What is a Medicaid Spend Down?
A Spend Down in Medicaid is the process of reducing the assets of a Medicaid applicant and their spouse in order to financially qualify for Title XIX Medicaid coverage. A Spend Down can also refer to reducing the applicant’s monthly income in order to become “income eligible” for Medicaid.
Who Is a Good Candidate for a Medicaid Spend Down?
All potential applicants for Title XIX Medicaid coverage, with assets in excess of $1,600, are candidates for a Spend Down to accelerate eligibility. However, a proper Spend Down can have the greatest benefit for a married couple when only one spouse needs nursing home level of care. The goal of a proper Spend Down is to leave the spouse of the applicant in the best financial position possible, within the rules, to cope with this life altering change. To achieve a Medicaid spend down, an applicant could simply spend all of his money on medical and nursing home bills, which is what many nursing home workers advise, but this would not be the best strategy for the overall benefit of the applicant and the spouse.
The Medicaid rules were initially enacted to help persons with no financial means pay for long-term care. Accordingly, for a married person to become eligible for Medicaid, the married couple had to become penniless. However, lawmakers quickly recognized that it made no sense, financially or ethically, to wait for a married couple to become completely poor and leave both spouses with no means of self-support. This only added the healthy spouse to the roles of government benefit programs for the poor. Recognizing this manifest reality, Congress amended the Medicaid rules to prevent this financial burden on the healthy spouse mainly because it is more cost effective for the government to allow the spouse to retain some assets and remain self-sufficient.
As a result, a married couple doesn’t have to become penniless before considering Medicaid as a benefit. You should consider a Medicaid spend down if your spouse or an elderly parent will need a nursing home or homecare services but does not have the money to pay for it for an extended period of time.
There is a misconception that Medicaid is only for poor people. However, when you consider that a nursing home in Connecticut costs about $12,000 a month, you can see that people who consider themselves middle-class can run out of savings quickly and inevitably need Medicaid to pay for the monthly expenses of nursing home or home care. But what many people don’t realize is that the government wants the couple to keep some assets for the healthy spouse. This is why a well thought out Spend Down is crucial to the future wellbeing of the healthy spouse.
How Does a Medicaid Spend Down Work?
There are 2 parts to a Medicaid spend down. First there is the matter of how much all your assets are worth. These assets include things like a house, cars, savings accounts, life insurance, and most retirement accounts. If the total value of the applicant’s assets is more than $1,600, that applicant will need to liquidate or transfer those assets to become eligible for Medicaid. There are certain assets and transfers that are considered exempt under the rules. A proper Spend Down strategy incorporates making exempt transfers and purchasing or improving exempt assets to maximize what remains for the applicant and the applicant’s spouse. But beware - gifting assets away to the wrong persons within five years of applying for Medicaid can cause a lengthy penalty period during which the applicant will not receive coverage for nursing home care or homecare services!
For married couples, the rules take into account the other spouse’s assets and needs but this also makes the rules for qualifying very complicated.If the applicant has a spouse, the spouse may keep between $25,284 and $126,420, of the couples combined assets. See this post on the 2019 Medicaid numbers for more information.
The second part of a Medicaid spend down relates to monthly income. Income is analyzed separately from assets. If your income is too high, it doesn’t necessarily make you ineligible for Medicaid. You just have to spend down your excess income, known as “applied income,” on your medical bills before Medicaid coverage begins. Another option is to set up a special trust known as a “pooled trust” to hold the excess income, which may then be used to supplement the applicant’s care.
Planning Early for a Medicaid Spend Down is Crucial!
Many families find it extremely difficult to talk about what they will do when aging parents are no longer able to take care of themselves. However, if you think there is a chance you or your parent or spouse will need a Medicaid spend down, waiting until the last minute to plan can severely limit your options and create problems. It is crucial to plan ahead, especially if large assets or married couples are involved.
Will a Trust protect my assets for Medicaid Eligibility?
For the most part, the answer is no. Revocable Trusts and Self settled Trusts in which you retain any interest are not effective in sheltering assets from being counted in a Medicaid application. Certain carefully drafted irrevocable trusts may be used to help protect assets. The elder law attorneys at Cipparone & Zaccaro discuss these options with clients so they can make an informed choice and avoid a surprise if their Trust is later analyzed in a Medicaid application process.
Do You Need to Hire a Lawyer to Do a Medicaid Spend Down?
While it is possible to do your own Medicaid spend down, going it alone or simply following nursing home advice may not be to your best advantage. Medicaid rules are a complicated maze of state and federal laws. You may be able to figure out how much you need to spend down, and you may have someone at the nursing home telling you that you can simply spend down on nursing home bills. An elder law attorney who knows the ins-and-outs of the Medicaid rules can help you think through the possible ramifications and advise you on the best way to Spend Down your valuable resources as intended within the rules.
At Cipparone & Zaccaro, our elder law attorneys explain the rules, help gather all the client’s financial information, and explain how the rules apply to their situation. We then discuss the options you have for completing a Spend Down that maximizes your remaining assets. We encourage you to call today to learn more about how our elder law attorneys can help you through the Medicaid Spend Down process.
