Asset Spend Down

What Does It Mean to “Spend Down” for Medicaid?

If your income or savings are too high to qualify for Medicaid long-term care, you may still become eligible through a process called “spending down.” But how does this really work—and what are the pitfalls to avoid?

Why Would Someone Need to Spend Down Assets or Income?

Each state sets strict financial limits for Medicaid eligibility. If your countable income or assets exceed these limits, you may be denied care—unless you reduce your financial resources to acceptable levels. This process is known as “spend down,” and it comes with rules that must be carefully followed, especially when it comes to asset transfers.

What’s the Difference Between Income and Asset Spend Down?

When Does Asset Spend Down Apply?

Asset spend down is the more common approach and applies to all 50 states. If you own more than the allowed amount of countable assets, you must reduce your holdings—carefully and legally—to qualify.

What Triggers an Income Spend Down?

Income spend down is only available in certain states, typically through a “medically needy” program. This allows applicants to subtract medical expenses from their income to meet Medicaid’s income threshold temporarily.

Why Is the Medicaid Look-Back Period So Important?

When you apply for long-term care Medicaid, your financial history doesn’t stay in the past. States will review your asset transfers over the past five years (60 months) to ensure you didn’t gift or sell assets below market value to gain eligibility. Doing so can trigger a penalty period during which you won’t qualify for Medicaid.

Note: California has eliminated its asset limit (effective Jan. 2024), and its Look-Back Period will disappear entirely by mid-2026. New York is also phasing in a 30-month Look-Back Period for home-based care.

How Does Income Spend Down Work in Medically Needy States?

What Is the Medically Needy Pathway?

In states with this option, individuals with excess income can subtract certain medical expenses—like insurance premiums, prescriptions, or hospital bills—until they reach the state’s “Medically Needy Income Limit” (MNIL). Once that happens, they may qualify for Medicaid coverage for a set period, often 1 to 6 months.

What If You Live in an “Income Cap” State?

States that don’t offer an income spend down path instead allow individuals to use a Qualified Income Trust (QIT) or Miller Trust. Excess income is placed in an irrevocable trust managed by someone else (a trustee). These funds then become exempt from income limits and can only be used for medical and long-term care expenses.

What Assets Are Counted—and Which Are Not?

Which Assets Count Against Medicaid Limits?

Countable assets include anything easily converted to cash:

Bank accounts (checking, savings, money markets)
Stocks, bonds, CDs, mutual funds
Real estate other than your primary home
Cash
Retirement accounts (401(k), IRA) in many states

Some states count a non-applicant spouse’s retirement accounts as well.

Which Assets Are Exempt from the Limit?

Non-countable (exempt) assets include:

Primary residence (if the applicant lives in it or intends to return)
One vehicle
Household furniture and personal items
Term life insurance and small cash-value policies (under $1,500 combined)
Pre-paid burial expenses and irrevocable funeral trusts
Assets in properly structured irrevocable trusts

2025 home equity cap: $730,000–$1,097,000 depending on the state.

How Much Can You Keep and Still Qualify for Medicaid?

What Are the Asset Limits for Single Applicants?

In most states, the asset cap for an individual is $2,000, though some states allow more:

Connecticut: $1,600
Mississippi: $4,000
Illinois: $17,500
New York: $32,396

What If Both Spouses Apply?

Commonly, married couples applying together can keep $3,000 total, though limits vary:

Arizona and Oregon: $2,000 each
North Dakota: $6,000 combined
Rhode Island: $6,000 (Regular Medicaid), $8,000 (Waiver programs)

What Happens When Only One Spouse Applies?

When only one spouse needs Medicaid, the non-applicant (community spouse) may retain a larger share of the couple’s resources—this is the Community Spouse Resource Allowance (CSRA).

2025 CSRA caps:

General maximum: $157,920
Illinois: $135,648
South Carolina: $66,480

Some states use a 50% or 100% formula to calculate how much the non-applicant can keep, with a minimum CSRA of $31,584 in most states.

If the applying spouse seeks Regular Medicaid (not long-term care), the CSRA does not apply. In such cases, the couple is generally limited to $3,000 in assets combined.

What Are Safe and Legal Ways to Spend Down Excess Assets?

Spending down doesn’t mean frivolous spending. Here are ways to convert countable assets into exempt ones without violating the Look-Back Rule:

Pay Off Debt: Credit cards, car loans, and mortgages
Buy Medical Devices: Glasses, dentures, hearing aids
Home Repairs & Improvements: Ramps, grab bars, new roof, or bathroom renovations
Vehicle Upgrades: Repairs or new purchase at fair market value
Life Care Agreements: Formal contracts with caregivers (must be carefully structured)
Annuities: Convert lump sum to monthly income stream
Irrevocable Funeral Trusts: Funds used strictly for funeral costs

Note: If you have life insurance over $1,500 in face value, the cash value may count as an asset. In that case, consider reducing or canceling the policy and spending the cash payout on exempt items.

Should You Work with a Medicaid Planning Professional?

Given the complex rules and state-specific variations, it’s wise to work with a Medicaid planning expert. These professionals can help:

Maximize resource protection for your spouse
Avoid violations of the Look-Back Period
Determine how much to spend down and on what
Reallocate income and assets legally

Need Help Estimating Your Spend Down?

Use a Medicaid Spend Down Calculator to estimate how much of your assets must be reduced to qualify. However, for best results, consider professional guidance.