Asset Spend Down

What Is Medicaid Spend Down and How Does It Work?

Medicaid Spend Down is the process of reducing your income or assets to meet your state’s Medicaid eligibility limits for long-term care. This may involve using excess funds to pay for certain allowable expenses until you fall within Medicaid’s financial thresholds. Gifting money or selling assets for less than fair market value is prohibited and can trigger penalties under Medicaid’s Look-Back Rule.

Although Spend Down can refer to both income and assets, it’s most often used in the context of assets, since asset limits apply in every state. Income Spend Down programs are only available in certain states through the Medically Needy Pathway.

How Does Asset Spend Down Work?

Applicants must have countable assets below their state’s limit to qualify for Medicaid. If you have more than the limit after exempt assets are considered, you can spend down the excess—carefully—to become eligible. In most states, the Look-Back Period is 60 months, meaning transactions in the past five years are reviewed for violations.

Example: California has eliminated its asset limit as of 2024, so Asset Spend Down is no longer applicable there.

How Does Income Spend Down Work?

If your monthly income exceeds Medicaid’s limit, you may qualify through an income-based Spend Down program. Known as the Medically Needy Pathway, this option allows you to use excess income to pay for medical expenses until you reach the allowable limit. Coverage is then granted for the remainder of the period, which can be between one and six months.

States without this option—called Income Cap States—may allow applicants to use a Qualified Income Trust (Miller Trust) to set aside excess income in a restricted account managed by a trustee. Funds can only be used for approved medical and care expenses.

What Assets Count Toward Medicaid’s Limit?

Countable Assets

Countable assets include cash, bank accounts, non-primary real estate, stocks, bonds, CDs, and in many states, retirement accounts like 401(k)s and IRAs (unless in payout status). About 29 states also count the non-applicant spouse’s retirement accounts.

Non-Countable Assets

Exempt assets often include your primary home (with conditions), one vehicle, household goods, personal belongings, certain life insurance policies, prepaid funeral arrangements, and assets held in approved irrevocable trusts—if created outside the Look-Back Period.

What Are the Medicaid Asset Limits?

Asset limits vary by state, marital status, and program type.

• Single applicants: Often limited to $2,000 in countable assets (ranges vary from $1,600 in CT to $32,396 in NY).
• Married couples (both applying): Typically $3,000 combined, with state-specific exceptions.
• Married couples (one applying): Applicant is limited to $2,000; the non-applicant spouse may keep additional assets up to the Community Spouse Resource Allowance (CSRA)—as high as $157,920 in 2025 in many states.

What Are Allowable Medicaid Spend Down Purchases?

To avoid penalties, only spend down on approved items and services, such as:

• Paying off debt (loans, mortgages, credit cards)
• Medical devices not covered by insurance (dentures, glasses, hearing aids)
• Home repairs or accessibility modifications
• Vehicle repairs or purchasing a replacement at fair market value
• Life Care Agreements for personal caregiving
• Purchasing Medicaid-compliant annuities
• Prepaid irrevocable funeral trusts

Why Should You Get Professional Help?

Medicaid Spend Down can be complicated, and mistakes may trigger a penalty period of ineligibility. A Certified Medicaid Planner can help you legally reallocate income and assets, preserve resources for a spouse, and ensure compliance with state rules—maximizing your eligibility and avoiding costly errors.