Medicaid “Spend Down”

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All of the attorneys at Pearson Bollman Law practice in the area of elder law.  Oftentimes this involves advising clients on how to qualify for Medicaid.  A typical situation is where our client recently moved their spouse into a skilled care facility.  If they can qualify, the Medicaid program will pay the entire skilled care facility bill.  One step in the Medicaid application process is called the “spend down” process.  This is called many things – Medicaid planning; Medicaid spend down, resource spend down, or asset spend down.  Regardless of what it is called, the recommendations we provide to spend down generally fall into three categories.  They are as follows:  make payments; purchase exempt items; and turn countable resources into an income stream for the community spouse.


Payments can be made for any debts which are owed.  For example, if there is a home mortgage or car loan we would recommend paying those off as spend down items.  Paying off credit cards, nursing home bills or attorney fees would also be considered appropriate spend down items.  Usually it is wise to pay off any debt possible as a spend down item.

Exempt Items

For Medicaid purposes all resources are considered countable unless they are specifically exempt.  Below is the entire list of assets excluded:

  • One vehicle regardless of value.
  • Burial and related expense funds for each spouse that are separately identified and set aside for that purpose. Each spouse may have a fund or multiple funds but no more than $1,500. Subtract from this $1,500 limit the total face value of excluded whole life and term life insurance policies and any amounts in irrevocable trusts or arrangements available to meet burial and related expenses.
  • Burial spaces held for either spouse or any other member of the immediate family.
  • Disaster Relief Act Assistance and Emergency Act Assistance or other assistance provided because of a Presidential declaration of disaster. Exclude these resources and any interest earned on the funds for nine months, beginning with the date of receipt. (These funds may be excluded for a longer period, if good cause is shown.)
  • Household goods and personal effects, regardless of value.
  • Housing assistance paid by HUD or FMHA for housing occupied by the community spouse.
  • Life insurance policies with a total face value of $1,500 or less for each spouse.
  • Property in a homestead, including the home and related land.
  • Property used for self-support of either spouse if it would be excluded by SSI.
  • Real property up to $6,000 if it is earning six percent of equity.
  • Relocation assistance provided by a state or local government which is comparable to assistance provided under Title II of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970.
  • Resources of a blind or disabled person who has a Plan for Achieving Self-Support, as determined by the Division of Vocational Rehabilitation, the Department of Human Services, or the Department for the Blind.
  • Resources necessary for self-employment.
  • Retirement funds if the member or the member’s spouse has to quit a job or claim hardship in order to withdraw them.
  • Shares of stock held by natives of Alaska in a regional or village corporation.  Exclude for the 20 years in which the stock is inalienable, as provided in Sections 7(h) and 8(c) of the Alaska Native Claim Settlement Act.

This list provides our clients options to turn countable resources into non-countable resources by purchasing the above items.  For example, a husband and wife could purchase $10,000 funeral trusts.  This would make the amount of money placed into the funeral trust no longer countable for Medicaid purposes.  Other items we frequently recommend are making repairs to the home, replacing an old automobile, updating furnishings around the house or purchasing a new house.

Income Stream

The community spouse (the non-applicant spouse) can earn as much income as they can earn.  Therefore, oftentimes we recommend the community spouse purchase a Medicaid compliant annuity.  This is an annuity purchased by the community spouse which pays out to the community spouse.  In order to be Medicaid compliant the annuity must meet the following requirements:

  • Is irrevocable and nonassignable;
  • Is actuarially sound, as determined in accordance with actuarial publications of the Office of the Chief Actuary of the United States Social Security Administration (see Annuities); and
  • Provides for payments in equal amounts during the term of the annuity, with no deferral and no balloon payments made; and
  • The annuity has the state of Iowa named as the remainder beneficiary for at least the total amount of medical assistance paid on behalf of the annuitant or the annuitant’s spouse, if either is currently institutionalized. Iowa may be named as either:
    • The remainder beneficiary in the first position, or
    • The remainder beneficiary in the second position, after the community spouse, minor child or disabled child, and in the first position if the spouse or a representative of the child does dispose of the remainder for less than fair market value.

For example, if a husband and wife have $200,000 in assets, IDHS (Iowa Department of Human Services) will advise them the applicant needs to have less than $2,000 in assets and the community spouse will need to have less than $100,000 (lesser of $119,220 or ½ of the countable resources) in order to qualify for Medicaid.  Using those numbers, the community spouse could take $100,000 in resources and purchase a Medicaid compliant annuity which would immediately spend them down below the $100,000 necessary to qualify for Medicaid.  The end result would be the community spouse would have a $100,000 annuity paying out to them and still have the $100,000 IDHS said they could keep.  Further, the applicant spouse would be qualified for Medicaid so the bill at the skilled care facility is being paid.

Services Provided

Understanding the Medicaid rules and coordinating multiple spend down recommendations can be complicated.  Clients hire us to provide spend down options and to implement their spend down plan.  If you are uncertain how to pay for long term care, please call Pearson Bollman Law to outline options for you and your family.

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