August 28, 2026
4:22 am

What Is a Spend-Down Plan?

A spend-down plan is the deliberate, documented use of a household’s excess money on permitted expenses until assets or income fall under the limit that qualifies someone for Medicaid. The word covers two different procedures that use the same name and almost none of the same arithmetic, and figuring out which one someone is describing is always the first step.

The numbers, all stated as of 2025 and every one of them subject to annual change – confirm each with your state Medicaid agency for the current year:

Countable asset limit for aged, blind and disabled Medicaid: $2,000 for an individual in most states, with a small number setting higher limits.
Community spouse resource allowance: a federal band running from roughly $31,584 at the minimum to about $157,920 at the maximum, with states choosing where in that band they sit.
Income cap for the special institutional eligibility group: 300% of the SSI federal benefit rate, which was $2,901 a month in 2025.
Personal needs allowance for a nursing facility resident: a federal floor of $30 a month, with most states setting more.
Look-back on asset transfers: 60 months under federal law.

This page walks the arithmetic. It is education, not eligibility advice – only the state Medicaid agency determines eligibility, and an elder law attorney should build any actual plan.

In This Article

First: Which Spend-Down Are You Being Asked to Do?
The Asset Arithmetic: What Counts and What Does Not
The Income Arithmetic, and the Trust That Fixes It
The Spouse’s Numbers, Which Change Everything
What You May Spend It On, and the One Thing You May Not
Where an In-Force Life Insurance Policy Lands
The Order of Operations, and When Spending Down Is the Wrong Plan
Frequently Asked Questions

First: Which Spend-Down Are You Being Asked to Do?

Two procedures, one word.

Asset spend-down applies when a person needs long-term care Medicaid and holds countable resources above the state’s limit. The task is to reduce resources to the limit through permitted spending. It happens once, then eligibility begins.

Income spend-down, sometimes called share of cost or the medically needy pathway, applies when income exceeds the limit in a state that offers a medically needy program. Instead of reducing assets, the applicant incurs medical bills equal to the excess income during a budget period the state sets – anywhere from one to six months – and Medicaid covers the rest of the period. It recurs every budget period, indefinitely. See how a medically needy program works.

Ask the caseworker plainly: am I over on resources, over on income, or both? And what is the exact figure I am over by? Those two numbers define the entire plan, and caseworkers will state them.

The Asset Arithmetic: What Counts and What Does Not

Start by sorting everything into countable and excluded, because families routinely spend down assets that never needed to be spent.

Generally excluded in most states: the primary home, subject to an equity ceiling and to who lives there; one vehicle; household goods and personal effects; irrevocable prepaid burial arrangements and burial spaces; and certain income-producing property.

Generally countable: bank and brokerage accounts, second properties, cash value life insurance above the small federal exclusion, and most retirement accounts, though several states treat an account in payout status as income rather than a resource – a state-specific point worth confirming rather than assuming.

Then subtract. If a single applicant holds $47,000 countable against a $2,000 limit, the gap is $45,000, and the plan is a documented account of where $45,000 legitimately went. Note that at least one state has moved away from resource testing entirely: California eliminated the asset limit for most Medi-Cal programs effective January 1, 2024. Confirm your own state’s current rule with its Medicaid agency rather than assuming the national pattern applies.

The Income Arithmetic, and the Trust That Fixes It

Roughly half the states operate as income cap states for institutional Medicaid: exceed 300% of the SSI federal benefit rate – $2,901 a month in 2025 – and you are ineligible regardless of how large the nursing home bill is. That produces the situation people find absurd: $3,100 of monthly income, an $11,000 monthly bill, and no coverage.

The fix is statutory. A qualified income trust, commonly called a Miller trust, is authorized at 42 U.S.C. section 1396p(d)(4)(B). Income above the cap is deposited into the trust each month, which removes it from the eligibility calculation, and the trust pays it to the facility. On the beneficiary’s death, the state receives amounts remaining up to the medical assistance it paid. Read how a qualified income trust works before you set one up, and note the mechanical requirement people miss: the deposits must actually happen every month, on time, or eligibility breaks.

In a medically needy state the arithmetic runs differently. If monthly income is $2,400 and the medically needy income level is $1,100, the share of cost is $1,300 per month of incurred medical expenses. Keep every bill, receipt and Explanation of Benefits – the expenses generally must be incurred, not necessarily paid, and documentation is what makes the month count.

Figure (2025)	Amount	Who sets it	Confirm with
Individual countable asset limit	$2,000 in most states	State, within federal rules	State Medicaid agency
Community spouse resource allowance	About $31,584 to $157,920	Federal band, state choice	State Medicaid agency
Institutional income cap	$2,901 a month (300% of SSI FBR)	Federal, indexed	State Medicaid agency
Minimum monthly maintenance needs allowance	About $2,555 to $3,948 a month	Federal band, state choice	State Medicaid agency
Personal needs allowance	$30 a month federal floor, often higher	State	State Medicaid agency
Life insurance face value exclusion	$1,500 total per insured	Federal SSI rule	Social Security Administration and state

The Income Arithmetic, and the Trust That Fixes It

The Spouse’s Numbers, Which Change Everything

When one spouse enters care and the other remains at home, the spousal impoverishment rules apply and the arithmetic gets considerably more favorable.

The community spouse resource allowance lets the at-home spouse keep a share of the couple’s countable resources. In 2025 the federal band ran from about $31,584 to about $157,920, with states choosing their approach within it. Resources are counted as of a snapshot date – typically the first day of a continuous period of institutionalization lasting at least thirty days – so the date of the first admission is a fact worth pinning down precisely.

The minimum monthly maintenance needs allowance lets income be diverted from the institutionalized spouse to the at-home spouse. In 2025 that ran from roughly $2,555 a month at the floor to about $3,948 at the maximum, with excess shelter costs able to raise it within that band. A fair hearing can increase either allowance in some circumstances.

Every one of these figures is indexed and changes annually. Get the current numbers from the state Medicaid agency, and get the snapshot date confirmed in writing.

What You May Spend It On, and the One Thing You May Not

Spending down means converting countable resources into non-countable value or into paid obligations. It does not mean giving money away.

Commonly permitted: paying the cost of care itself; paying off a mortgage, credit cards or other debt; home repairs, a new roof, accessibility modifications; replacing a vehicle; dental work, hearing aids, eyeglasses and medical equipment insurance will not cover; an irrevocable prepaid funeral contract and burial spaces; and, in some circumstances, a Medicaid-compliant annuity – which must be irrevocable, non-assignable, actuarially sound, pay in equal installments, and name the state as remainder beneficiary to the extent of assistance paid.

The prohibited move is gifting. Transferring assets for less than fair market value inside the 60-month look-back period creates a penalty computed by dividing the uncompensated value by the state’s published average monthly private-pay nursing facility rate. The resulting months of ineligibility begin when the person is otherwise eligible and already receiving care – the worst possible timing. A $60,000 gift in a state with an $11,000 divisor produces roughly five and a half months with no coverage and no money left to pay privately.

Keep receipts for everything, organized by month. Caseworkers verify.

Where an In-Force Life Insurance Policy Lands

Life insurance sits on the countable side more often than families expect, and the rule is specific rather than general.

Under the SSI resource rules that most states follow, if the total face value of all cash value policies on one insured exceeds $1,500, the cash surrender value of those policies is a countable resource. That $1,500 threshold has been unchanged for decades and is applied with state variation. Term insurance with no cash value is generally not counted at all. Our page on when life insurance counts as a Medicaid asset works through the mechanics.

So a policy with $38,000 of cash value is $38,000 of the gap you are trying to close, and there are four ways to deal with it: surrender it for the cash value, take a loan against it, use it to fund an irrevocable burial arrangement where state rules permit, or sell it in the secondary market if it qualifies. The comparison that matters is between surrender value and any secondary-market offer, since for some policies those numbers differ by a wide margin – spending down versus selling the policy lays that comparison out.

Critical sequencing point: proceeds from a sale are generally a countable resource in the month after receipt, so an unplanned sale can create the exact problem you are trying to solve. Decide the timing with your elder law attorney before anything is signed.

The Order of Operations, and When Spending Down Is the Wrong Plan

Do it in this sequence. First, get the two numbers – how much over on assets, how much over on income – from the caseworker. Second, sort assets into countable and excluded, and stop spending anything that was already excluded. Third, apply the spousal allowances if there is a community spouse, and confirm the snapshot date. Fourth, list permitted expenditures the household actually needs anyway, since spending on real needs is better than spending for its own sake. Fifth, take the whole plan to an elder law attorney before executing, particularly if a home, a business, an annuity or a transfer inside five years is involved.

And know when the answer is different. Spending down is the wrong plan when the person will not need institutional care and a community waiver or a life care plan would serve better; when a community spouse’s own security would be destroyed by it; when income alone can cover care for the foreseeable period; or when veterans benefits, long-term care insurance, or a Medicare Savings Program would close the gap without touching principal.

Pine Lake Legacy does not purchase policies. We provide education and a free policy review, and the honest answer is frequently that the policy should be kept or is too small to sell. Send the policy cover page or call (732) 978-9575. Every eligibility, transfer and tax question belongs with your elder law attorney, your CPA, the state Medicaid agency, or your State Health Insurance Assistance Program office.

Frequently Asked Questions

How much can I keep and still qualify?

In most states the countable resource limit for an individual is $2,000, though a handful set higher figures and at least one state has eliminated the asset test for most of its programs. A community spouse may keep considerably more under the resource allowance. Confirm your state’s current limit directly with its Medicaid agency.

Can I just give money to my children to spend down?

No. Transfers for less than fair market value within the 60-month look-back create a penalty period computed by dividing the uncompensated value by the state’s average monthly private-pay nursing facility rate. The penalty starts when you would otherwise be eligible and are already receiving care, which is the most damaging possible timing.

What is the difference between asset and income spend-down?

Asset spend-down reduces countable resources below the state limit through permitted spending and happens once. Income spend-down, in a medically needy state, requires incurring medical expenses equal to income above the medically needy level during each budget period of one to six months, and it repeats for as long as coverage is needed.

Does my house have to be sold?

Usually not during the applicant’s lifetime. The primary residence is generally excluded subject to an equity ceiling and to who lives there, and selling can convert an excluded asset into countable cash. Estate recovery after death is a separate question. Talk to an elder law attorney before listing a home for this reason.

Does my life insurance policy count?

If the total face value of cash value policies on one insured exceeds $1,500 under the SSI rules most states follow, the cash surrender value is countable. Term insurance with no cash value generally is not counted. That $1,500 figure has been unchanged for decades and is applied with state variation, so confirm locally.

Should I surrender a policy or sell it during spend-down?

Compare both numbers before deciding, since surrender value and a secondary-market offer can differ substantially on the same policy. Small policies inside a burial exclusion and policies a surviving spouse needs are usually better kept. Also confirm timing, because sale proceeds generally become countable in the month after receipt.

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