"Spending Down" to Medicaid: One Caregiver's Personal Journey
By June A. Schroeder, RN, CFP
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 had any personal or career experience with the Medicaid program, only through reading and seminars. I had learned that planning before acting is VERY important and that eligibility requirements vary from state to state. Those who specialize in this area, such as elder law attorneys, medical social workers, and state-employed case workers are your greatest resource to avoid delays and avoid creating periods of ineligibility requiring re-certification. They can keep you from running afoul of the more stringent divestiture rules, including a five-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 due to the cost of the care she required. And what would my uncle do? The attorney reviewed both the asset and income Medicaid requirements for our state.
Eligible applicants (in this case, my aunt) cannot retain more than $2,000 in liquid assets plus the following exempt assets.
- A home is exempt if the single applicant intends to return or if a spouse or disabled child live there (time limits may apply).
- Furnishings and other personal belongings are exempt.
- A car is exempt.
- Pre-paid burial assets are exempt.
- Lastly, a $1,500 face value life insurance policy is also exempt.
To prevent spousal impoverishment, Medicaid allows the community spouse living outside a nursing facility (my uncle), to retain the exempt assets listed above as well as:
- His own retirement accounts;
- A community spouse resource allowance that amounts to 50 percent of other "countable" assets. In my aunt and uncle's case, this included some CDs and mutual funds. There are minimums and maximums to contend with that can change yearly, but these 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 $1,990 in assets. During that time we had pre-paid her burial expenses, canceled a life insurance policy with a face value of $5,000, and decreased coverage on another policy to the $1,500 limit.
Since Medicaid looks at the income needs of the community spouse, my uncle was allowed to keep a "minimum monthly maintenance needs allowance" which was more than half of their monthly income. He later sold their home and used the proceeds to move into a Continuing Care Community.
Income Spend Down for the Medically Needy
Some people might qualify from an asset standpoint but receive too much income. There are benefits available for persons in this financial situation who reside in care facilities as well as those who do not.
The latter group may have monthly income that exceeds the limits, but their "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 an individual's income is $250 over the limit, once that amount is spent on qualifying expenses, Medicaid kicks in to pay 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, since he kept saying he was going to drive again. He never did, but it meant a lot to him to have a long-term goal.
June Schroeder is a Certified Financial Planner (CFP®) with Liberty Financial Group.