Good to Know

In our last blog, we identified three ways to manage the risk of long-term care expenses:

  • Self-insurance for wealthy clients
  • Private long-term care insurance for the middle class
  • Medicaid for the desperately poor

Today, our focus turns to a deeper understanding of Medicaid. Conventional wisdom holds that most Americans cannot qualify for Medicaid Long-Term Care insurance (LTCi). Why? Because most applicants have “too much wealth and income” to meet Medicaid’s stringent requirements. In this blog, we’ll show you how such clients may be able to plan ahead for Medicaid eligibility.

But first, a quick disclaimer followed by an overview:


Medicaid spend-down strategies are complex and vary from state to state. The Medicaid rules can make the Internal Revenue Code seem simple. No decisions should be made without advance consultation with an experienced, credentialed elder care specialist.

The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide financial advice to clients. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this blog.


Medicaid Long-Term Care insurance (LTCi) is generally restricted to applicants with near poverty-level income and near-bankruptcy level assets. Interestingly, not all assets count as assets for Medicaid. Medicaid administrators classify an applicant’s assets as either non-exempt (countable) or exempt (not countable).

  • Non-exempt (countable) assets are liquid assets that have readily determinable market value that can be turned into cash relatively quickly. Examples include investment assets, such as cash, stocks, bonds, and certain alternative investments. Also countable is the cash value of a life insurance policy.
  • Exempt assets are not countable and include, within limits, home equity, one automobile, household goods such as furniture, personal belongings such as jewelry, and prepaid burial expenses.
  • Retirement assets, such as pensions, 401(k) Plans or IRAs, can be either nonexempt (countable) or exempt (not countable):
    • Retirement assets are exempt if distributions are being made to the applicant. However, distribution income is countable income.
    • If no distributions are being made to the applicant, the retirement asset is a countable asset.
Today’s blog illustrates how applicants with “too much income” or “too much in countable assets” can use spend-down strategies to qualify for Medicaid LTCi eligibility. Advance planning is usually required. The purpose of a spend-down strategy could not be simpler; the goal is to spend down an applicant’s income and/or countable assets to qualify for Medicaid.
Successful spend-down
strategies generally
require advance

Income Spend-Down Strategies1

This strategy is best illustrated by example. Assume a one-person household with income of $2,300 per month. Further assume that the Medicaid countable income limit in the applicant’s state is $1,600 per month. The applicant is said to have “excess countable income” of $700 calculated as countable income less the Medicaid limit

  • Countable income is broadly defined and generally includes compensation, portfolio income, Social Security payments, IRA or retirement plan distributions, and distributions from a reverse mortgage.
  • In contrast, child support, veterans’ benefits, worker’s compensation payments and Supplemental Security Income are generally exempt.
  • An amount equal to the excess countable income per month must be spent on qualified expenses for the applicant to qualify for Medicaid insurance in that month.
    • Qualified expenses include out-of-pocket expenses for long-term care services and health, dental, vision, and hearing treatment. Insurance premiums are considered an eligible expense as well.

After the applicant has addressed the countable income limits, he or she must address the asset limits. An applicant with more than $2,000 (most states) in non-exempt assets is usually disqualified for Medicaid LTCi. An asset spend-down strategy may allow the applicant to qualify.

Asset Spend-Down Strategies

Here’s what NOT to do. Your client will generally be penalized by Medicaid for transferring their assets to a trust or making gifts within a look-back period. The look-back period is generally 5 years.2

Far too many clients assume that they can transfer their assets to a trust or to individuals on the eve of their application for Medicaid. Such a strategy virtually never works and serves only to take asset control away from the applicant without providing Medicaid LTCi eligibility.

An asset spend-down strategy is transfer of countable assets into an exempt form. For example, portfolio assets could be used to pay off a mortgage, car loan or medical bills

Caution – If the applicant is married, these transfers may need to be delayed until after the applicant applies for Medicaid LTCi; the delay may allow the applicant’s spouse to keep more assets and still retain the applicant’s eligibility for Medicaid LTCi. Further discussion of spousal limits is out of scope for today’s blog.


Here are the two big takeaways:

  1. Always consult an experienced elder care special specialist in advance, and
  2. The earlier the planning is started the more options the applicant will have.

Stay tuned! In our next blog, we’ll illustrate the opportunities and traps of applying for Medicaid LTCi for a married applicant.

1A number of states allow compliance with the income limits through contribution of excess income into Qualified Income Trusts. Contributions to the trust must be spent on the patient’s long-term care and medical expenses.

2 Look-back periods of as little as 30 months may apply in certain states.