Are you concerned about the rising costs of long-term care and the impact those expenses could have on your family’s financial well-being? For many families, the prospect of needing nursing home care brings a terrifying assumption: that you must completely impoverish yourself and lose everything you have built before you can qualify for Medicaid assistance.
Fortunately, this is a common misconception. While Medicaid’s eligibility rules are undeniably strict, the program does allow for strategic flexibility. Through a process known as a “Medicaid spend-down,” you can legally use your excess assets to purchase items and services that improve your quality of life, all while protecting your eligibility for benefits and avoiding costly penalties
Qualifying for Medicaid
You may not foresee yourself applying for Medicaid in the future. Yet in reality, research shows that roughly one in seven seniors are likely to require long-term care at some point later in life. Long-term care can be extremely costly; this is why many people have come to rely on the Medicaid benefits that cover these costs.
Medicaid is designed to assist individuals with limited income and assets. Generally, an unmarried applicant must have no more than $2,000 in countable assets in their name to be eligible for long-term care coverage. (Note that protections are different and much more robust for a healthy spouse who is remaining at home).
If you possess more than the $2,000 threshold, you cannot simply give your excess money away to your children or grandchildren to qualify. Most state Medicaid agencies enforce a strict five-year “lookback” period. If you make gifts or transfer assets for less than fair market value during the five years immediately preceding your application, you will be penalized. These penalties can delay your Medicaid eligibility for months or even years, leaving your family to cover exorbitant out-of-pocket nursing home bills in the interim.
If you are over the asset limit, you will likely need to “spend down” your extra assets until you meet the threshold. However, a spend-down does not mean recklessly wasting your life savings; it means strategically exchanging countable assets (like cash) for exempt assets or permissible services.
The upside, however, is that not all your assets count against you in the eyes of Medicaid. For example, your primary home is typically exempt. You also can own one car without worrying about exceeding Medicaid’s asset limits. And, depending on your state, you may be able to spend your excess money on certain items that help make your life more comfortable.
Medicaid Spend Down
As mentioned above, each state dictates what the income and asset limits are for Medicaid applicants. These figures also tend to shift a bit every year. Check out the current asset limits in your state or inquire with your local Medicaid agency.
Take note that not every state allows for a Medicaid spend down. These so-called “income cap” states follow different rules.
Also, take care that items you do decide to buy as part of your spend down are specifically for the Medicaid applicant.
So, What Can You Pay For?
All that said, Medicaid applicants can generally spend down their excess income in several ways. When families hear the term “spend-down,” they often assume their excess cash can only be used to pay off existing credit card debt, medical bills, or long-term care facility costs. While paying off unpaid debt is certainly a permissible option, your spend-down strategy can encompass much more than medical expenses.
In many cases, you can spend down your surplus assets on medical services, equipment, or health insurance premiums.
Perhaps you have come to rely on a wheelchair or cane or could benefit from hearing aids. You may want to have an eye doctor check your vision. If your prescription eyeglasses are out of date, you may be able to purchase a new pair. These are all medical expenses that could potentially be part of your spend down efforts.
Purchases that directly benefit the Medicaid applicant and improve their daily quality of life are generally permissible. Here are several highly effective and often overlooked ways to spend down excess assets:
- Home Improvements and Modifications – Even if you are moving into a long-term care facility, your primary residence is typically considered an exempt asset (up to a certain equity limit). Spending down cash by reinvesting it into your home is an excellent strategy, particularly if a healthy spouse intends to remain living there.
- A new vehicle – You may need a reliable car or a wheelchair accessible vehicle to get to medical appointments. Keep in mind that some states place a limit on the value of your one vehicle. For example, you might not want to plan on purchasing an RV camper for road trips if you are seeking Medicaid assistance.
- Electronics – In some states, upgrades to your smartphone, laptop, television set, or another communications device may be a possibility.
- New clothes – It might be an ideal time for you to stock up on new socks, pajamas, or other clothing necessities.
- Books or subscriptions – Sources of entertainment can boost your quality of life, too. You may prefer books or magazines, or subscriptions to streaming services like Netflix.
- Towels and bedding – Check with a professional to see whether you can refresh your bedding or towel supply as part of your spend down. If moving to a long-term care facility, ask whether they provide these types of items for you.
- Furniture – You may be moving to a facility that allows you to bring along certain preapproved furnishings. For example, you might benefit from a recliner chair with a power lift in your new space.
- Home improvement – Even if you’ll receive long-term care at home, you might be able to spend your excess income on modifying your residence. Maybe you need to invest in fixing your plumbing, paving your driveway, or installing a wheelchair ramp.
- Pre-Paid Funeral and Burial Arrangements – Pre-paying for end-of-life expenses is one of the most common and beneficial spend-down strategies. It removes excess cash from your countable assets while lifting a significant future financial and emotional burden off your children’s shoulders.
- Medical Devices and Health Services – Medicaid will eventually cover basic long-term care, but it may not cover premium medical upgrades or out-of-pocket wellness visits.
Consult with an experienced in your area attorney to understand what is and is not permissible. (A bonus is that you may in fact be able to include legal fees as part of your spend down process.)
The Importance of Documentation
Whenever you are spending down assets, meticulous record-keeping is non-negotiable. Because Medicaid strictly monitors where your money is going, you must keep every receipt, invoice, and bank statement associated with these purchases. You must be able to prove to the state agency that the money was spent at fair market value for the direct benefit of the applicant, rather than given away as a gift.
Why It’s Key to Work With Your Elder Law Attorney
The rules regarding Medicaid get complicated quickly. Be sure to talk to an elder law attorney in your area with expertise in Medicaid planning. Discuss your needs with them and ask what your options might be for spending down your assets. They can identify strategies to help preserve your hard-earned savings while avoiding potential Medicaid penalties.
Medicaid rules are incredibly complex, constantly shifting, and strictly enforced. A mistake in your spend-down strategy, such as buying an unapproved item, gifting money to a family member, or failing to document a purchase, can result in devastating penalty periods and a denial of benefits.
You do not have to navigate this overwhelming process alone. Contact Pearson Bollman Law today to sit down for a free one-hour consultation with one of our attorneys to discuss specific rules for Medicaid benefits. They will listen to you and suggest the best plan of action for you or a family member’s situation. We help give families peace of mind by taking the necessary precautions to protect their family’s estate from Medicaid Estate Recovery. We also are experienced in Medicaid Crisis Planning.
If you need advice or help with Medicaid Planning, call 515-727-0986 for free initial consultation or visit us at pearsonbollmanlaw.com. We have offices throughout Iowa in Cedar Rapids, West Des Moines, Dubuque, Bettendorf, Okoboji, IA and an office in Overland Park, KS.
Let us help you protect your legacy and secure your future.
“Medicaid Spend Down: Pay for More Than Just Medical Bills” Elderlawanswers.com
https://www.elderlawanswers.com/medicaid-spend-down-pay-for-more-than-just-medical-bills-20322 Published 2-14-24