Medicaid is a needs-based health insurance program that exists to help people with healthcare needs who can’t otherwise afford healthcare coverage. Its coverage for 72.4 million Americans makes it the largest source of health coverage in the United States.
To qualify for Medicaid you have to be at or below a certain income level and can’t have assets below a certain monetary value. These thresholds vary widely from state to state but generally speaking, you can have no more than $2,000 in countable assets if you’re single and $3,000 if you’re married.
If you’re above the limits, that doesn’t mean you don’t qualify—you might just have to spend down some of your assets each month.
What are Countable Assets?
Not all assets are created equal. Medicaid breaks things into two buckets—countable and non-countable assets. Countable assets are anything Medicaid counts toward the countable asset limit set by your state. Countable assets include:
- Bank accounts—checking or savings accounts.
- Property other than your primary home
- Retirement accounts (varies by state)
- Investment assets like CDs, stocks, bonds, mutual funds, and others
Non-countable assets are anything that is exempt from your Medicaid asset limit. Non-countable assets include:
- Primary home—check with your state on rules regarding your home.
- Prepaid funeral expenses
- One vehicle
- Life insurance policy with a cash value of $1,500 or less
- Term life insurance
- Home furnishings, appliances, other personal items.
- Jewelry, engagement or wedding rings, and family heirlooms
Medicaid Spend Down Strategies
Figuring out how much to spend down will require you to first research the spend down guidelines of your state but the strategies for reaching the spend down limit are the same regardless of where you live. Here are a few ideas:
Pay Down Debt
Studies show that seniors are going into retirement with more debt than in the past. The perfect way to spend down assets is to pay down debt. Doing this might be the single best strategy for killing two birds with one financial stone.
Give Your Home Some TLC
Remember that your home is a non-countable asset so spending down by investing in your home is a great way to unload some money. Maybe you need a wheelchair ramp, stairlift, or other accommodations for yourself or somebody who has a medical condition. Or the roof needs replaced or the décor is looking a little dated. Anybody who owns a home knows that it’s easy to spend a lot of money fast.
You’re allowed one vehicle so put some money into repair or upgrades. Or sell the old one and buy a new one. Maybe you’ve always wanted a nicer car? Ironically, now might be the time to go for it.
Uncovered Medical Expenses
Hearing aids, dentures, eyeglasses, contacts, prosthetic devices, and surgical supplies also count as long as they’re not covered by insurance.
Irrevocable Medical Trust
An irrevocable medical trust is money set aside that becomes part of the trust that pays out to certain beneficiaries. This money is permanently placed in the trust and managed by somebody other than the person or their spouse. Often the money pays out to beneficiaries once the person passes away but it can also be paid to the original Trustor—generally not for at least five years after the trust is established. Trusts are complicated and creating one to qualify for Medicaid adds an additional level of complexity. Trusts require an estate attorney.
You might hear of Irrevocable funeral trusts, which establish a trust for burial expenses with the funeral home named as the beneficiary. Many experts advise against this type of arrangement. There are other ways of prepaying burial expenses.
Purchase an Annuity
Because the spouse is allowed a higher amount of income than the person applying for Medicaid, transferring money to an annuity and having it pay to the spouse is an acceptable spend-down strategy as long as it pays out before the end of the community spouse’s life expectancy. Look for a single premium immediate annuity because the money is paid as a single lump sum with payouts beginning immediately.
Cancel Life Insurance Policies
Remember, you’re allowed up to $1,500 in the cash value of your life insurance policies. Anything above that might make sense to cancel. When you cancel the policy or decrease the policy, the money goes back to the policyholder putting you back to the problem of having to spend down the payout. That’s when the trust becomes an attractive option.