The Medically Needy Pathway

Some people have too much income to qualify for Long-Term Care Medicaid under the usual limits, yet nowhere near enough to pay for a nursing home. The medically needy pathway is one of the ways federal law lets states help them. It works like an insurance deductible: once a person’s medical bills use up the income above a set level, Medicaid pays the rest. This guide explains how it works, which kind of states use it and how it compares with the other main route for people with higher income, the Qualified Income Trust.

Figures change periodically. Double-check current amounts before relying on them.

The basic idea

In a state with a medically needy program:

1. The state sets a medically needy income level (MNIL), a monthly amount the person is allowed to keep. Federal rules cap it at 133 1/3% of the state’s old AFDC payment level for a family of the same size, so it is usually low, often only a few hundred dollars to around $1,000 a month.
2. Any income above the MNIL is the person’s spend-down amount (sometimes called the “share of cost”).
3. Once the person has incurred medical expenses equal to the spend-down in a budget period (one to six months, set by the state), Medicaid covers the rest of their eligible costs for that period.

For a nursing home resident, the monthly nursing home bill is far larger than the spend-down, so the spend-down is met easily each month. In practice, the person pays most of their income to the nursing home, much as under other pathways, and Medicaid pays the remainder.

The person must still meet the asset limit for the medically needy program, and the medical and residency tests.

Which states use it

States are not required to have a medically needy program, and not every state that has one uses it for nursing home care. Broadly, states fall into two groups for nursing home applicants with higher income:

Some states offer both routes for different programs. Each state guide explains which the state uses, and see Income limits by state.

What counts toward the spend-down

Expenses that can count toward the spend-down generally include:

• nursing home costs;
• health insurance premiums, including the Medicare Part B premium ($202.90 a month standard in 2026) and Medigap premiums;
• doctor, hospital and pharmacy bills not paid by insurance;
• medical equipment and supplies;
• in many states, home care and other remedial services recognized under state law.

Bills must generally be the person’s responsibility and not paid by insurance or another program. Some states allow unpaid old bills to count. Paid bills from earlier months may count in limited cases.

A worked example: nursing home

Margaret lives in a medically needy state. Her MNIL is $1,000 a month (an example figure; each state sets its own). She has:

• $3,100 a month in Social Security and a pension;
• $1,800 in savings (under her state’s $2,000 limit);
• a nursing home bill of $10,000 a month.

Her excess income is $3,100 minus $1,000, or $2,100 a month. Her nursing home costs far exceed that, so she meets the spend-down every month. Medicaid pays the nursing home, and Margaret contributes her income after her personal needs allowance and any allowed deductions, the same way any nursing home resident does. See Patient liability.

A worked example: home care

Walter lives at home in the same state. He has $1,600 a month in income, so his excess is $600 a month. His state uses a one-month budget period.

• If he has $600 or more in medical bills in a month (including his Medicare premiums and the cost of an aide), Medicaid covers his remaining eligible costs that month.
• If he has only $400 in bills, he does not meet the spend-down, and Medicaid pays nothing that month.

Home care spend-downs can be harder to manage than nursing home spend-downs, because monthly costs vary. Some states let people pay the spend-down amount to the state each month to keep coverage steady. In many states, home care waivers use the special income limit instead, so check the rule for the specific program.

The Qualified Income Trust alternative

In states that use the income cap rather than a medically needy program for nursing homes, a person with income over $2,982 a month can still qualify by setting up a Qualified Income Trust (QIT), often called a Miller trust. Federal law allows a trust made up only of the person’s pension, Social Security and other income, if the state will receive what is left in the trust at death, up to the amount Medicaid paid.

How it works:

1. A trust is created, usually with a simple bank account.
2. Each month, the income above the cap (or all of a particular income source) is deposited into the trust.
3. The trustee pays allowed amounts from the trust, mainly the person’s share of care costs.
4. The income placed in the trust is not counted against the cap.

QITs must follow state rules closely. Missing a deposit for a month can cost coverage for that month. A Certified Medicaid Planner (CMP) or elder law attorney can set one up properly.

Comparing the two approaches

In both cases, the person ends up paying most of their income toward care. The pathway mainly decides whether they can qualify, not how much they keep.

The asset limit still applies

The medically needy pathway helps only with income. Countable assets must still be at or under the state’s limit. Some states use a different asset limit for medically needy applicants. The look-back still applies, and married couples still get spousal protections.

Common questions

Is the spend-down the same as spending down assets? No. The asset spend-down means reducing savings to the asset limit. The income spend-down means incurring medical bills equal to excess income each budget period. Both can apply to the same person. See Income spend-down and How the spend-down works.

Do I have to pay the bills before Medicaid starts? Generally you only need to incur them, not pay them, to meet the spend-down. You remain responsible for the bills used to meet it.

Will the nursing home accept a medically needy resident? A nursing home that accepts Medicaid must accept the state’s eligibility decision, including medically needy residents.

Can my spouse’s income cause problems? In most states, the spouse at home’s income is not counted for the applicant’s eligibility. The spousal income allowance can still be paid from the applicant’s income. See Income for couples.

What if my income drops? Report it. A lower income means a smaller spend-down, and it may even let the person qualify without one.

Mistakes to avoid

• Not reporting medical bills in time. Many states have deadlines to submit bills for each budget period.
• Assuming nursing home Medicaid is impossible with high income. Both the medically needy pathway and QITs exist for exactly this situation.
• Letting savings build up. Income left over each month can build up in a bank account and push assets over the limit.
• Confusing programs. A state may use a medically needy spend-down for regular Medicaid but the income cap for nursing homes. Know which rule applies.

Steps to take

1. Find out whether your state uses a medically needy program, the income cap, or both, for the care needed. See the state guide.
2. Total gross monthly income from every source.
3. If income is over the cap in an income cap state, ask about a QIT before applying.
4. If in a medically needy state, gather medical bills and insurance premium statements.
5. Talk with a Certified Medicaid Planner (CMP) about timing and paperwork.

Related guides

• Income limits by state
• Ways to qualify when you are over the limits
• Income spend-down (share of cost)
• Patient liability

Last updated for 2026. General information only, not legal or financial advice. Medicaid Answers is a free educational resource published by Medicaid Answers Foundation.