Medicaid Spend Down is one of the most common ways in which seniors who are not eligible for Medicaid coverage can become eligible. One of the main criteria for seniors to be eligible for Medicaid is that they must have assets and income that are below thresholds set by each state’s Medicaid agency. While each state has its own asset and income limits for Medicaid eligibility, the fact remains the same across the country that seniors who are above these thresholds are disqualified from receiving Medicaid coverage for long term senior care or senior living. Despite these limits, there are strategies that exist in each state that allow seniors to “spend down” their assets in a way that will allow them to qualify for Medicaid and not violate Medicaid’s rules on artificially reducing your assets simply to qualify for Medicaid.

Because each state has not only its own financial eligibility thresholds for Medicaid, but also its own set of acceptable Medicaid spend down strategies, it’s important to speak with a professional with Medicaid experience before starting a Medicaid spend down strategy, such as an elder law attorney or financial planner. To learn more about Medicaid spend down as a general matter, read our guide below or reach out to the Sunbound team to learn more. 

Medicaid financial eligibility rules

Before discussing what the different types of Medicaid spend down strategies, it’s helpful to give a little more background on Medicaid financial eligibility rules in order to understand why Medicaid spend down strategies are necessary in the first place. While each state has its own specific Medicaid financial eligibility rules, each state bases financial eligibility on two main criteria: a senior applicant’s assets and a senior applicant’s income.

Medicaid Income Limit

Each state has its own limit on how much an individual can have each month in income before they become ineligible for Medicaid which is generally set as a percentage of the Federal Poverty Level. In addition, most states will have different income levels depending on whether an individual is single or married, and if married, whether one or both spouses are applying. 

Where only one spouse is applying, many states allow what is known as a monthly spousal allowance (which can be thought of as a form of Medicaid spend down). With a monthly spousal allowance, the applicant spouse is able to transfer some amount of their income (up to a certain limit as defined by the state’s Medicaid agency) to the non-applicant spouse. The monthly spousal allowance is designed to allow the applicant spouse to reduce their income so as to become eligible for Medicaid, while at the same time providing sufficient income for the non-applicant spouse to continue to comfortably live their life without being forced to reduce their own income just so their spouse can receive Medicaid coverage.

Medicaid Asset Limit

In addition to an income threshold, state Medicaid agencies also enforce a limit on a senior applicant’s total assets. Like with income limits, Medicaid asset limits are generally different based on whether the applicant is single, married but applying only for themself, or married and applying with their spouse. Also like with Medicaid income limits, where only one spouse in a married couple is applying for Medicaid benefits, states generally allow the applying spouse to transfer assets to the non-applying spouse. Like with the monthly spousal allowance, this transfer allows the applying spouse to reduce their assets to be able to become Medicaid-eligible, while also making sure that the non-applicant spouse does not become impoverished in order for their spouse to receive Medicaid coverage.

One important thing to keep in mind about Medicaid asset limits is that not all assets are counted towards this threshold. Generally, assets that are counted are liquid assets like cash or bank accounts, vacation properties, and in some states, retirement accounts like 401K’s and IRA’s. Exempt assets generally include the senior’s primary home (although often capped at a certain value) and its furnishings, a primary automobile, and life insurance policies or pre-paid funeral expenses. 

Medicaid Look-Back Period

One of the most important limitations on how individuals can get around the above income and asset limits is known as the Medicaid look-back period. The Medicaid look-back period is the period of time before a senior’s Medicaid application during which they cannot dispose of either assets or income solely for the purposes of becoming eligible for Medicaid. This period of time is set by the state Medicaid agency and is generally five years, although some states such as California have different look-back periods. 

It is incredibly important to make sure that you have not violated your state’s look-back period by improperly transferring away funds during that time. This is because as part of your or your senior loved one’s Medicaid application, your state’s Medicaid agency will be scrutinizing all transactions during the look-back period to ensure that none of them violated state Medicaid rules. If found in violation, a senior applicant may be barred from applying for Medicaid for a significant period of time (a time period that is again set by each state). If you are applying for Medicaid, or thinking about applying for Medicaid in the near future, it is incredibly important to consult a local elder law attorney or financial planner to confirm that you are not in violation of your state’s Medicaid look-back period.

Medicaid Spend Down Strategies

Because of the potential penalties involved, it is incredibly important not to violate your state’s Medicaid look-back period and to only spend down your assets and income in a way that is allowed by your state’s law. Therefore, before embarking on any of the below Medicaid spend down strategies it’s important to discuss your or your senior loved one’s situation with a local elder law attorney or financial planner with experience handling Medicaid applications. Some potential Medicaid spend down strategies are described below.

Life Care Agreements

When properly executed, life care agreements can qualify for Medicaid spend down. Also known as personal care agreements, these agreements between an elderly individual and (generally) a close friend or family member allow the close friend or family member to be paid in order to provide necessary senior care to the elderly individual. It is particularly important to run this type of Medicaid spend down by an elder law attorney to make sure that payment terms do not violate any Medicaid look-back rules.

Annuities

The purchase of annuities can also qualify for Medicaid spend down purposes. Before making any serious financial decisions, such as the purchase of annuities, it is important to consult a local financial advisor with experience handling Medicaid spend downs.

Medical Devices

Purchasing medical devices that are not covered by insurance is another common Medicaid spend down strategy. These devices can include things like hearing aids or eye glasses.

Paying off debt

One common Medicaid spend down strategy is to use your assets to pay off any debt, including personal loans and credit card bills, vehicle loans, or mortgages.

Home Modifications

Senior-focused home modifications can also qualify as a Medicaid spend down strategy. These include renovations such as adding mobility bars or senior friendly toilets and bathtubs to bathrooms, or turning a first floor room into a bedroom (to eliminate the need for stairs). 

Vehicle Repairs

Vehicle maintenance and repairs, like fixing or tuning up an engine or replacing old tires of batteries, can qualify for Medicaid spend down.

Irrevocable Funeral Trusts

Putting aside money to pay for funeral expenses in an irrevocable funeral trust can also be a viable Medicaid spend down strategy. It is important to note that each state has its own limit for how much money can be put aside in an irrevocable trust without violating its own Medicaid look-back period.

To learn more about how Sunbound can help make senior living more affordable for you or your loved one, send us an email at info@sunboundhomes.com or request more information on Sunbound. Sunbound is the best way to pay for senior living and is on a mission to make senior living affordable for everyone.