Medicaid spend down explained: income, assets and what counts

Medicaid spend down is a way for a person whose income is above a state's limit to still qualify, by counting medical bills against income until it falls to the limit. The phrase is also used loosely for using up savings, which is a different test with its own rules.

Before you spend, move or give away any money or property to qualify, talk to your state Medicaid agency or a qualified elder law attorney. Carevo does not assess eligibility or give legal or financial advice.

The income spend down

Medicare.gov describes it this way: some people whose income is too high may still qualify by spend down, which means paying non-covered medical costs and cost sharing until their income falls within the limit. Medicare.gov also says Medicaid rules differ in each state and that you apply through your state's Medicaid office.

The federal rules sit in the "medically needy" part of the regulations.

• 42 CFR 435.301 says an agency may cover people whose income is above the standard if they have incurred medical expenses at least equal to the difference between their income and the standard, and their resources meet the state's resource standards. It is a state option. The groups a state can cover include the aged, the blind and the disabled.
• 42 CFR 435.831 says that if income is above the standard, the agency must deduct incurred medical expenses from income. An expense is incurred on the date liability for the expense arises. The agency must deduct required items such as Medicare and other health insurance premiums and cost-sharing charges, and covered services above the agency's limits on amount, duration or scope.

In plain terms, if the state limit is a certain monthly income and yours is higher, the gap is your spend down. Once your incurred medical expenses cover the gap, you can be eligible, starting on the date the state's rules set (see below).

What counts as a medical expense

42 CFR 435.831 says the agency must deduct medical expenses incurred by the individual or family, and lists items it must deduct, including Medicare and other health insurance premiums, cost-sharing charges, services recognized under state law but not in the state's plan, and covered services that go beyond the agency's limits on amount, duration or scope. The agency may also project certain institutional and ongoing costs to the end of the budget period, and may set reasonable limits on some deductions. Which bills are applied first follows one of three orders the state picks: by type of service, by the date of service, or by the date the bill was submitted.

Keep every bill and receipt, and ask your state which order it uses, because the order decides which bills meet the spend down first.

How coverage starts

42 CFR 435.831 says timing depends on the state. In partial-month states, eligibility begins on the day deductions reduce income to the standard. In full-month states, it begins on the first day of the month in which the spenddown liability is met.

One catch

42 CFR 435.831 says expenses used to meet spenddown liability are not reimbursable under Medicaid. The bills you use to get under the limit are bills you still owe.

Not every state has this option. Ask your state Medicaid agency whether it does and which groups it covers.

The asset spend down

You will also see "spend down" used for using up savings, so resources fall under a state limit. This is a different test. 42 CFR 435.301 says a person's resources must meet resource standards found in other sections of the rules. We did not read those, and the limits depend on your state, so there is no single number to give you.

The part of the federal rule you must know is about gifts. Under 42 U.S.C. 1396p(c), assets given away or sold for less than fair market value during the 60-month look-back period can lead to a period when Medicaid will not pay for long-term care. The statute has exceptions, including transfers at fair market value or for other valuable consideration, and transfers to a spouse. Which purchases or payments fit those exceptions is a question for your state agency or an attorney.

So spending on yourself for full value is not the same as giving money away. Where the line falls, and what counts as an exempt asset in your state, is exactly the kind of detail that differs and is easy to get wrong. See Medicaid look-back explained for how the penalty is calculated.

Spend down and a spouse

If one spouse needs long-term care and the other lives at home, federal spousal impoverishment standards apply to the couple's resources and income. For 2026 the federal minimum and maximum community spouse resource standards are $32,532 and $162,660. The spousal protection calculator explains how these work. Your state applies them.

What to ask your state Medicaid agency

1. Does my state have a medically needy program with a spend down, and which groups can use it?
2. What is the income standard that applies to me, and what is my spend down amount?
3. Is my state a partial-month or a full-month state?
4. What resource limit applies, and which assets are exempt?
5. How do you treat payments or gifts made in the look-back period?

For the wider picture, see Medicaid and long-term care and does Medicaid pay for assisted living. The look-back calculator helps with the arithmetic once you have your state's figures.