27/08/2024 | Press release | Distributed by Public on 27/08/2024 16:44
Key takeaways:
Medicaid could help you pay for long-term care, but you must meet federal and state requirements.
Some people want to qualify for Medicaid but receive too much money to meet the program's income requirements. There are ways to "spend down" your assets and net worth to become eligible.
If you want to use the Medicaid spenddown strategy, it's important to plan ahead.
As you age, there may come a time when you need long-term care. This care can be financially overwhelming if you don't have long-term care insurance, robust savings, or family support. Many turn to Medicaid, which consists of state-run programs that help people with low incomes pay for healthcare. Medicaid also covers long-term care provided at home and in institutional settings, such as nursing homes.
But it can be tricky to qualify for Medicaid and access its long-term care benefits. This is where a Medicaid spenddown can help. In practice, Medicaid spenddown means reducing your countable assets.
There's a lot of confusion and frustration about how Medicaid spenddowns work. Many rules apply, and those - like Medicaid programs - vary by state.
Below, we walk you through Medicaid spenddown basics, so you can understand the process.
If you need Medicaid coverage for long-term care - but your income is above the Medicaid threshold in your state - you can use Medicaid spenddown to qualify. This requires you to decrease your income through allowable expenses and, sometimes, asset reduction to a level low enough to fall at or below the Medicaid income threshold for your state.
Medicaid programs are run by states and territories, so spenddown requirements vary. Some states don't have an income limit, but your monthly income typically can't exceed the cost of nursing home care - either at all or by more than $200.
You must abide by Medicaid spenddown rules in your state to be approved for Medicaid and to continue coverage. Doing so can be complicated. That's why some applicants or their families hire a consultant or attorney to help them with the Medicaid spenddown process in their state.
Medicaid spenddown includes both income spenddown and asset spenddown. Let's look at the definition of each and how to meet those requirements.
To be eligible for Medicaid, an applicant must meet certain income limits for long-term care. If their income exceeds the Medicaid eligibility treshhold for their state, they can "spend down" excess income on qualified expenses, which include:
Health insurance premiums
Hospital bills
Medical expenses
Physician copays
Prescription medications
It's important to note that not all states and territories have the option to "spend down" excess income to qualify for Medicaid.
In addition to income limits, there are also asset limits to qualify for Medicaid long-term care coverage. These limits vary by state, so it's important to check the rules where you reside.
Having assets - even if they are over the Medicaid asset limit - does not automatically disqualify you for benefits. Not all assets are counted. For example, a primary residence and vehicle are exempt from the Medicaid spenddown asset test. However, a second vehicle or a vacation home do count toward the limit.
If all other eligibility requirements are met, you will have to spend down your assets until you reach the Medicaid asset limit set by your state of residence.
To reach your state's income and asset thresholds, you may need to spend down what is considered excess. Some states refer to spenddowns as medically needy or surplus income programs.
Each state sets an income limit for people to qualify as medically needy. In general, themedically needy pathway limits are less than $1,000 a month for an individual. The allowance is higher for couples. To qualify, you'll need to spend any income above the limit on medical bills and related expenses. Income in most states includes:
Alimony
Individual retirement account (IRA) distributions
Pensions
Social Security benefits
Veterans Affairs (VA) benefits
Work wages
Once you meet the income limit, you're eligible for Medicaid for the remainder of the spenddown period. That period can range from 1 to 6 months. A 1-month spenddown period, for example, means that you'd need to spend your excess income down to your state's Medicaid limit every month.
In some states, there is no medically needy pathway. But you still may qualify for Medicaid in these states by directing your excess income into a qualified income trust, known as a Miller trust or Medicaid income-only trust, and naming a trustee. Because the funds aren't yours anymore, that money doesn't count as your income. The funds in the trust can only be used for certain purposes, such as certain personal needs or spousal allowances.
Not everyone qualifies for a Medicaid spenddown. Typically, people who need to qualify for Medicaid, but have income and assets beyond the state limits, are people ages 65 and older.
It's important to note that in some states, the Medicaid spenddown, or the medically needy program, isn't extended to all seniors. And even when it's offered to all seniors, Medicaid spenddown may not make you eligible for all Medicaid long-term care programs in your state.
If your state offers the medically needy pathway, you can spend down your monthly income to meet its requirements. This means you can subtract the following expenses from your income:
Non-covered medical costs, such as hospital bills
Healthcare cost-sharing, such as Medicare premiums, copays, coinsurance, and deductibles
In addition to these income limits, most states have asset limits for Medicaid. So, you also may need to spend down your assets to qualify for coverage. If so, pay attention to your state's guidelines and what Medicaid considers a countable asset. Some items that don't count as assets for Medicaid's purposes are:
Primary home
One car
Prepaid funeral expenses
Personal belongings
Term life insurance policies
Under your state's Medicaid rules, countable assets might include:
Cash
Checking/savings accounts
CDs, stocks, bonds, and mutual funds
Retirement accounts (unless in payout)
Secondary residences, such as a vacation home or rental property
If you're in income and asset spenddown mode, carefully track all of your medical bills and expenses. Any excess income or assets that are spent down must go toward qualifying bills or costs, which include:
Health insurance premiums
Doctor's visits and care as required by a healthcare professional, including home health aides, nurses, and therapists
Past and current medical bills
Prescription drugs
Transportation to and from medical care and treatments
Expenses for approved medical equipment and supplies, including hearing aids, eyeglasses, and prosthetics
Expenses for approved improvements to your home, such as wheelchair ramps or stairlifts (chair lifts)
Medicaid income limits and asset limits are determined on a state-by-state basis, within federal guidelines. In many states, income and asset requirements for institutional and home- and community-based services (HCBS) Medicaid are the same. Your limit may vary depending on your marital and application status.
Institutional/Nursing Home Medicaid Income Eligibility, 2024 (in most states)
Income limit |
Asset limit |
|
Single |
$2,829 |
$2,000 |
Married (one spouse applying) |
$2,829 |
$2,000 |
Married (both spouses appling) |
$5,658 |
$4,000 |
Some states allow a non-applying spouse to hold assets and income that aren't counted for the applying spouse. For example, federal Medicaid rules allow a non-applying spouse or community spouse to have assets up to $154,140, which is called the community spouse resource allowance.
In addition, the non-applicant spouse may be eligible for spousal protection called minimum monthly maintenance needs allowance (MMMNA). This allows the applicant spouse to allocate part of their income to the non-applicant spouse, not to exceed $3,853.50 per month. The income of the non-applicant spouse cannot exceed $3,853.50, including the MMMNA amount.
The Medicaid look-back rule prevents people from giving assets away below fair market value to fall below state thresholds. Typically, the state has a 5-year period to review your transactions, counting back from the date you applied for Medicaid.
If the state finds that you spent down improperly, you could face a time penalty. That would delay your eligibility for Medicaid.
To help you avoid penalties, check the rules in your state. There are exemptions and qualifying people to whom you can transfer assets without penalty.
If you qualify for Medicaid after meeting the spenddown requirements, Medicaid will cover eligible long-term care expenses as outlined in your state's coverage guidelines.
Even though individuals living in Medicaid-funded nursing homes can have a monthly income as high as $2,829 in 2024 (in most states), they don't get to keep it all. They are assigned a personal needs allowance amount, ranging from $30 to $200 per month, which they can use to pay for expenses not covered by Medicaid, such as haircuts, clothing, vitamins, and more. All other income must go toward the cost of nursing home care.
Medicaid enrollees who receive long-term care at home are permitted to keep their monthly income up to a certain amount. This allows them to pay for expenses such as rent, utilities, and food, which are otherwise covered when a person resides in a nursing home.
It may be hard to spend down your assets and stay within the Medicaid requirements in your state or territory. The rules and regulations can be very complex. If you don't spend down your funds properly, you could get hit with a time penalty. The penalty delays the date that you can begin Medicaid coverage for your long-term care.
Planning is a key part of qualifying for Medicaid when your income and/or assets are beyond your state limits and you need to reduce them to be eligible for long-term care coverage. Some strategies to consider may include:
Spending on qualifying home and vehicle improvements for equipment that is not covered by insurance. For example, you might have a wheelchair ramp installed at your residence.
Using funds to pay off your mortgage and credit card debt.
Preparing a family caregiver or life care contract. You hire a family member to care for you and pay the fair market value for their services.
Opening an irrevocable trust and transferring assets. You'll want to make sure this doesn't happen within the look-back period.
To develop a strategy that won't trigger a time penalty, consider working with:
Financial advisers with Medicaid spenddown expertise
Medicaid spenddown rules and qualifications can be complicated. There are several planning strategies to help you reduce your countable assets when applying for Medicaid to cover long-term care. Options for reducing countable assets include:
Converting a lump sum of cash into a monthly income through an annuity
Shielding assets in a Medicaid asset protection trust
Purchasing an irrevocable funeral trust
Medicaid spenddown calculators can help you figure out the approximate amount of assets or income you must reduce to become eligible for Medicaid. It's important to conduct thorough research and/or consult an adviser to ensure you choose the options that are right for you.
It's possible to qualify for Medicaid by spending down your income and assets. This can help you pay for the cost of long-term care in a Medicaid-funded nursing home or qualify for home- and community-based services.
Be clear on the rules and guidelines within your state, as they vary widely. Planning years in advance for a Medicaid spenddown can help you figure out how to reduce your assets within the rules in your state while avoiding penalties.
The Medicaid spenddown process can be complicated, so it's a good idea to work with a Medicaid consultant or attorney who works in this specialty area.
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