Medicaid provides essential healthcare coverage for low-income individuals and families, but strict income and asset limits can make it difficult for some people to qualify. However, those with income slightly above Medicaid’s eligibility threshold may still be able to receive benefits through a process called Medicaid spend-down. This program allows individuals to reduce their countable income or assets to meet Medicaid’s limits, helping them access necessary healthcare services.
This article explains how the Medicaid spend-down process works, who qualifies for it, and how it benefits those in need of long-term care or medical assistance.
What Is the Medicaid Spend-Down Program?
The Medicaid spend-down program is a way for individuals with incomes above Medicaid’s eligibility limits to qualify for coverage by deducting certain medical expenses. It works similarly to a health insurance deductible—once a person’s medical costs reduce their income below Medicaid’s threshold, they become eligible for benefits.
This program is especially helpful for seniors, disabled individuals, and those with chronic health conditions who have high medical costs but lack the financial resources to pay for care entirely out of pocket. Medicaid spend-down programs vary by state, so the specific rules and limits depend on where an applicant lives.
Who Can Benefit from Medicaid Spend-Down?
The Medicaid spend-down program is primarily designed for individuals who:
- Have income slightly above Medicaid’s eligibility limits but also have significant healthcare costs.
- Are elderly or disabled and require long-term care, home health services, or frequent medical treatments.
- Have high medical expenses that reduce their effective income below the Medicaid threshold.
Certain groups, including pregnant women, children, and those receiving Supplemental Security Income (SSI), may automatically qualify for Medicaid in some states without needing to use a spend-down program.
Types of Medicaid Spend-Down Programs
There are two main ways that states administer Medicaid spend-down programs:
1. Income Spend-Down (Medically Needy Program)
In states with a medically needy program, individuals with high medical expenses can “spend down” their excess income by paying for out-of-pocket healthcare costs. Once their medical expenses exceed the difference between their income and the Medicaid limit, they qualify for Medicaid for the remainder of the spend-down period, which is usually one to six months.
For example, if the Medicaid income limit in a state is $1,500 per month, and an individual earns $1,800 per month, they are $300 over the limit. If they incur at least $300 in eligible medical expenses, they can qualify for Medicaid for that period.
2. Asset Spend-Down
Some states allow applicants to qualify for Medicaid by spending down excess assets rather than income. This applies to individuals who have assets exceeding the Medicaid limit (which is often around $2,000 for individuals and $3,000 for couples in most states).
Permitted ways to spend down assets include:
- Paying off medical bills
- Purchasing medical equipment or home modifications for accessibility
- Paying for funeral and burial expenses in advance
- Paying off debt, such as credit cards or mortgages
- Purchasing an irrevocable funeral trust (allowed in some states)
Applicants cannot give away assets or sell them below market value to qualify, as this can result in a penalty period where they are ineligible for Medicaid.
How to Apply for Medicaid Spend-Down
Each state has its own process for applying for Medicaid spend-down programs, but the general steps include:
- Determine Eligibility: Check your state’s Medicaid income and asset limits and whether a spend-down program is available. You can find this information through your state’s Medicaid office or website.
- Gather Documentation: Collect proof of income, assets, medical expenses, and other relevant financial information. This may include bank statements, pay stubs, medical bills, and receipts.
- Submit an Application: Apply for Medicaid through your state’s Medicaid office or online portal. Indicate that you want to use the spend-down program if your income is above the limit.
- Track Medical Expenses: If using an income spend-down, keep detailed records of all qualifying medical expenses. Once you reach the required spend-down amount, submit proof to Medicaid.
- Receive Medicaid Coverage: Once approved, Medicaid will cover healthcare costs for the remaining period. If the spend-down period ends, you may need to reapply or submit new expenses.
What Expenses Count Toward a Spend-Down?
Not all medical expenses qualify for a spend-down, but typically, eligible expenses include:
- Doctor visits and hospital bills
- Prescription medications
- Medical supplies and equipment
- Home healthcare services
- Nursing home or assisted living costs
- Health insurance premiums
- Transportation for medical appointments
- Dental and vision care
It’s important to check with your state’s Medicaid office to understand which expenses are allowed.
Pros and Cons of Medicaid Spend-Down
Pros
✅ Provides access to Medicaid for those slightly over the income limit
✅ Helps cover high medical costs for seniors and disabled individuals
✅ Allows individuals to receive long-term care benefits
✅ Covers essential medical expenses that might otherwise be unaffordable
Cons
❌ Not available in every state (some states have strict income caps with no spend-down option)
❌ Requires ongoing tracking and submission of medical expenses
❌ Can be complex and time-consuming to manage
❌ Asset spend-down rules can limit financial flexibility
Which States Offer Medicaid Spend-Down?
As of recent years, about 30 states offer medically needy spend-down programs, while others have strict income limits with no spend-down option. States like New York, California, and Illinois have generous spend-down programs, while states like Texas and Alabama do not offer medically needy spend-downs.
To find out if your state has a Medicaid spend-down program, visit your state’s Medicaid website or contact a local Medicaid office.
Final Thoughts
The Medicaid spend-down process is an essential option for individuals whose income is slightly above the Medicaid limit but who face significant healthcare costs. By using medical expenses to lower their countable income, eligible individuals can qualify for Medicaid coverage and receive the care they need.
Since Medicaid rules vary by state, it’s crucial to research local guidelines, keep accurate records of medical expenses, and consult with Medicaid representatives or elder law attorneys if necessary.
For more information, visit Medicaid.gov or your state’s Medicaid website to learn about eligibility requirements and application processes.
