Medicaid Spend Down: What It Is and How It Works

A Medicaid spend down is the process of lowering what Medicaid counts until a person meets their state's eligibility limit for long-term care. For assets, that means using countable savings on things of fair value, such as care or debts. For income, some states let medical bills offset income above a set level.

Most people facing a spend down are adult children or spouses who have just learned that a parent's or partner's savings sit above the Medicaid limit, while the nursing-home bills are already arriving or soon will be. They want to know what can be spent, what can be kept, and whether a past gift or a future one will cause trouble. This page walks through how spend down works for nursing-home and other long-term-care Medicaid, and where each state's own rules take over.

What Medicaid Spend Down Means

Medicaid is a joint federal and state program. The CMS eligibility policy page describes how federal law sets the framework and each state chooses its own coverage options. Every state runs its own program, with its own limits and dates, so no single national figure applies everywhere.

Two kinds of limit matter for long-term care. The first is an asset limit. It applies to countable assets, meaning the assets Medicaid adds up toward the limit, as opposed to exempt assets it leaves out. The second, in some programs, is an income limit.

"Spend down" refers to bringing either one down to the limit, and the two work very differently. An asset spend down means using countable assets until what remains is at or below the state's asset limit. An income spend down, used in medically needy programs, means incurring medical expenses that offset income above the state's standard.

California uses the term "share of cost" for its income-based approach. That is about monthly income, and it is separate from spending down assets.

Asset Limits and What Counts as a Countable Asset

An exempt asset is one Medicaid does not count toward the limit. Federal law lists categories of resources that are excluded. Long-term-care programs commonly treat several of them as exempt, within value limits and depending on the state's rules:

• the home, subject to the equity limit described below;
• household goods and personal effects;
• an automobile;
• a burial space or burial arrangement.

The home has a firm boundary. Under 42 U.S.C. § 1396p(f), long-term-care coverage is barred when home equity is above a limit, unless a spouse, a child under 21, or a blind or disabled child lives in the home. A home is not excluded whatever its value.

Countable assets generally include checking and savings accounts, investment accounts, a second property, and other resources that can be turned into cash.

Limits differ by state and by marital status. When one spouse needs care, the community spouse is the spouse who remains at home. That spouse may keep a protected share of the couple's assets, as explained below. State figures for single applicants and for couples apply from the dates each state publishes. For one state's current rules, see California Medi-Cal asset limits.

The Look-Back Period and Transfer Penalties

Giving assets away is treated differently from spending them. The look-back period is the window of time before an application during which the state reviews transfers of assets.

Federally, that window is 60 months for any transfer made on or after February 8, 2006, under 42 U.S.C. § 1396p(c)(1)(B)(i). A state's own look-back and its start date come from that state's rules, so not every state's period is the same.

A penalty period is a stretch of ineligibility for Medicaid coverage of nursing-facility care, an equivalent level of institutional care, or home- and community-based waiver services. It follows a transfer made for less than fair market value. Under 42 U.S.C. § 1396p(c)(1)(E)(i), the number of months equals two figures divided:

• the total uncompensated value of all assets transferred by the person or the person's spouse on or after the look-back date, divided by
• the average monthly private-pay cost of nursing-facility care in the state, or, at the state's option, in the local community, at the time of application.

States may not round fractions down.

Timing is often the hardest part to accept. Under 42 U.S.C. § 1396p(c)(1)(D)(ii), the penalty starts on the later of two dates. One is the first day of a month during or after which assets were transferred for less than fair market value. The other is the date the person is eligible and would otherwise be receiving institutional-level care under an approved application. As a result, a gift made four years ago inside the look-back is penalized the same way as a gift made last month.

Not every transfer is penalized. The statute lists exceptions, including a home transferred to the person's spouse. More broadly, a transfer to the person's spouse carries no transfer penalty under 42 U.S.C. § 1396p(c)(2)(B)(i).

What Expenses Can Reduce Countable Assets

Spending money is not the same as giving it away. When countable assets are exchanged for goods or services of fair market value, the person receives equal value in return. That is not a transfer for less than fair market value, and the look-back penalty is aimed at the latter.

Families commonly spend down in these ways, each depending on the state's rules:

• paying nursing-home or home-care bills directly;
• paying off debts, such as a mortgage or medical bills;
• buying exempt items within the applicable limits, such as a vehicle, home repairs or modifications, or a prepaid funeral arrangement;
• paying fair value for services.

The federal rules also address specific tools.

Annuities. Under 42 U.S.C. § 1396p(c)(1)(F), buying an annuity is treated as a transfer for less than fair market value unless the state is named as remainder beneficiary as the statute describes. Separately, under 42 U.S.C. § 1396p(c)(1)(G), an annuity counts as an asset for the transfer rule unless it comes from certain retirement accounts or meets all of these conditions: irrevocable and nonassignable, actuarially sound, and equal payments with no deferral and no balloon payments.

Loans, notes and life estates. Promissory notes and loans face similar conditions. Buying a life estate in someone else's home also counts as a transfer unless the buyer lives in the home for at least one year after the purchase.

Whether any of these tools fits a family's situation depends on the state and the facts. None of them works by keeping assets off an application: every asset and transfer is reported. For more on how this fits together, see how Medicaid spend-down planning works.

Income Spend Down and Medically Needy Programs

States have the option to set up a "medically needy" program, according to the CMS eligibility policy page. It serves people with significant health needs whose income is too high to qualify under other eligibility groups. Not every state offers one.

The mechanics follow the CMS description:

1. The state sets a medically needy income standard.
2. Income above that standard is the spend-down amount.
3. The person incurs expenses for medical and remedial care that no health insurance covers.
4. Once those incurred expenses exceed the spend-down amount, the person can be eligible.
5. Medicaid then pays for services beyond the expenses the person had to incur.

The income standard and the budget period come from each state's own rules.

This is a different mechanism from an asset spend down. California's "share of cost" is likewise about monthly income, and it does not reduce countable assets to the asset limit. A family can face an income question, an asset question, or both, and each is measured separately.

Spousal Protections Under Federal Law

A wife or husband watching a spouse move into a nursing home usually asks one thing first: what will be left to live on. Congress addressed that question in 1988 with the spousal impoverishment provisions, described on the CMS spousal impoverishment page.

The community spouse, again, is the spouse at home.

Resources. The community spouse resource allowance protects a share of the couple's combined countable assets for that spouse. It is set with reference to a federal minimum and a federal maximum, and these figures change each January 1. The amount that actually applies depends on the state and the year.

Income. The minimum monthly maintenance needs allowance allows part of the institutionalized spouse's income to go to the community spouse when that spouse's own income falls short. CMS's 2026 standards bulletin sets the federal minimum at:

• $2,705.00 in all states except Alaska and Hawaii;
• $3,381.25 in Alaska;
• $3,111.25 in Hawaii.

These figures are effective July 1, 2026, because the minimum is adjusted each July 1. The maximum income allowance is adjusted each January. A state's own figure applies from the date that state's page gives.

Two other rules protect spouses:

• A transfer to a spouse carries no transfer penalty under 42 U.S.C. § 1396p(c)(2)(B)(i).
• Estate recovery is delayed, not cancelled, while a surviving spouse lives.

Estate Recovery: What Happens After

Estate recovery is the process by which a state seeks repayment of Medicaid long-term-care costs from a recipient's estate after the recipient dies.

The CMS estate recovery page states which costs states must pursue. For enrollees age 55 or older, states must seek recovery for nursing-facility services, home and community-based services, and related hospital and prescription drug services. CMS's State Medicaid Manual transmittal adds a rule for permanently institutionalized people of any age. For them, states must seek recovery of at least what Medicaid spent on their institutional care. States must also have procedures to waive recovery when it would cause undue hardship.

Federal law delays recovery, rather than cancelling it, while a surviving spouse, a child under 21, or a blind or disabled child survives (42 U.S.C. § 1396p(b)(2)).

During the recipient's lifetime, states may place liens on the real property of a permanently institutionalized enrollee. They may not do so when certain relatives live in the home:

• the spouse;
• a child under 21;
• a blind or disabled child of any age;
• a sibling with an equity interest in the home who lived there for at least one year immediately before the person's admission to the medical institution.

What a state recovers from, and whether the home is reached, depends on that state's own rules. For the wider picture, see Medicaid crisis planning.

If You'd Like to Talk Through a Spend Down

A spend down turns on details that differ from family to family: which accounts are countable, the dates and amounts of any gifts inside the look-back, whether there is a spouse at home, and which state's program applies.

This page does not cover Medicare, private long-term-care insurance or veterans' benefits. For a fuller sense of how an attorney approaches these questions, see what a Medicaid planning attorney does.

To discuss a situation like this with an attorney, request a consultation about your family's Medicaid and long-term-care options through Medicaid Asset Protection Group.