What is a Medicaid Spend-Down?
Many consumers mistakenly believe they can count on Medicare to pay for long-term care services, such as in-home care or an assisted living residence. However, this is not the case. As most agents know, Medicare pays for doctors, hospitals, drugs, and short-term rehab after hospitalization. It does not pay for long-term independent or assisted living.
If your Medicare clients need long-term care but lack the money to pay for it, they may consider applying for Medicaid. The federal and state program provides coverage for 72.5 million Americans, including children, pregnant women, parents, seniors, and individuals with disabilities. Medicaid offers health coverage to eligible low-income seniors and can provide benefits not traditionally covered by Medicare. However, recipients must first meet income eligibility requirements (set by each state), and care is restricted to Medicaid-approved services and facilities.
To qualify for Medicaid long-term care, an applicant must have income and assets under a specified amount. If medically needy individuals earn or own over this limit they can still become eligible by “spending down” excess income or assets. In general, excess income or assets must be used on health care and medical-related costs but may be spent on accrued debt, such as a mortgage, a vehicle, or credit card balances.
Each state runs its own Medicaid program with different income and asset restrictions and spend-down rules. Here are the key differences between an income spend-down and an asset spend-down, and tips for spending down strategically.
Medicaid Asset Spend-Down
Most states allow seniors who are applying for Medicaid to keep a house and a certain level of assets, such as an automobile, household furnishings, wedding rings, etc. Those are typically considered non-countable assets, though if an individual lives in an expensive home (say, one that’s worth more than $1 million), there may be home equity that will be required to be used in a Medicaid spend-down. Again, this depends on the state.
Countable assets, or liquid assets, include cash, bank accounts, vacation homes and property other than the primary residence, 401K’s and IRA’s that are not in payout status (see state rules), mutual funds, stocks, bonds, and certificates of deposit.
Keep in mind Medicaid has a look-back period where the state reviews all asset transfers. This is meant to prevent applicants from giving away assets or selling them under fair market value in an attempt to meet Medicaid’s asset limit. Texas, for example, has a look-back period of five years. If a transaction is found in violation of the look-back period, the applicant is penalized and ineligible for Medicaid for a probation period.
Medicaid Income Spend-Down
Here’s a simplified scenario of an income spend-down: a person over 65 is denied Medicaid because their monthly Social Security check is $50 more than the state’s Medicaid income limit. If the individual can show they pay $50 per month on medical expenses, they can then deduct $50 from their income and qualify for Medicaid. The spend-down, in this case, is the incurred $50 of medical expenses. Examples of medical expenses that can be used toward a spend-down include prescription drugs, unpaid medical bills, transportation to get medical care, home improvements to help with medical care, such as a chair-lift, or eyeglasses and a hearing aid. Again, the rules, restrictions, and requirements of a Medicaid spend-down are specific to each state. Advise your client to get advice from professionals familiar with your state’s Medicaid program before starting the process on your own.
Long-term Care Insurance
While the process of a Medicaid spend-down can be a viable option for some, it is not necessarily the best option. Nursing homes and home health agencies that accept Medicaid tend to provide the worst care for their residents. A better alternative is private long-term care insurance, which covers all or part of nursing home care, home healthcare, or adult daycare. There are no income or asset limits with long-term care insurance and it offers more flexibility and options than Medicaid. For example, not every state’s Medicaid program provides in-home care, which is the preferred way to receive care. If your clients are like most people and want to stay in their homes as long as possible, long-term care insurance is the way to go.
One major drawback to long-term care insurance is the monthly premium gets prohibitively expensive the older you are when you apply. This is why it is important to plan ahead.
We hope this information on What is a Medicaid Spend-Down? is helpful to you. Check out our LTC product training webinar to learn more about Long-term care insurance.
Empower Brokerage is dedicated to helping you educate your clients on the insurance they need and staying on top of their health. Whether it’s through webinar training, one-on-one calls, seminars, or marketing plans. We want you to be successful. Give us a call if you have any questions at 888-539-1633.