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Medicaid Spend Down: Pay for More Than Just Medical Bills

Since the 1960s, Medicaid has provided health care coverage for low-income people across the United States. For millions of seniors, Medicaid offers financial assistance, helping them to cover the cost of long-term care services. Today, this joint federal-state program also benefits other qualifying populations with limited income, including children and people with disabilities.

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.

Given these sobering statistics, consider gaining a better understanding of Medicaid and shaping your plans sooner rather than later. To qualify for Medicaid, you may need to carry out certain actions at least five years prior to when you apply. That's because most state Medicaid agencies will look back at the five years leading up to when you submit your application for the program.

If you happened to make certain purchases or gifts during this so-called “lookback” period, you could end up facing a penalty. Unfortunately, these penalties could mean you have to wait months, or even years, before you become eligible for Medicaid.

Medicaid is for people living on limited incomes. So, among the main criteria to qualify for Medicaid is that you have limited income and assets. Generally, you must have no more than $2,000 in your name to be eligible for this public benefits program. (Note that this limit can vary according to state, however.)

If you have more than that, you may find yourself having to “spend down” your extra assets to meet the $2,000 limit. Only after you have fulfilled this (and other) requirements would Medicaid begin paying for basic long-term care expenses.

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. 

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. Paying off credit card debt or medical bills is one possibility. Prepaying for your funeral services is often a legitimate spend down option, too. Admittedly, these sorts of payments might not bring you much enjoyment, but they still may be able to count toward your spend down amount.

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.

At the same time, your excess income can go toward much more than unpaid medical debt or other bills. Purchases that help improve your quality of life tend to be permissible. Here are five tangible types of items you may be surprised to find you can legally purchase as part of your Medicaid spend down:

• 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.

Consult with your 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.)

Why It’s Key to Work With Your Elder Law Attorney

The rules regarding Medicaid get complicated quickly. Be sure to talk to your elder law attorney about 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.

Whatever you do choose to purchase, keep all your receipts and detailed documentation in case any questions come up. You don’t want to break the rules by accident and end up facing a Medicaid penalty period.

What to Do If You Lose Your Medicaid Coverage

During the COVID-19 pandemic, states could not take away Medicaid coverage from any residents enrolled in this program. In recent months, however, this has been changing. If you are on Medicaid, be sure to take some time to understand whether your coverage may be at risk.

How the COVID-19 Public Health Emergency Affected Medicaid Enrollees

Enacted in March 2020, the Families First Coronavirus Response Act (FFCRA) prevented states from disenrolling Medicaid beneficiaries until the end of the COVID-19 Public Health Emergency. The act paused states’ review of the eligibility of Medicaid enrollees, a process known as Medicaid redetermination. The continuous enrollment provision increased coverage during the pandemic, reducing the rate of uninsured people. As a result of the act, no beneficiaries could lose coverage during the Public Health Emergency.

However, through the Consolidated Appropriations Act of 2023, Congress ended continuous enrollment on March 31, 2023. The federal COVID-19 Public Health Emergency declaration came to a close on May 11, 2023.

As states resume their Medicaid redetermination processes, they can now disenroll individuals who no longer meet Medicaid’s eligibility requirements. As a result, millions of people may lose health insurance coverage. Over the next year, between 7.8 million and 24.4 million people could lose their Medicaid coverage, the Kaiser Family Foundation estimates.

Many Americans were unaware of the potential risk of being dropped from Medicaid when the Public Health Emergency expired. One survey reveals that two-thirds of all Medicaid enrollees are not sure whether states could remove them from the program.

If you are unsure whether you will continue to receive Medicaid, you can contact Medicaid to review your enrollment status. Should your coverage end as a result of your state’s redetermination process, you may be able to purchase health insurance through the health insurance marketplace.

How to Know If You’re Still Eligible for Medicaid

During the redetermination process, your state evaluates your income, assets, residency, and other eligibility criteria for Medicaid. States legally must provide Medicaid coverage to low-income families, qualified pregnant women and children, and Supplemental Security Income (SSI) recipients. They may extend coverage to others as well, such as people receiving home and community-based services and foster children. 

Because the COVID-19 Public Health Emergency lasted several years, some Medicaid enrollees have not undergone eligibility review since prior to 2020. Others, who may have joined Medicaid during the pandemic, have never been through the renewal process.

While redetermination began as early as April 2023 for people in some states, others may receive a redetermination notice in later months.

Policies vary by state. Some state Medicaid agencies may automatically renew your coverage. Other states may require you to take steps to verify your eligibility, including providing documentation.

Learn more about your eligibility by contacting your state Medicaid agency.

Has My State Started the Medicaid Redetermination Process?

With this online tracker, you can search by your state to find out when its Medicaid redetermination process began, how many people have been disenrolled so far, how many enrollees were determined to be no longer eligible, and more.

There is some concern among health care advocates that certain states are disenrolling individuals who should remain eligible. For instance, as of June 2023, data suggests that in states like Florida and Arkansas, hundreds of thousands of Medicaid recipients may have mistakenly lost their coverage due to procedural reasons.

Medicaid Renewal: Be Proactive

You may not yet have received any kind of notification regarding whether you remain eligible for Medicaid. However, there are steps you can take to help ensure your state Medicaid agency has the information it needs to evaluate your eligibility and to renew your coverage promptly.

• If you have moved or changed your phone number or email address, reach out to your Medicaid state agency to update your contact information.
• Each state will send out a letter to your mailing address regarding your coverage. Be sure to keep an eye out for this communication in your mailbox.
• You may be asked to fill out a Medicaid renewal form. If so, complete the form and return it as soon as possible.

Obtaining Health Insurance If You Lose Medicaid

If you are deemed ineligible for Medicaid coverage during the redetermination process in your state, you could obtain insurance via an employer or by purchasing an insurance policy on the Health Insurance Marketplace. State Medicaid agencies must assist as you transition to other coverage.

The Affordable Care Act established the Health Insurance Marketplace, where individuals and families may purchase health insurance plans. The Health Insurance Marketplace is available via Healthcare.gov.

You may enroll in insurance via Healthcare.gov during certain set timeframes. Each year, Open Enrollment is from November 1 to January 15. However, if you lose Medicaid coverage, you may be eligible for a Special Enrollment Period, which gives you 60 days to enroll in a Marketplace health plan.

To enroll in insurance, you must create an account and complete an application requesting information about your household and income. The application helps determine your eligibility for different health insurance programs.

After completing the application, you may view a list of available health insurance plans. You can compare these plans based on their coverage, premiums, deductibles, and other factors.

Premium tax credits can reduce the monthly cost of insurance premiums and lower out-of-pocket expenses. The amount of financial assistance depends on income and household size.

Consult Your Attorney

If you are concerned about the effect of the redetermination process on your Medicaid benefits, consider speaking with your attorney. They can help you understand whether you will continue to qualify for Medicaid and also can help you obtain alternate coverage.

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Pros and Cons of a Medicaid Asset Protection Trust

A Medicaid Asset Protection Trust (MAPT) is one option a person may consider to protect their assets from Medicaid and nursing homes or long-term care.

A MAPT is an irrevocable trust created during your lifetime. The primary goal of a MAPT is to transfer assets to it so that Medicaid will not count these assets toward your resource limit when determining whether you qualify for Medicaid benefits.

However, creating an irrevocable trust comes with a certain lack of control over the assets you transfer to this trust. Before making such a significant decision, consider some pros and cons to see if this long-term care strategy is right for you.

Benefits of a MAPT

1. You Can Still Benefit From the Assets of a MAPT

Although transfers of assets to a MAPT cause you to relinquish your ownership and control of them, the finality of the arrangement is not as harsh as it sounds.

In creating a MAPT, you select a person (trustee) who manages the trust assets for your benefit. So, if you transfer investment accounts to the MAPT, you can still receive the income generated from these investments. If you transfer your home, you can still live there. In exchange for giving up control of your assets to a MAPT, your assets no longer count against you for Medicaid eligibility purposes.

2. Your Assets Are Safe From Medicaid and Other Long-Term Care Creditors

Once your assets are in a MAPT and other criteria are met, Medicaid can’t seize them or ask you to spend them down to pay for your nursing home or long-term care costs. These assets also are not subject to Medicaid’s estate recovery program.

As a result, your heirs can benefit from the assets without the interference of Medicaid or liens it could otherwise file against your estate after you pass.

3. You Can Choose Your Beneficiaries

A MAPT also functions as an estate planning tool. This is because you can designate who receives what remains of the trust upon your passing. The beneficiaries you choose will receive the assets per the terms of the trust agreement, and the chances of a probate court getting involved are diminished.

In addition, you may be able to retain what is called a “limited power of appointment.” This allows you to change who the beneficiaries of the MAPT will be, should your wishes or family circumstances change.

4. Assets Are Protected From Your Beneficiaries’ Creditors

Even though you can designate a MAPT’s beneficiaries now, those beneficiaries do not have full access to the trust’s assets because of how it is structured. This also means their creditors do not have access to it. And, if your child is a beneficiary and is going through a messy divorce, neither does their spouse. You can also designate how bequests to beneficiaries can be used.

5. Protection From Capital Gains Taxes

A properly drafted MAPT preserves the full capital gains tax exclusion on the primary residence (currently $250,000 per spouse). Later, when a person’s beneficiaries sell the home, it would be valued at the market price at the date of gifting and not at the original purchase price. This can avoid or significantly minimize the capital gains tax that your heirs may owe.

Drawbacks of MAPTS

1. Timing Is Everything

For a MAPT to function as intended, it needs to be created in advance to avoid the Medicaid lookback period. In most states, this is five years for nursing home or institutional care. In some states, there may also be a lookback period for community Medicaid care (home aides, local programs, etc.).

If less than five years have elapsed since you created your MAPT, you may still be responsible for some or all of your long-term care costs until sufficient time has passed.

2. Income From MAPT Is Countable by Medicaid

Although assets in a MAPT may not be “countable” by Medicaid toward your resource limit, these assets may still generate income. If this income is payable to you, it may cause you to exceed the income limit permitted in your state.

If this happens to you, you may have other options, such as utilizing a pooled income trust, or may decide you will contribute partially toward your care.

3. Giving Up Control Is Non-Negotiable

A trust will not qualify as a MAPT if you retain control other than the limited power of appointment that may be permitted in your situation. You must accept that a person you select to act as trustee will manage the trust, distribute funds and income from the trust, and also be the effective owner of the assets.

In addition, creating a MAPT but not transferring assets to it is ineffective. You need to fully commit to the concept for it to benefit you.

4. Setting Up a MAPT Is Costly

Creating and implementing a MAPT is a complex legal task requiring many hours of work and expenditures made on your behalf. In addition, because MAPTs are tied to individual state and federal laws, the expertise of a qualified Medicaid attorney is essential.

You should expect that this expertise comes at the cost of several thousand dollars or more. However, your potential savings could be exponentially greater for you and your family. For this reason, the price is often well worth it.

5. Potential Effects on Care

It’s important to realize that while the MAPT strategy is designed to preserve assets and wealth, it assumes that a person will rely on Medicaid to pay for a portion of their care. However, Medicaid does not cover all facilities. For example, many assisted living facilities are not licensed as assisted living programs and only accept private pay residents. Thus, relying on Medicaid could affect the choice and quality of care a person may receive.

The pros and cons discussed above are not exhaustive, and there may be other ones that apply to your situation. Investing in a MAPT is a highly fact-specific process, and MAPTs are not suitable for everyone.

You should speak with your attorney to discuss how a MAPT may affect other benefits you receive, your overall estate plan, its tax consequences, and whether it is right for you.

What Are Medicaid Asset Protection Trusts?

Medicaid imposes strict rules on how much money and assets an applicant can have. To qualify for Medicaid, you must fall under the asset limit, which is $2,000 in most states.

Even with greater than $2,000 in assets, however, you may be able to get on Medicaid by establishing a Medicaid Asset Protection Trust (MAPT). When you put your assets in a MAPT, Medicaid will not count the money in the trust toward its resource limit.

Using Medicaid Asset Protection Trusts to Transfer Assets

After you create a Medicaid Asset Protection Trust, you no longer own the assets within it, allowing you to qualify for Medicaid following the five-year lookback period. People who are currently healthy but plan to go on Medicaid in the future might choose to use this Medicaid planning strategy.

It is essential to understand that MAPTs are irrevocable: Once you make the trust, you cannot change your mind and take those assets back. Your trust must be irrevocable for you to qualify for Medicaid because it means that you no longer own or control these assets.

In contrast to MAPTs, many types of revocable trusts, such as family trusts, are often ineffective in preparing for Medicaid. Having the power to revoke your trust would allow to retain control over your assets, and Medicaid would count the contents of your trust as part of your resources.

Creating a Medicaid Asset Protection Trust

Three parties are involved in a MAPT: the grantor, the trustee, and the beneficiary. When you make a trust, you become the grantor, the person who places assets into the trust. The trustee manages the trust, and the beneficiary — or beneficiaries — will receive your assets.

If you want your MAPT to ensure you qualify for Medicaid, you must name someone other than yourself or your spouse as the beneficiary. Designating yourself as the beneficiary would mean giving yourself assets, which Medicaid would count toward its asset limit.

You can, however, select your children or parents as beneficiaries. Using a MAPT, you can also make sure they get those assets when you pass away.

What Can You Place in a Medicaid Asset Protection Trust?

As part of your Medicaid planning strategy, you can place many types of assets in a MAPT, including:

• Checking and savings accounts
• Stocks and bonds
• Mutual funds
• Certificates of deposit
• Real estate that is not your primary residence
• In most states, your home

Although many states allow you to place your home in MAPT so that it will not count toward Medicaid’s resource limit after five years, Medicaid regulations vary by state. In Michigan, for example, placing your home in a MAPT will not prevent it from counting toward the asset limit.

Benefits and Drawbacks of Medicaid Asset Protection Trusts

Medicaid Asset Protection Trusts offer several benefits to individuals planning to apply for Medicaid:

• MAPTs preserve generational wealth, safeguarding assets for family members.
• After you pass away, the state cannot take your assets from your beneficiaries to reimburse them for your long-term care, as MAPTs avoid probate.
• Since nursing home fees can be exorbitant, MAPTs can save your family money, as they let you qualify for Medicaid once the lookback period has ended.

The drawbacks of MAPTs include the following:

• Once you establish a MAPT, you forfeit the control and use of your assets. If you need money, you will not be able to draw from the trust.
• The fees associated with preparing a MAPT can be costly, ranging from $2,000 to $12,000.

Speak with your attorney to learn about how using a Medicaid Asset Protection Trust could help you plan for your future.

How Much Long-Term Care Insurance Should You Purchase?

Long-term care insurance helps you prepare for financial costs associated with aging, such as nursing home care, assisted living, or in-home care. Yet long-term care insurance policies vary widely in terms of the amount of coverage and how long the protection lasts.

The Average Costs of Care

The 2021 Genworth cost of long-term care survey provides national median monthly costs for the following:

• Nursing home care = $9,034 (private room); $7,908 (semi-private room)
• Adult day health care = $1,690
• Assisted living = $4,500
• Homemaker services = $4,957
• Home health assistance = $5,148

Whether you have a health condition that you know will require care in a skilled nursing facility or prefer to prepare for unexpected medical events, you may consider purchasing a certain amount of long-term care insurance to account for future care.

Evaluate which services you expect to need. Although many individuals need nursing home care, others can avoid nursing home costs by combining assisted living services with in-home care or day health services.

How to Calculate Your Monthly Benefit

Most policies provide between $2,000 and $10,000 of funds per month. To estimate how much long-term care insurance you will need:

1. Review how much you can expect to spend on long-term care.

2. Subtract the cost of services from the amount of money you can budget toward your long-term care expenses; the remainder is the amount you need long-term care insurance to cover.

Suppose you have a monthly income of $2,500 and plan to move into an assisted living facility that costs $4,500 per month. In that case, you will need a minimum of $2,000 per month in long-term care insurance to cover the cost of assisted living.

In addition to determining how much coverage you need each month, think about how long you want your plan to last. Long-term care insurance that lasts longer can be relatively more expensive, yet it provides increased protection.

The Department of Health and Human Services states that most people need long-term care by age 65. The majority of people need care for two years, but 20 percent require care for longer than five years. Most people should obtain at least two years of coverage and contemplate purchasing additional coverage.

Medicaid Planning

As you plan for your future, consider purchasing long-term care insurance that protects you for five years if you intend to apply for Medicaid. Since the Medicaid lookback period is five years, you may transfer your assets to your family and begin to spend down your assets so that you can qualify for Medicaid after your five-year coverage ends. After five years on private insurance, you may be able to transition to Medicaid.

The amount of long-term care insurance you buy should fit your unique circumstances. 

Speak with your attorney to learn more about preparing for your future with long-term care insurance.

Plan Ahead Before Seeking Nursing Home Care: Avoid Unnecessary Debt for You and Your Family

Many senior citizens may need the services of a nursing home or at-home care at some point in their life. You might assume that government assistance or health insurance will step in and cover the cost if you cannot afford these services. Unfortunately, neither health insurance nor Medicare covers long-term care. Because obtaining long-term care insurance can be very expensive, Medicaid could become your only option.

Medicaid coverage is not a given, however. If you have assets or recently transferred assets, Medicaid may determine you do not qualify for coverage until a certain amount of time has passed. If this happens, you and their family can face significant medical bills. If you cannot pay, nursing homes may take you to court to get reimbursed.

What steps can you take to avoid this? First, before applying for Medicaid, get a better understanding of the timelines in your state – known as lookback periods – that can affect your eligibility. Then you can engage in proper Medicaid or asset protection planning in advance of these timeframes. A good age to begin planning is around age 65, although everyone’s situation is different.

Individual states run Medicaid programs, and every state has different rules regarding Medicaid eligibility. These programs were designed as a payor of last resort — in other words, to qualify, you must meet strict requirements. There are two primary types of Medicaid benefits: home care and skilled nursing home care.

Lookback Periods

You must submit an application to your local Medicaid office to qualify for these benefits. As part of this process, the state will look at any money or property you may have transferred within a certain lookback period. In New York, for example, this period of time will soon be 30 months for home care and 60 months for skilled nursing care.

These lookback periods can have serious consequences. If you have not engaged in appropriate asset protection planning, you may not be able to qualify for home care or nursing home care for many months. The result is that many elderly individuals must then spend down their savings and liquidate their assets to pay privately for their home care before Medicaid starts covering anything. If a person no longer has resources and is subject to a disqualification penalty period, family members may have to step in and bear these costs on their own.

So, what can you do? The answer is to start planning as soon as is practical.

Options to Explore

Speaking with an elder law attorney can help you and your loved ones explore options available to avoid you or them being personally responsible for the costs of your care.

• Medicaid Asset Protection Trust — One common approach is placing assets in a Medicaid Asset Protection Trust. You may be able to use this to shelter various assets such as stock accounts, savings, a home with unprotected equity, and much more.
• Pooled Income Trust — Another option you may explore is contributing income that exceeds Medicaid allowances to a Pooled Income Trust. This can allow you to qualify for Medicaid while diverting excess income to a trust that pays qualified expenses on your behalf. This will enable you to benefit from the income and not spend it on things Medicaid could have otherwise covered.
• Spousal Refusal — Your spouse may also have options that can help you qualify for Medicaid. One such option includes exercising a right of spousal refusal — a process available in some states by which the income and assets of your spouse can be removed from consideration in your Medicaid eligibility analysis.

Finally, an attorney can help you understand if certain transfers are permissible under Medicaid rules without triggering a penalty period.

Without proper planning, individuals with assets and income exceeding specific state-set thresholds would have to spend this income and their assets on their care or exempt items before they can receive Medicaid benefits. For assistance in planning, consult with your attorney.

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Home Health Aide Costs See the Sharpest Increase in Annual Long-Term Care Survey

Long-term care costs climbed again in 2021, with rates for home health aides and homemakers seeing the sharpest rises, according to Genworth’s annual Cost of Care Survey. The coronavirus pandemic continues to contribute to cost increases. 

In the past year, Genworth reports that the national median annual cost of home health aides shot up 12.50 percent to $61,776, and the median annual rate for the services of a homemaker also jumped 10.64 percent to $59,488. Home health aides provide hands-on personal care, but not medical care. Homemaker services help with household tasks like cooking or cleaning that cannot be handled alone.

Price increases for nursing home care were more moderate, with the median cost of a private nursing home room rising 2.41 percent to $108,405 and the median cost of a semi-private room in a nursing home now $94,900, up 1.96 percent from 2020. Meanwhile, assisted living facility rates grew 4.65 percent for a median cost of $54,00 per year. After falling in 2020, adult day care costs rose 5.41 percent from $74 to $78 a day.

Even though costs fell sharply there, Alaska continues to be the costliest state for nursing home care by far, with the median annual cost of a private nursing home room totaling $378,140, down 13.38 percent since 2020. Missouri was the most affordable state, with a median annual cost of a private room of $71,175.

The 2021 survey, conducted by CareScout for the 18th straight year, was based on responses from 14,698 nursing homes, assisted living facilities, adult day health facilities, and home care providers. 

As the survey indicates, long-term care is growing ever more expensive. Contact your attorney to learn how you can protect some or all of your family's assets from being swallowed up by these rising costs. 

For more on Genworth’s 2021 Cost of Care Survey, including costs for your state, click here.