Medicaid Spend-Down Explained
When a person’s assets exceed the strict limits set by Medicaid, one solution is a Medicaid spend down. “Spend down” simply means reducing what are known as “countable resources” to the amount the person needing care is allowed to keep.
In this article, you’ll get a better understanding of what a Medicaid Spend Down is and how it might apply to your situation.
To understand the concept you first need to know some basic definitions.
Assets – Items you own that can be turned into cash. Assets include money in the bank, real estate, stocks, bonds, IRAs, annuities, gun collections, the cash value in life insurance and so on. In Texas, the state uses the word “resources” rather than “assets.”
The Texas Medicaid Handbook defines resources are “cash, other liquid assets, or any real or personal property, that a person (or spouse or parent, as appropriate): owns; has the right, authority or power to convert to cash (if not already cash); and is not legally restricted from using for his or her support and maintenance.”
Countable resources – A resource owned by and accessible to a person that is not exempt or excluded. Interesting! Some assets are exempt or excluded.
Exempt or excluded resources - resources not counted for the purpose of determining eligibility
The asset limit for single person in Texas for 2013 is $2,000. For married couples, Medicaid applies a different set of rules. To qualify for Medicaid the care recipient also needs to be at 65 years or older, meet income requirements ($2,130 or less for 2013) have limited assets (as indicated above) and meet Medicaid’s definition of “medically needed”
Most of my practice deals with seniors already living in a nursing home and about to be admitted. As you can see from the definitions above, some assets are not considered with determining a person’s eligibility.
By example, the personal residence of either a single or married person is exempt if certain conditions are met. Other exempt assets include a family vehicle, a small amount of life insurance cash value and burial plots and funeral arrangements. As you can imagine, because we’re dealing with the government, certain conditions must be met to insure these items are not counted.
Finally, there are the rules protecting a certain level of asset when the spouse of a person in a nursing home lives “in the community.” Living “in the community” generally means living in just about any other residential condition other than a nursing home or a mental institution.
Medicaid rules provide a “community spouse resource allowance”. The community spouse is allowed to keep up to one-half of countable assets to a maximum of $115,920 (the amount changes annually).
The law exempts those assets set aside as the community spouse resource allowance. They are safe from spend-down. Countable assets exceeding the protected allowances to the spend down process.
Here’s a simple example:
Jack (age 78) and Mary Humphries (age 72)are married, own a home with a market value of $225,000 and have saved $150,000 in non-exempt assets. Jack needs nursing home care. The monthly nursing home cost for Jack is $6500. Mary is very healthy and doesn’t take a single prescription medication. She justifiably worries that the high costs of Jack’s nursing home care will leave her penniless in a very short time.
Under Texas Medicaid rules, Mary is considered the “community spouse”. When determining Jack’s financial eligibility, the state will not consider the value of the home. Mary would get to continue living there and could protect $75,000 of their other resources. To qualify for Medicaid help to pay Jack’s nursing home care, she would have to spend the other $75,000.
This is a very simplified example to explain the spend down concept. In this case the “spend down” is $75,000.
The Medicaid caseworker determines the maximum amount of resources the community spouse is allowed to keep using this basic formula. If Jack and Mary had $200,000 of countable resources, the protected amount would be $100,000. If they had $250,000 the amount Mary could protect is restricted to $115,920.
Any amounts over the community spouse protected resource allowance would be considered Jack’s and subject to spend down.
The spend-down amount is based on the assets the couple owned as of the “snap shot date”. This is the first day of the month in which the Medicaid applicant (the person requiring nursing home assistance) enters a facility, hospital, or nursing home for an extended stay. It’s referred to as the “snap shot date” because Medicaid uses a “picture” of assets owned on that date to anchor their calculations.
A community spouse has additional allowances available that are not available to an unmarried applicant. The details are too involved to cover here. When it comes to Medicaid Asset Protection Planning these allowances can be of significant benefit.
The Medicaid spend down process boils down to disposing of resources to become asset eligible for nursing home benefits. You have two choices when it comes to spending down: re-actively spend excess assets or design a step-by-step, planned approach.
Reactive spending is like performing surgery with a meat clever. It’s wasteful, more painful and unnecessary. A more systematic method allows you to take full advantage of Medicaid rules to protect and preserve more assets for future use.