What is "Spending Down" for Medicaid?
"Spending down" is the shorthand term for reducing the value of assets owned by an individual in order to qualify for Medicaid assistance. The process of "spending down" is usually undertaken in order to qualify for Medicaid assistance with paying for long-term care in a nursing home. Although there are other Medicaid programs, for purposes of this discussion we will stick with Medicaid for the long-term care of elderly and disabled individuals.
Each state administers its own Medicaid program, and each state determines it's own Medicaid asset limit. Most, but not all, states have set the asset limit at $2,000 in cash and other resources for a single individual (not including monthly income, which is handled separately). So, for purposes of this explanation, we will use the $2,000 figure as an example. Contact your individual state Medicaid office for confirmation of the Medicaid asset limit in your state.
With a few exceptions that do not have to be counted, "assets" are everything of value that is owned by an individual. "Financial assets" can include such things as cash in any kind of bank account, stocks, bonds, IRAs, and insurance policies. Most real estate other than the family home will be considered to be a countable asset.
When a single individual "spends down," he or she uses up or transfers ownership of assets in order to reduce them to the allowable $2,000 limit. Some people do this by paying privately for care until their available funds have been reduced (spent down) to less than $2,000. Others pay off debts, purchase an (exempt) automobile, and make home modifications and repairs. Many purchase such things as pre-paid funerals, medical equipment, and items for personal use such as clothing, televisions and other items.
With the assistance of knowledgeable legal advisors some choose to set up special trusts, purchase annuities or make gifts to others. These two methods are both fraught with serious pitfalls, however, and should never be attempted without expert legal advice.
If an unmarried person (never married, widowed, divorced) is receiving care in a nursing home but intends to return home, the home is not counted as an asset. Some states will make the asssumption that if the individual has not returned within six to 12 months, he or she will not be returning to the home. At that time the home is no longer an exempt asset.
If an individual is married, then the $2,000 asset rule is relaxed. The "community spouse," or the spouse who is not receiving long-term care in an institution, is permitted to keep 50% of the couple's assets up to a maximum amount determined by each state. Check with your individual Medicaid office for specifics. If 50% of the couple's assets does not equal a minimum amount determined by each state, then some of the institutionalized spouse's share can be added to the stay-at-home spouse's allowance to bring him or her up to the minimum resource allowance.
The at-home spouse is also permitted to keep the home without restriction.
The amount that a couple must "spend down" is determined by Medicaid. Medicaid will take a figurative "snapshot" of the assets available on the first day of the first month that an individual enters a medical facility for an extended stay. This is the amount which must either be divided between a married couple, be spent down, or both in order for the institutionalized person to qualify for Medicaid funding.
During the application process, Medicaid will review an applicant's financial information for the previous five years in order to insure that no assets were given away or otherwise disposed of in order to qualify. If that is found to be the case, there can be serious legal and financial penalties. Please seek expert legal advice before beginning a complex Medicaid spend down plan to be sure it meets all legal guidelines and that you are implementing it properly.