What Is a Spend Down Program & How Does It Work?

A Medicaid spend-down program helps individuals whose financial resources exceed standard eligibility limits access healthcare coverage. It allows applicants to “spend down” their income or assets on qualifying medical expenses until their remaining resources fall below program thresholds. This mechanism is particularly relevant for those facing substantial medical costs or requiring long-term care.

Qualifying for Medicaid Through Spend Down

Medicaid determines eligibility by evaluating income and assets. Income includes wages, Social Security, pensions, and investment dividends. For many adults under 65, eligibility is tied to Modified Adjusted Gross Income (MAGI) and typically does not include an asset test. However, for individuals 65 or older, those with disabilities, or those seeking long-term care, asset and income limits are generally more restrictive and are assessed.

Countable assets include liquid financial holdings like cash, checking and savings accounts, certificates of deposit, stocks, bonds, and mutual funds. Some retirement accounts may also be countable, depending on their payout status and state rules.

Exempt assets are those Medicaid does not count. These commonly include a primary residence (often up to a certain equity value) and one motor vehicle. Personal belongings, household goods, and irrevocable prepaid funeral arrangements are also exempt. Asset limits vary by state; a common individual asset limit for seniors and disabled individuals is $2,000, though some states have higher limits or no asset limits for certain groups.

Eligible Spend Down Expenses

To meet the spend-down requirement, individuals must incur eligible medical and care-related expenses. These costs reduce countable income or assets to the level required for Medicaid eligibility. Eligible expenses include outstanding medical bills (paid and unpaid) from doctors, hospitals, and other healthcare providers. Costs for prescription medications and medical equipment, such as wheelchairs or hearing aids, also qualify.

Ongoing medical care expenses like doctor’s visits, hospital stays, and certain in-home care services are eligible. Health insurance premiums, including Medicare, can also be applied. Some states allow costs for health-related home renovations, such as wheelchair ramps or chair lifts, or transportation to medical appointments. These expenses must be for the applicant or their spouse, and sometimes for other family members within the household. Records and receipts for all incurred expenses must be maintained to substantiate the spend-down.

Navigating the Spend Down Process

The spend-down process starts by calculating the difference between an applicant’s income or assets and their state’s Medicaid eligibility limits. This difference is the “spend-down amount” or “excess income” that must be used for qualifying medical expenses before Medicaid coverage begins. Some states call this a “medically needy program” or “excess income program,” similar to an insurance deductible. Once incurred medical expenses equal or exceed this amount, the individual becomes eligible for Medicaid for that period.

Applicants must document all medical bills, receipts, and proof of payment as evidence of meeting the spend-down requirement. Some states allow applicants to submit bills to the Medicaid agency, while others permit a monthly premium payment. The “spend-down period” varies, ranging from one to six months, during which expenses must be incurred. After the spend-down is met for a period, Medicaid covers any additional medical costs.

Specific rules, income and asset thresholds, and application procedures for Medicaid spend-down programs vary across states. Each state administers its own Medicaid program with unique guidelines. Individuals considering this should consult their state’s Medicaid agency or a qualified professional, such as an elder law attorney or financial advisor specializing in Medicaid planning, for guidance. They can help ensure compliance and optimize the spend-down strategy.