Medicaid Spend-Down Strategy: Maximizing Resources Before Eligibility

The Medicaid spend-down strategy is a critical tool for those seeking to qualify for Medicaid while making the most of their resources. Once you've met Medicaid’s three key requirements—medical necessity, income limits, and resource requirements—spending down becomes an option for reducing excess assets in a way that complies with Medicaid rules.

Here’s how it works and some strategies to consider.

What Is Spend-Down?

Spend-down allows individuals to reduce their assets to meet Medicaid’s resource limits. The concept is straightforward: you spend your money on allowable expenses until you qualify for Medicaid. However, gifting money is not allowed—Medicaid imposes penalties for transferring assets without receiving fair market value in return.

Allowable Spend-Down Strategies

Here are some smart ways to spend down your resources while staying within Medicaid guidelines:

1. Take a Dream Vacation

   • If your loved one can still travel, this is a meaningful way to spend excess resources. Gather the family for a trip they’ve always dreamed of, as funds used for personal enjoyment are permissible.

2. Purchase Services or Equipment

   • Spend money on necessary services or items, such as:

     • Hiring an elder law attorney or financial advisor.

     • Upgrading to a new phone, computer, or a large flat-screen TV.

     • Buying medical equipment or mobility aids.

3. Home Improvements

   • Since a primary residence is a non-countable resource, putting money into home repairs or upgrades is an excellent strategy. Examples include:

     • Fixing floors, roofing, or plumbing.

     • Adding a swimming pool or making the home more accessible.

4. Pay Down Debts

   • Paying off outstanding debts, such as credit cards or loans, is another way to reduce countable assets.

   • Be cautious if the debts are owed to family members—proper documentation is crucial to avoid Medicaid scrutiny.

5. Prepay Funeral Expenses

   • Burial plots and prepaid funeral plans are excluded from Medicaid’s resource calculations. Prepaying for these expenses is both practical and compliant with Medicaid rules.

6. Buy a Vehicle

   • If the institutionalized spouse still needs a car, purchasing or upgrading a vehicle is allowed. Medicaid excludes one vehicle per household.

7. Mortgage Payments

   • Paying down the mortgage on a primary residence can shelter funds while preserving the home as a non-countable resource.

What Not to Do: The Gifting Pitfall

Unlike spending down, gifting assets to family members or charities can trigger Medicaid penalties. For example:

• Giving money to a church or family member is considered a gift and may result in a penalty period during which Medicaid benefits are delayed.

• Medicaid scrutinizes financial records for the look-back period (up to five years in most states) to identify any disallowed transfers.

Why Professional Guidance Is Essential

While the spend-down strategy is a powerful tool, Medicaid rules are complex and vary by state. An elder law attorney can help:

• Ensure all spend-down activities are Medicaid-compliant.

• Develop a personalized plan to maximize resources while achieving eligibility.

• Avoid costly mistakes, such as inadvertently triggering penalties.

Key Takeaways

• Spend Strategically: Focus on permissible expenses like home improvements, prepaid funerals, and paying down debts.

• Avoid Gifting: Giving away assets without fair market value in return can lead to penalties.

• Consult an Expert: Medicaid rules are intricate, and professional advice can help you navigate them successfully.

Conclusion

The Medicaid spend-down strategy is a valuable tool for preserving resources and ensuring eligibility. By understanding the rules and working with a knowledgeable attorney, you can navigate this process effectively and use your assets in meaningful, compliant ways.

Need help with Medicaid planning? Contact an elder law attorney to explore your options and develop a strategy tailored to your needs.