Medicaid and Medicare Spend Down Strategy

A primer on the Medicare Medicaid Spend Down Strategy

Medicare does NOT cover long term care in a facility. Medicaid does. That’s why some people look for ways to “spend down” assets to qualify for Medicaid. A Medicaid and Medicare spend down strategy is a highly-complex process. So while we’re providing an overview for you below, we’d strongly urge you to consult an Elder Law attorney in your state if you decide to move forward with this approach.

There are some individuals who may qualify for coverage through both Medicare and Medicaid. These individuals are often referred to as “dual eligible.”

Typically, an individual who is a dual eligible will be age 65 or over, on Medicare and also has low income and limited financial resources. Many who qualify as a dual eligible may qualify for Medicaid. They may also be able to receive assistance with paying their Medicare premiums.

In these cases, Medicare will often cover the cost of an enrollee’s health care services, with Medicaid filling in the various “gaps” in their Medicare benefits such as copayments, coinsurance, and deductibles. In addition, dual eligibles may also be able to obtain prescription drug benefits through a Medicare Part D drug plan.

Spending Down Assets to Become Eligible for Medicaid

If you are applying for Medicaid benefits and you find that you have more than the asset limit for eligibility, you may be able to spend down your countable assets. However, it is important to be careful here, because just simply giving away your money and your belongings is not the best route to take.

One reason for this is because Medicaid imposes a “look back period” during which you could be penalized for taking assets out of your name and giving them to someone else. In most states, the Medicaid look back period is 60 months.

While you may not be able to simply hand over assets to get them out of your name, there are some viable strategies that can be used for asset spend down, including:

  • Paying off debts. If you have loan balances such as a mortgage, vehicle loan, personal loan, and / or credit card balances, you could use your excess liquid assets to pay these off.
  • Making repairs / updates to your primary residence. You could also consider making repairs, updates, or modifications to your home, such as adding a bathroom and / or installing grab bars on bathtubs and showers.
  • Purchasing medical devices. If you require dentures, hearing aids, and / or eyeglasses and these items are not covered by your current health insurance plan, you could spend some of your countable assets to obtain these items.
  • Cancelling permanent life insurance policies that have more than $1,500 in cash value. (It is important to note that if you go this route, you would then need to spend down the cash that is received).
  • Buying an annuity and converting it into an income stream. Another strategy that may be used if you have a goal of spending down your assets is to purchase an income annuity. Here, you could purchase the annuity with a lump sum of cash and then immediately “annuitize” it (i.e., convert the lump sum into an ongoing income stream).

Which Assets are Exempt from Medicaid?

When determining whether or not an individual qualifies for Medicaid based on their financial resources, the program divides assets into three different classes. These include:
⦁ Countable assets (which are also referred to as non-exempt or available assets)
⦁ Non-countable assets (also known as exempt assets)
⦁ Inaccessible assets

Countable assets are counted towards the asset limit when determining whether or not a person qualifies for Medicaid benefits. These assets can include any personal financial resources which are owned and / or controlled by the Medicaid applicant.
These “countable” assets are oftentimes referred to as being liquid, as they can usually be easily converted to cash. It is typically required that these assets first be spent on the individual’s care before Medicaid will begin to pay benefits.

Medicaid considers the following to be countable assets:
⦁ Cash
⦁ Stocks
⦁ Bonds
⦁ All general investments
⦁ All tax-qualified pension plans (if the individual is retired)
⦁ Deferred annuities (if they have not yet been converted to an income stream)
⦁ Primary residence (if the net value of the residence exceeds a “cap” that is set by the individual’s state. Note that the individual’s primary residence does not count as a countable asset if the Medicaid applicant’s spouse is still residing in the home.)
⦁ Permanent life insurance policies that have a cash value of $1,500 or more
⦁ Vacation property
⦁ Investment property
Non-countable assets are not counted towards Medicaid’s asset limit. Assets that are considered to be non-countable by Medicaid include:
⦁ A small sum of money referred to as a “cash allowance.”
⦁ Pre-paid funeral
⦁ Term life insurance
⦁ Vehicle owned for personal use
⦁ Business assets (if the Medicaid applicant derives his or her livelihood from them)
⦁ Primary residence (if its value does not exceed a certain maximum amount)
⦁ Personal items (such as engagement / wedding rings, clothing, household furnishings, and appliances)

Non-countable assets are not used in determining an individual’s eligibility for Medicaid. In some states, the “intent” to return home (after receiving health care services) can qualify an individual’s primary residence as an exempt asset.

There is also a home equity value limit for the purposes of Medicaid exemption. For example, in 2019, the equity value of a Medicaid applicant’s home may not exceed $585,000 or $878,000 – depending on the state where the applicant resides.
In addition to countable and non-countable assets, there is also an asset class that is referred to as inaccessible assets. These are resources that would have had to be spent on the individual’s care, or in the case of a primary residence, have been subject to a lien for the recovery of benefits.

Other criteria that are factored into whether an individual may qualify for Medicaid, as well as how much needs to be spent down (if anything) is marital status. As an example, in many states, an individual applicant for Medicaid is only allowed to keep $2,000 in countable assets. A married couple may retain more.

How to Determine Whether You Qualify for Medicare and Medicaid

The rules around Medicaid qualification can be somewhat confusing. This, in turn, can make it difficult to determine whether or not you qualify for Medicaid coverage, as well as what needs to be spent down (if anything) so that you may be eligible for these benefits in the future.

In order to help you with Medicaid qualification, as well as how you should go about spending down assets without violating the Medicaid look back period, again, please reach out to a lawyer who specializes in Elder Law in your state for a consultation.

You can also get details that pertain specifically to Medicaid eligibility by visiting https://www.medicaid.gov/medicaid/eligibility/.

Got a Medicare question? We love questions. Contact us.
Author Bio: Ben started Prepare for Medicare in 2014 to help people help people get objective answers to questions about Medicare. He’s held leadership roles at numerous Fortune 500 Medicare health insurers in product development, sales, marketing and strategy for over 20 years.

Sources:

Centers for Medicare and Medicaid Services (CMS)

Medicare.gov

Medicaid.gov