Long-term care in facilities like nursing homes can be extremely costly, especially for older adults who do not qualify for Medicaid. That’s why many states offer "medically needy" Medicaid as a safety net to help pay for long-term care.

What does medically needy mean?

People eligible for medically needy Medicaid have very high health care costs, yet have too much income to qualify for Medicaid.

Why is medically needy Medicaid good for long-term care?

Medicare, a federal health insurance program for older adults, typically only covers short-term stays in nursing home facilities.1 If a person has too much income to qualify for Medicaid to pay for long-term care, it can get expensive. The median cost of U.S. nursing home care is $7,908 a month for a shared room and $9,034 a month for a private room.2

Other forms of long-term care that people on medically needy Medicaid rely on include:3

  • Care facilities for people with intellectual disabilities
  • Home and community-based care services
  • Psychiatric care facilities

Over 30 states plus the District of Columbia offer medically needy programs to help people “spend down” their extra income on long-term care until they qualify for Medicaid to cover long-term care expenses.4 This process is also known as a Medicaid spend down.

How does a Medicaid spend down work?

To spend down extra income, you must spend the difference between what you earn and your state’s medically needy income limit for Medicaid. The medically needy income limit is a monthly dollar amount based on your cost of living and how many people live with you.5

For example: A person with an $800 monthly income and a $500 medically needy income limit must spend down a $300 difference to qualify for Medicaid.

States also have different spend-down periods of one to six months to spend down extra income.6 

For example: In a three-month period, a person with an $800 monthly income and a $500 medically needy income limit must spend down $900 to qualify for Medicaid.

After you qualify, Medicaid will pay for extra expenses beyond what you spent down.4

For example: A person with an $800 monthly income and $500 medically needy income limit only needs to spend down $300. But if they spend $400, Medicaid will pay the extra $100.

Before looking at your income, your state Medicaid program will first look at your assets—the worth of property or financial accounts you own. Depending on the dollar value of your assets, you may need to spend them down to a state asset limit before your Medicaid program lets you spend down your extra income to qualify for Medicaid.

What assets can I spend down?

A state Medicaid program may require you to spend down the following assets on long-term care before considering you for an income spend down:7

  • Real property other than your home, such as land or a vacation home
  • Additional vehicles if you have more than one
  • Checking and savings accounts
  • Retirement accounts like IRAs or 401Ks that are not paying out
  • Investments such as stocks and bonds
  • Certificates of deposit

If you only have one house and own one car, they will not count as your assets.7 Medicaid also doesn’t consider personal property, such as jewelry or furniture as countable assets.

Your asset limit will depend on whether you are single or married. It will vary more if you or both you and your spouse need long-term care. Each state has different rules on how you can spend down your assets. Make sure to follow your state’s rules carefully to avoid a financial penalty.

What income can I spend down?

After you meet your asset limit, you can spend down the following sources of extra income on your long-term care until you reach your medically needy income limit and qualify for Medicaid:7

  • Salary
  • Wages
  • Social Security disability payments like Social Security Disability Insurance (SSDI)
  • Social Security retirement payments
  • Veterans benefits
  • Pensions
  • Interest from bank accounts and certificates of deposit
  • Dividends from stocks and bonds

Money you receive from government assistance programs, such as the Supplemental Nutrition Assistance Program or Low Income Home Energy Assistance Program, does not count toward your income.7

What happens after I qualify for medically needy Medicaid?

Once you qualify for Medicaid, most of your income will go toward paying for your long-term care. If you’re in a marriage where one spouse lives at home and the other lives in a long-term care facility, your state’s medically needy program may have different rules on whether one or both spouse’s income counts toward long-term care.8

Long-term care in nursing homes help residents with the following:9

  • Care plan management
  • Prescription drugs
  • Physical and mental rehabilitation
  • Regular meals
  • Medication management
  • Activities of daily living, such as dressing and bathing

Who benefits most from medically needy Medicaid?

Adults age 65 and older and people with disabilities rely the most on medically needy Medicaid for long-term care. Older adults enrolled in Medicaid and Medicare also make up the majority of medically needy health care spending, and tend to spend more on health care than people on Medicaid alone.7

What if I don’t spend down enough to reach the medically needy limit?

If you are unable to reach your medically needy income limit during your spend-down period, it is possible you may temporarily lose Medicaid coverage.8 It is important to keep track of your health care-related expenses during your spend-down period as proof to show your state Medicaid office.

If you do not think you’ll be able to spend down enough income to qualify for or stay on Medicaid, it’s important to talk with your Medicaid caseworker to get assistance and education on what steps you should take. You can also contact your local State Health Insurance Assistance Program to talk with Medicare counselors who can also help you with Medicaid issues.  

What if my state doesn’t have medically needy Medicaid?

If your state doesn’t have a Medicaid medically needy program, don’t worry.

Some states may offer the following alternatives:10

  • Trust: A trust is an account where a portion of your income or assets is set aside to help you reach Medicaid eligibility. Some state Medicaid programs call these “qualified income trusts,” “supplemental needs trusts,” or “special needs trusts.” These kinds of trusts are irrevocable, which means you give another person, known as a trustee, control over the money that goes into it.  If you receive monthly payments like Social Security income, you should talk with a lawyer about how having a trust could affect your benefits.5 The Administration for Community Living’s Legal Services for Older Americans Program can connect you with legal advice on trusts that preserve your cash benefits.
  • Medicaid Buy-In: Working adults under age 65 with a disability can qualify for Medicaid under buy-in programs. States with these programs have different eligibility rules, such as possible limits on how much income you’re allowed to have if you already receive Supplemental Security Income, a cash benefit for people with limited income, or SSDI.11 If your state has a Medicaid Buy-In option, you should apply even if you think you have too much income. Your state may discount certain types of income that will help you qualify.

You might also qualify for financial help to buy health insurance through the health insurance Marketplace. Your local area agency on aging can help you find free Medicaid planning assistance on available alternatives to medically needy Medicaid. You can also visit a Benefits Enrollment Center, if there's one near you. NCOA also has a HelpLine that you can call to get free support. To get started today, call 1-800-794-6559 .

Sources

1. National Council on Aging. Does Medicare Cover Nursing Homes? What Older Adults and Caregivers Should Know. Found on the Internet at https://www.ncoa.org/article/does-medicare-cover-nursing-homes-what-older-adults-and-caregivers-should-know

2. Genworth. 2021 Cost of Care Survey. Found on the Internet at https://www.genworth.com/aging-and-you/finances/cost-of-care.html

3. KFF. The Medicaid Medically Needy Program: Spending and Enrollment Update. Found on the Internet at https://www.kff.org/wp-content/uploads/2013/01/4096.pdf

4.  Medicaid.gov. Medicaid Eligibility. Found on the Internet at https://www.medicaid.gov/medicaid/eligibility/index.html

5. U.S. Department of Health and Human Services. Implementation Guide: Medicaid State Plan Eligibility Medically Needy Income Level. Found on the Internet at https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/ig%2520medically%2520needy%2520income%2520level_5.pdf

6. Centers for Medicare & Medicaid Services. Medicaid Spenddown & Extra Help. Found on the Internet at https://www.cms.gov/Outreach-and-Education/Outreach/Partnerships/downloads/11249-P.pdf

7. LongTermCare.gov. Medicaid Eligibility. Found on the Internet at https://acl.gov/ltc/medicare-medicaid-and-more/medicaid/medicaid-eligibility

8. KFF. The Medicaid Medically Needy Program: Spending and Enrollment Update. Found on the Internet at https://www.kff.org/wp-content/uploads/2013/01/4096.pdf

9. National Council on Aging. Nursing Home Costs and Payment Options. Found on the Internet at https://www.ncoa.org/adviser/local-care/nursing-homes-costs

10. Medicare Rights Medicare Interactive. Spend-down program for beneficiaries with incomes over the Medicaid limit. Found on the Internet at https://www.medicareinteractive.org/get-answers/cost-saving-programs-for-people-with-medicare/medicare-and-medicaid/spend-down-program-for-beneficiaries-with-incomes-over-the-medicaid-limit

11. Medicaid.gov. Medicaid “Buy-in” Q&A. Found on the Internet at https://www.medicaid.gov/sites/default/files/2019-12/medicaid-buy-in-qa.pdf