Medicaid spend-down — what it means and how it works

This article is for educational purposes only and does not constitute medical, legal, or financial advice. Every family situation is different, and you should consult with appropriate professionals about your specific circumstances.

Your parent has a stroke and needs nursing home care. The facility costs $10,000 per month. Your parent's savings are $150,000. They have $2,000 per month in Social Security and a small pension. You apply for Medicaid, hoping the state will help pay the nursing home bill. The caseworker looks at the application and says: "Your parent qualifies for Medicaid eligibility based on income, but they're over the asset limit. They need to spend down to the state limit first."

What does that mean? It means your parent uses their savings to pay the nursing home bill. When the savings reach the state's limit—maybe $2,000 or $3,000—then Medicaid takes over and pays the facility directly. The state requires your parent to use available resources before the government pays anything. This process of using resources to reach eligibility is called spend-down.

For most families, this is the difficult moment where the financial reality of long-term care hits. Your parent's life savings, which they carefully accumulated over decades of work, now drains away at ten thousand dollars per month. The money that was supposed to provide security and potentially leave something for the children is consumed by care costs. This happens because your parent needs care, but it happens also because it wasn't planned for proactively. Understanding spend-down before this moment arrives changes how you think about planning.

What Spend-Down Means: Depleting Assets to Medicaid Levels

The concept is straightforward but devastating in practice. Your parent must reduce their assets to the Medicaid threshold before Medicaid will help pay for care. In most states, that threshold is between $2,000 and $3,000 for a single person. Married couples sometimes have higher thresholds, but they're still low relative to what most people have saved.

The language of spend-down can be confusing. Some people hear it and think it means "spend your money on luxuries before applying for Medicaid," which is the opposite of the reality. Spend-down means spending your money on care, on medical needs, on allowed expenses. It's not discretionary spending. It's forced spending on necessary care because that's the only way to become Medicaid-eligible.

The state uses the term "impoverishment" for this process, which sounds harsh but is accurate. Your parent's assets are depleted by necessary care costs. They become "impoverished" by medical need, not by carelessness or mismanagement. Your parent is also not responsible for the spend-down if they didn't plan for it. Society is responsible. The care cost is so high that most people can't plan for it. Spend-down is what happens when care costs exceed what most families can afford to save.

But understanding this doesn't change the emotional impact. Your parent watches their savings disappear. You watch your potential inheritance shrink. It feels unfair because it is unfair,it's unfair that care costs are so astronomical that this is the only solution for most families.

How Spend-Down Works in Practice: A Timeline

Imagine your parent needs nursing home care. They have $120,000 in savings and $2,500 per month in combined Social Security and pension income. The nursing home costs $9,500 per month. The state Medicaid asset limit is $2,000.

Month one: Your parent pays the nursing home $9,500 out of savings. Savings drop to $110,500. Your parent is over the Medicaid asset limit. They don't qualify for Medicaid yet.

Months two through twelve: Every month, another $9,500 comes out of savings. After one year, savings are gone,completely depleted. Your parent now qualifies for Medicaid based on assets.

Starting month thirteen: Your parent's income from Social Security and pension ($2,500) goes to the facility, paying most of the cost. The facility bills Medicaid for the remainder. Medicaid pays. The bill is covered without the family having to pay anymore.

This example assumes your parent accepts the reality and pays out of pocket until Medicaid coverage begins. In real situations, timing is more complicated. Your parent might apply for Medicaid before assets are completely exhausted, and the state might tell them when they'll become eligible based on the current trajectory. Some families try to accelerate the spend-down by paying for other legitimate expenses,medical procedures, funerals, car repairs,to get to the asset limit faster.

The important timeline element is when you need care. If your parent needs care immediately, the spend-down starts now. If you have a few months before care is needed, you can strategically plan qualifying expenses. If you have a few years, the whole financial picture changes because you can plan more proactively.

What Counts Toward Spend-Down: Qualifying Expenditures

Not every dollar your parent spends counts toward spend-down. The state is specific about what counts as legitimate spending that depletes assets toward Medicaid eligibility.

Medical costs count. Absolutely. Hospital bills, doctor visits, prescription medications, physical therapy, durable medical equipment like walkers or hospital beds, hearing aids, glasses,any medical expense counts toward spend-down. If your parent needs dental work, that counts. If your parent needs a medical procedure, money spent on it counts toward the threshold.

Long-term care costs count. Nursing home care is the primary spend-down expense. Assisted living also counts. Home care expenses count if they're for Medicaid-covered services. Adult day care might count. The point is that the cost of care itself is what depletes assets.

But not everything counts. Regular living expenses,food, utilities, insurance,don't usually count as qualifying spend-down. Your parent's regular rent or mortgage doesn't count if they're not paying it out of the assets being counted. Gifts to family members don't count. Entertainment expenses don't count.

This matters because it means you can't just spend down assets on whatever you want and call it spend-down. You're specifically required to spend on medical and care-related costs. This is why strategic spend-down planning is important. You want to spend assets on legitimate expenses that also help your parent. Buying a hearing aid is legitimate spend-down. Buying a house is not.

Some states allow "pre-purchase" of future services. Your parent might prepay funeral expenses, which counts as qualifying spend-down. They might prepay certain care services. Each state has different rules about what can be prepaid, but the concept is valuable: if you can accelerate a planned expense and have it count as spend-down, that's strategically useful.

Strategic Spend-Down: Planning Spending Before Medicaid

If you have advance notice that care will be needed, strategic spend-down planning can preserve some resources. This isn't hiding money or doing something improper. It's legally spending down to Medicaid eligibility in a way that also meets legitimate needs or protects family assets.

Funeral expenses are a classic spend-down strategy. If your parent is entering a nursing home and will likely be there for years, planning and prepaying funeral costs is legitimate. It reduces assets toward the Medicaid threshold, and it also protects your family from funeral costs later. Win-win. The money gets spent on something that's going to happen anyway, and it happens earlier, which reduces current assets.

Medical expenses that were being deferred can be addressed. Your parent has needed new glasses, a hearing aid, or dental work but hasn't been able to afford it. Now they can. The money counts as spend-down, and your parent gets needed care.

Home modifications or equipment purchases might qualify. If your parent has been thinking about a medical alert system, a grab bar system, or other accessibility improvements, these might count as legitimate spending.

Home care services before moving to a facility might be an option. If your parent could hire caregivers at home for six months before moving to a nursing home, this spend-down would allow your parent to stay home longer and still become Medicaid-eligible.

Some elder law attorneys help families structure spend-down strategically. They're careful about what's allowed and what crosses the line from strategic planning into fraud. There's a real line, and crossing it brings penalties. But staying on the legal side of strategic planning,spending down in ways that both legitimately reduce assets and meet actual needs or preferences,is appropriate.

Community Spouse Dilemma: When One Spouse Needs Care

If your parent is married and only one spouse is moving to a nursing home, Medicaid has special rules called spousal protection. These rules prevent the non-institutionalized spouse from becoming impoverished because their partner needs care.

Generally, Medicaid allows the spouse who isn't in the nursing home to keep more assets and income than the spouse in the facility. The exact amounts vary by state, but there are federal minimums. The community spouse (the one not in a facility) might be able to keep $30,000 to $40,000 or more in assets, depending on the state. The community spouse keeps their income. The nursing home spouse has much more restricted assets and most of their income goes to the facility.

The reasoning is humane. If a husband needs nursing home care, the wife should be able to keep enough resources to live on at home. She shouldn't be impoverished because her husband is ill. This protection is valuable, but it's also complex to administer. The couple's assets need to be carefully divided. Legal documents sometimes need to be created. The rules vary by state.

Some families use the community spouse rules strategically. Before applying for Medicaid, they transfer assets to the community spouse's name. The institutionalized spouse's assets count toward Medicaid eligibility, so they're depleted or transferred. The community spouse keeps their protected amount. When Medicaid takes over paying for the nursing home, the couple has preserved more assets than they would have otherwise.

This is legal. It's ethical. It's exactly what the community spouse rules contemplate. But it requires planning and understanding the rules. Families who don't know about this protection often don't use it, and they lose resources unnecessarily.

After Medicaid Takes Over: Income and Small Assets

Once your parent is on Medicaid and living in a facility, the financial picture shifts. The facility is paid. But your parent is still allowed to keep some assets and receive some income. The amounts are tiny compared to what most people think of as living expenses, but they're important for maintaining your parent's dignity and ability to make choices.

Most states allow your parent to keep $50 to $100 per month as a personal needs allowance. This is money your parent can use for small purchases,magazines, snacks, haircuts, stamps for letters, gifts. It's not much, but it's theirs to control. The rest of their income goes to the facility.

Medicaid also recognizes that your parent might retain some of the small assets exempt from the asset count. Jewelry, a wedding ring, a watch,personal items typically don't count. A small amount of accessible savings might be allowed, usually no more than what wouldn't significantly affect their care.

This reality,that after Medicaid takes over, your parent has very little money of their own,is important to understand. Your parent loses financial autonomy. They can't make decisions that cost money. If they want to give a grandchild $20 for a birthday, they can do it from their personal allowance, but if they want to contribute more, they can't without Medicaid approval. It's a form of paternalism the system requires.

Planning Spend-Down: Why Professional Help Matters

The families who do best with spend-down are the ones who have professional help. An elder law attorney can review your parent's situation and identify opportunities for strategic spending that protect assets, meet needs, and maintain the family's financial health.

Mistakes in spend-down planning are expensive. If you accidentally transfer assets in a way that triggers Medicaid penalties, the ineligibility period costs tens of thousands of dollars. If you miss opportunities to strategically spend down, you lose money unnecessarily. If you don't properly protect a community spouse's assets, you lose resources that should have been protected.

A consultation with an elder law attorney,which might cost $500 to $2,000,can save your family tens of thousands of dollars in errors and missed opportunities. Many attorneys do initial consultations for free or at reduced cost. It's worth asking.

Your parent's situation is specific. The state's rules are specific. The timing is specific. Generic advice doesn't work. Professional advice tailored to your actual situation is what makes the difference.

How To Help Your Elders is an educational resource. We do not provide medical, legal, or financial advice. The information in this article is general in nature and may not apply to your specific situation. If you are concerned about a loved one's cognitive health or safety, consult with their healthcare provider or contact your local Area Agency on Aging for guidance and support.