Many individuals who apply for Medicaid find that they have too many assets to qualify. Medicaid is a “needs-based” program, and a successful Medicaid applicant must have insufficient assets to pay for one’s own care. Federal law establishes a benchmark for the amount of resources an individual may own to qualify for the program.
The process of reducing the value of your assets to qualify for Medicaid is referred to as “spending down.” One misconception is that the only way to reduce the value of one’s assets is to spend them on the Medicaid applicant’s medical care. In reality, there are a wide range of expenditures that will reduce the value of the applicant’s estate that will enable Medicaid eligibility.
First, you should know that some assets do not have to be spent or sold to qualify for Medicaid, so these don't need to be spent down. These non-countable assets include the home, a car, personal effects, household goods and furnishings, some prepaid funeral and burial arrangements, and a limited amount of cash ($3,000 for a couple), to name just a few. But the determination of whether these assets are exempt, and to what extent, is made on a case-by-case basis. Your state’s Medicaid program will take into account individual state laws as well as your marital status, living arrangements, and other factors.
Spending down your money and assets on the following expenses is ordinarily acceptable by most states’ Medicaid programs. Each state is different, however, so these examples are given for illustration purposes only. You should look into your state’s law or consult an estate planning lawyer before engaging in any of these spend-down methods.
Any Legitimate Debt
A Medicaid applicant may pay any legitimate debt that the applicant or the applicant’s spouse is legally obligated to pay. Examples include credit cards, mortgage payments, medical bills, taxes, car payments, rent, utilities, and the costs of home or car maintenance. When the applicant is married, debts of this nature that are owed by either the applicant or the spouse may be paid.
Full or partial payments. You can pay off credit cards, mortgage loans and automobile loans in full or just partially. This also applies to bank loans or other loans the applicant or spouse is legally obligated to pay.
Pre-Payment. In the case of a mortgage, auto loan, or other type of loan, the Medicaid applicant can prepay the loan off, since he or she is legally obligated by the loan contract to pay the full amount of the loan, even though monthly payments are authorized. This does not hold true, however, in all cases of money owed.
For example, a caregiver is entitled to be paid by the Medicaid applicant for caregiver services. The applicant is not, however, required to pay the caregiver until services have been rendered. Medicaid will not allow for a caregiver to be paid in advance for services not yet provided. A pre-payment for services not yet provided will be treated as a gift, and will result in a period of Medicaid ineligibility.
The same applies for prepayment of any expense before services are provided or before the applicant has received the benefit. Pre-payment of utilities is normally not allowed, since no benefit has been provided in the form of future services, and the individual has the legal right to terminate a utility at any time. Pre-payment of medical services, medications, or rent is also not allowed for the same reasons.
Purchasing Noncountable Assets
Payments may also be made to buy a new, exempt asset. For example, a Medicaid applicant may purchase a new home if it meets the requirements for being an exempt home. Likewise, the applicant can purchase a new automobile if he or his spouse will drive it. For more information, see our article on eligibility for Medicaid long-term care.
Since household goods and furnishings are ordinarily noncountable, purchase of those types of items should also be allowed.
Payments Related to Noncountable Assets
A Medicaid applicant can make any needed payments to maintain or improve a noncountable asset. An example is to make home improvements or repairs to an exempt home. Plumbing repairs, home improvement projects, repairs to a roof, installation of a new roof, landscaping, and additions to a home are all allowable expenses for an exempt home. Likewise, repairs to an automobile are allowable expenses.
Funeral and Burial Expenses
Most states will allow for the pre-payment of certain funeral and burial expenses. This can be a complicated issue, however, since individual states have their own rules about what can be purchased and how much can be invested in these expenses. Check with your individual state Medicaid program or an estate planning or elder law attorneyfor detailed information.
When you spend a lump sum of money on an annuity for your spouse, your spouse is guaranteed a fixed income for a certain number of years. (Your spouse's income is not counted toward Medicaid eligibility.) This is a great way to spend down assets if you’re married. But in order for an annuity to work as a way to spend down resources, it must meet certain requirements; for example, the annuity must be nontransferable and your state’s Medicaid agency must be listed as the primary beneficiary after the death of your spouse. For more information, see our article on using annuities for Medicaid long-term care planning.
Most states will allow for a Medicaid applicant to make payments for caregiving services, especially when this helps keep the applicant at home or out of a more expensive nursing facility. This is true even when the caregiver is a child or sibling.
Every state has their own set of rules that must be complied with, but usually they require the applicant to have a written agreement with the caregiver. As a general rule (as mentioned earlier), keep in mind that prepayment for future caregiver services will not be allowed. There is, however, a way to safely transfer your house to your child if the child is your caregiver who lives with you. For more information, see our article on Medicaid asset transfers.