Violations: Gifting assets or selling them for less than fair market value within the look-back period is a common pitfall that triggers penalties.

• Documentation: Thorough documentation of all expenses and asset transfers is crucial for a successful application.

• Spousal Protections: For married couples, there are specific rules (Community Spouse Resource Allowance - CSRA and Spousal Impoverishment Rules) designed to prevent the "community spouse" (the non-applicant spouse) from becoming impoverished when the other spouse needs long-term care Medicaid.

• Professional Guidance: Given the intricacies, it is highly recommended to consult with an experienced elder law attorney or a certified Medicaid planner. They can help navigate the rules, develop a compliant spend-down strategy, and ensure proper documentation to maximize eligibility and protect assets within the bounds of the law.

In essence, Medicaid "spend down" is a strategic financial process to align an individual's financial resources with Medicaid's eligibility requirements, allowing them to access much-needed long-term care benefits*.