"Spending Down" to Medicaid: One Caregiver's Personal Journey

My uncle called me one day and said “Your Aunt just got lost again and I can’t take it anymore.”  Thus began my experience with the complexity of Medicaid (Title 19 of the federal Social Security Act), designed to provide medical assistance to those individuals who have minimal assets and inadequate income of their own.  Some people have too much income and/or assets to qualify, so they must “spend down” or use up their own money to reach the eligibility levels.

Although I had been a financial planner and advisor for years, I had not come in contact with the program personally or through clients, just through reading and seminars. I had learned that planning before acting is VERY important and that eligibility requirements vary by state.  Those who specialize in this area, elder law attorneys, medical social workers, state employed case workers, are your greatest resource to avoid delays and avoid creating periods of ineligibility requiring recertification. They can keep you from running afoul of the more stringent divestiture rules, including a 5-year look-back at transfers/gifts of assets, contained in the Deficit Reduction Act of 2005 passed by congress.

So Uncle and I met with an elder law attorney to help map out a game plan. Self reliance and frugality (depression-era traits) had allowed Uncle and Auntie to save a little nest egg, but it wasn’t going to last long at the cost of the care she required…and what about him?  The attorney reviewed both the asset and income Medicaid requirements for our state.

Managing Your Elderly Parent's Assets to Qualify for Medicaid

Asset Test
Auntie, or any applicant, could not retain more than $2,000 in liquid assets, plus these exempt assets:

• The home -- if the single applicant intends to return or if a spouse or disabled child live there (time limits may apply)
• Furnishings, personal belongings
• Car
• Pre-paid burial assets
• $1,500 face value life insurance

To prevent spousal impoverishment, Medicaid would allow Uncle, the community spouse living outside a nursing facility, to retain the exempt assets plus:

• His own retirement accounts 
• Community spouse resource allowance -- 50% of the “countable” other assets which for them included some CDs and mutual funds. (There are minimums and maximums to contend with that can change yearly but are determined for each couple by asset values on the date of admission.  Community/marital property laws are disregarded.)

Asset Spend Down
Like many others, Auntie would have to “spend down” her share of the countable assets. They had saved for a rainy day and it was pouring! In her case, we estimated that it would take less than a year and we were right! Eight months later she hit $1990. We had pre-paid her burial expenses and also had to cancel a life insurance policy with a face value of $5,000 and decrease coverage on another to the $1,500 limit.

Since Medicaid looks at the income needs of the community spouse, he was allowed to keep a “minimum monthly maintenance needs allowance” which was more than 50% of their monthly income. Uncle later sold the home and used the proceeds to move into a Continuing Care Complex. 

Income Spend Down For Medically Needy
Some people might qualify from an asset standpoint but have too much income. There are benefits available for persons who reside in care facilities as well as those who do not. 

The latter have monthly income that exceeds the income limits, but whose “excess” income is consumed by medical or remedial expenses. These individuals must “spend down” that excess income on medical bills to qualify for Medicaid.  It is a similar concept to a deductible.  For example if income is $250 over the limit, once that amount in medical bills is accumulated, Medicaid pays the rest.

That is the situation that my Uncle found himself in several years later, having depleted most of his assets. We never did sell his old beater car though – he kept saying he was going to drive again.  He never did, but it meant a lot to him to have a goal.

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June Schroeder is a Certified Financial Planner (CFP®) with Liberty Financial Group in Wisconsin, and has been working in financial services since 1979. Schroeder is also an RN, having received her degree from UW-Milwaukee in 1969. She served for 7 years as the Director of Economic Security for the Wisconsin Nurses Association, making her uniquely qualified for her role as a certified financial planner. She has written extensively for local publications as well as CNBC.COM. She has taught courses and lectured nationally on financial planning for universities and colleges.