Spending Down to Medicaid Doesn’t Have to Impoverish Both Spouses


One of the biggest worries of a married couple where one spouse needs to go into a nursing home is that the spouse who is still at home will become impoverished in order to pay their partner’s bills.

While it is true that the nursing home spouse may not have more than $2,000 in countable assets in order to receive Medicaid benefits, federal law permits the so-called “Community Spouse” to retain up to $115,920 in countable assets (cash, stocks, bonds, real estate in addition to the home, etc.). (Discover which Assets You Can Have to Still Qualify for Medicaid.)

In most states the Community Spouse may only protect 50 percent of the total countable assets of both spouses, up to $115,920. In other words, all countable assets—no matter whether titled in the husband’s name, wife’s name, or jointly—are totaled up and then divided by two.

The Community Spouse is then permitted to keep one-half of the total, up to $115,920. The other half—minus the $2,000 exemption allowed the nursing home spouse—must be “spent down” or otherwise disposed of, or converted to something that is non-countable.

The ’50 percent rule’ in action

For example, consider a couple with a house, car, personal property in and around the house, jewelry, cash in the bank, and maybe an IRA or 401(k).

First of all, the house will be exempt no matter its value, as long as the Community Spouse is living there. One car of any value is also exempt, as is all personal property and jewelry. However, the cash and retirement accounts are countable (although there are a few states that exempt an individual’s retirement accounts once they are paying out the minimum amount required under federal tax laws). If that cash and the retirement assets total, say, $200,000, then the Community Spouse can protect only $100,000 (50 percent). If it totaled $300,000, though, the Community Spouse can protect the full $115,920, even though that is less than 50 percent of $300,000.

Exceptions to the rule

For couples who have very few assets, the “50 percent rule” will allow the Community Spouse to protect the first $23,184, even if that’s more than 50 percent of the couple’s total assets.

Some states do not follow the above “50 percent rule.” These states simply allow the Community Spouse to retain the first $115,920, even if that is more than half of the total assets of the couple.

Currently, these states are AK, CA, CO, FL, GA, HI, IL, LA, ME, MA, MI, VT, and WY (SC reduces the maximum to $66,480).

Once the protected amount is determined, the real work begins: how can you protect the extra assets so they are not merely spent down on the monthly nursing home bill?

This is what is known today as “Medicaid planning,” and it can get quite complicated. There are many options to protect the excess assets, such as investing in exempt real estate, purchasing a “Medicaid annuity,” using Medicaid's "Cash and Counseling" program to hire a family member for caregiver services, transferring money to a disabled child, using specialized trusts, etc.

Be aware that spending down to Medicaid is tricky. You cannot simply give excess assets to a child (unless they are considered disabled under federal law) or another family member without incurring a penalty period of disqualification from Medicaid coverage: the greater the gift, the longer the penalty period. The exact calculation varies from state to state, but all gifts made within the five-year period before the date you apply for Medicaid will count against you.

K. Gabriel Heiser is an attorney with over 25 years of experience in elder law and estate planning. He is the author of "How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets," an annually updated practical guide for the layperson.

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I just placed my wife last month in a memory care facility (nursing, NOT assisted living) in Cuernavaca, Mexico. The place has a large tropical garden and staff is working with her 24 hours a day. Because I met and married her in Mexico 42 years ago, she is more comfortable in that environment than she would be in the US. My cost? Less than $800 per month, vs. up to $8000 here. I am now able to go back to work, support my wife AND save for my own future! Over 82,000 Americans are now in residential care in Mexico. It's an option that needs to be explored more.
Stargazer, thank you for kind response to my somewhat anguished remarks. I met and married my wife in Mexico many years ago, so I will be returning her to a care facility in her home town, a nice suburb of Mexico City where she has family who can look in on her. Once this heartbreaking task has been completed, I plan to write a magazine article which I hope can help other families in a similar situation. Mexico has a number of cities where American retirees are living and there are deluxe assisted living and Alzheimers facilities available at a fraction of the cost of the US. It may not work for everybody, but the word needs to get out about this opportunity, so that spousal impoverishment can be avoided.
We live in Massachusetts. The local Area Agency for Agency is pushing to have spouse on medicaid.
Where do I get FREE advice on spending down. All finances are joint accounts.
Can she have both medicare/medex and medicaid (Mass health)

Where is the a list of bridge underpasses for me to live under (grrr) when I am impovished