Medicaid spend-down explained How the asset test works and what a gift costs

A Medicaid spend-down is the private paying that brings countable assets down to your state's limit before Medicaid covers long-term care. Federal law penalizes transfers for less than fair market value, so an elder law attorney reviews any transfer first.

The word tends to arrive sideways. A discharge planner uses it, or it turns up in an admissions packet, and nobody stops to define it. Here is the plain version. Medicaid assumes a person draws down personal resources first, and the program begins paying when the resources it counts fall to the level the state sets. Everything else on this page is detail about which resources get counted, how far back a state looks, and who decides.

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Two numbers run the whole process

The first number is a resource limit. Long-term care Medicaid is a resource-tested program, and most state programs for aged, blind and disabled applicants take their financial methodology from Supplemental Security Income. Medicaid.gov's page on institutional long term care notes that eligibility "may be figured differently for residents of an institution, and therefore access to Medicaid services for some individuals may be tied to need for institutional level of care." The Centers for Medicare and Medicaid Services publishes the SSI figures late each year for the year ahead, and revises the chart when a mid-year figure moves. In its revised bulletin of April 27, 2026, CMS listed the 2026 SSI Resource Standard as $2,000.00 for an individual and $3,000.00 for a couple, effective January 1, 2026.

The $2,000 standard is where the familiar figure comes from, and it has not moved since 1989. Congress set it in statute at 42 U.S.C. 1382(a)(3), which raised the individual amount "to $2,000 on January 1, 1989" and the couple amount to $3,000, with no inflation adjustment attached. Thirty-seven years of price changes have run past a number that stayed still.

States are not locked to that standard, and the regulations say so in as many words. Under 42 CFR 435.601(d), a state may apply income and resource methodologies that are less restrictive than the cash assistance methodologies. The regulation defines no more restrictive as a methodology under which "additional individuals may be eligible for Medicaid and no individuals who are otherwise eligible are by use of that methodology made ineligible for Medicaid." Some states use a higher limit for this reason. The state Medicaid agency publishes the figure that governs an actual application.

The second number is sixty months. Under 42 U.S.C. 1396p(c)(1)(B)(i), the look-back date for a disposal of assets made on or after February 8, 2006 is 60 months before the date the person is both institutionalized and has applied. Five years, counted backward from the application, not forward from the gift. Our companion guide on how Medicaid pays for long-term care covers the income side and the spousal protections that sit alongside this test.

Exempt property never has to be spent

Families lose real money by spending down assets that were never counted in the first place. The SSI resource exclusions at 42 U.S.C. 1382b(a) are the working list for states that use SSI methodology.

Excluded under the SSI resource rules

• "the home (including the land that appertains thereto)"
• "household goods, personal effects, and an automobile, to the extent that their total value does not exceed such amount as the Commissioner of Social Security determines to be reasonable"
• "the value of any burial space or agreement ... representing the purchase of a burial space", subject to limits the Commissioner may prescribe
• Property essential to self-support, including the tools of a trade and a farmer's machinery and livestock
• Life insurance, which "shall be taken into account only to the extent of its cash surrender value", and not at all where the total face value of all policies on a person is $1,500 or less

Social Security's own operating manual adds the burial fund rule. POMS SI 01130.410 says the agency can exclude up to $1,500 each in funds set aside for the burial expenses of the individual and of a spouse. That $1,500 maximum is reduced by "any amount held in an irrevocable trust, burial contract, or other irrevocable arrangement" for those expenses. Prepaying a funeral converts cash into something the resource test treats differently, up to a limit that is not large.

Bank balances, brokerage accounts, second properties and additional vehicles are the ordinary countable side. Retirement accounts are the item families most often guess at, and the guess is state-specific enough that no national statement holds. That question belongs to the state agency.

The home exclusion has a ceiling

A home excluded from the resource count can still block eligibility on its own. Section 1396p(f)(1)(A) says an applicant "shall not be eligible for such assistance if the individual's equity interest in the individual's home exceeds $500,000". Subparagraph (B) lets a state substitute a higher amount up to $750,000, and subparagraph (C) indexes both to the consumer price index beginning with 2011. The 2026 figures in the revised CMS chart are a minimum of $752,000.00 and a maximum of $1,130,000.00.

Both of those equity limits are indexed, which is why the pair moves every year. The spousal impoverishment allowances move the same way. The resource standard does not. It sits in the statute at $2,000 and $3,000 with no indexing clause attached, and the 2025 and 2026 CMS charts print the same two numbers. So a printed guide, a lawyer's old handout and a caregiving article can each be current on one figure and stale on the next. The CMS chart resets the indexed ones, and CMS revises that chart mid-year when the July 1 allowances move.

The equity ceiling also switches off in the situation that matters most to families. Under 1396p(f)(2), it does not apply where the applicant's spouse, or a child who is under 21 or blind or permanently and totally disabled, "is lawfully residing in the individual's home". The statute adds at 1396p(f)(3) that nothing in the subsection prevents an individual from using a reverse mortgage or home equity loan to reduce total equity in the home.

Fair market value is the line the statute draws

Section 1396p(c)(1)(A) reaches one thing only: a person who "disposes of assets for less than fair market value" during the look-back period. Section 1396p(c)(2)(C) says a person is not made ineligible where a satisfactory showing is made that the individual "intended to dispose of the assets either at fair market value, or for other valuable consideration". Paying a nursing home, a home health agency, a pharmacy, a dentist, a roofer or a lender is a disposal at fair value. Nothing in the transfer rules touches it.

Fair value spending is the part of this subject that gets the least attention and does the most work. Families arrive at the phrase "spend-down" expecting a technique, and go looking for trusts, annuities and deed transfers. In practice the money leaves through the invoices already on the kitchen table. Care itself is the largest single category, and a month of private-pay nursing care moves more off the balance sheet than most planning devices do in a year.

Home modifications sit in the same class. Money spent on a ramp, grab bars, a stair lift or an accessible bathroom buys something of value at its price. It reduces countable resources without triggering the transfer rules, and it improves the house a spouse may still be living in. Paying off a mortgage, a car loan or a credit card balance works the same way, because the debt was real and the payment discharges it. The word "legitimate" that families hear from social workers is doing exactly this job: distinguishing a purchase from a gift.

Two categories of transaction deserve a flag, because each one looks harmless and is not. The statute treats the purchase of an annuity as a disposal for less than fair market value unless the state is named as remainder beneficiary in the positions 1396p(c)(1)(F) specifies. It treats funds used to buy a promissory note, loan or mortgage as assets unless the instrument meets the actuarial soundness, equal payment and no-cancellation-on-death tests at 1396p(c)(1)(I). Buying a life estate in someone else's home counts as a transfer under 1396p(c)(1)(J) unless the purchaser resides there for at least a year after the purchase. Each of those is a place where a well-meant transaction becomes a penalized transfer, and none of them is a do-it-yourself exercise.

The penalty starts later than the gift, and that is the trap

When a state finds a transfer inside the look-back window, it calculates a period of ineligibility. Section 1396p(c)(1)(E)(i) sets the arithmetic. The top of the fraction is "the total, cumulative uncompensated value of all assets transferred by the individual (or individual's spouse)" on or after the look-back date, so a community spouse's gift counts against the parent. The bottom is "the average monthly cost to a private patient of nursing facility services in the State (or, at the option of the State, in the community in which the individual is institutionalized) at the time of application". That divisor is a state figure, published by the state Medicaid agency, and it is the only number here a family cannot look up federally.

Clause (iv) of the same subparagraph closes the obvious escape: a state "shall not round down, or otherwise disregard any fractional period of ineligibility". A partial month counts.

The timing is where families get hurt. Under 1396p(c)(1)(D)(ii), for transfers on or after February 8, 2006, the penalty period begins on the later of two dates. One is the first day of a month during or after which the assets were transferred. The other is "the date on which the individual is eligible for medical assistance under the State plan and would otherwise be receiving institutional level care ... but for the application of the penalty period". The clock does not start when the money is given. It starts when the person is broke, in a facility, and otherwise qualified. By then the savings that would have paid for those months are gone.

Multiple small gifts do not dodge this either. Section 1396p(c)(1)(H) lets a state treat fractional transfers made across more than one month as a single transfer for the divisor calculation, beginning the period on the earliest date that would apply to any of them.

What if a parent already gave money away?

The transfer record is a fact, and the exceptions are written down. Section 1396p(c)(2) lists them, and they are narrow.

Where the asset transferred was the home, subparagraph (A) protects title passing to any of these:

• A spouse.
• A child under 21, or a child who is blind or permanently and totally disabled.
• A sibling who has an equity interest in the home and lived there for at least one year immediately before the person became institutionalized.
• A son or daughter who lived there for at least two years immediately before institutionalization and, as the state determines, provided care that permitted the parent to stay at home instead of entering a facility.

That last item is the caregiver child exception, and the two-year residence and the care finding are both requirements the state applies on the record.

Subparagraph (B) covers transfers to a spouse or for the sole benefit of a spouse, and transfers to a trust established solely for the benefit of a disabled child or of a person under 65 who is disabled. Subparagraph (C) covers assets transferred for a purpose other than qualifying for Medicaid, and the case where "all assets transferred for less than fair market value have been returned to the individual". Returning the money is a real remedy and it is often the fastest one.

Subparagraph (D) requires every state to run an undue hardship process, on criteria the Secretary sets. The statute also lets the facility where the person is living file the hardship waiver application on the person's behalf with the person's consent. It also permits the state to pay to hold the bed for up to 30 days while that application is pending. A family facing a penalty period asks about hardship in writing and asks the facility about the bed hold. Whether either applies is a determination the state makes on documented facts, and an elder law attorney is the person who assembles them.

Income spend-down is a separate program some states run

Everything above concerns resources, meaning what a person owns and not what arrives each month. There is a second thing called a spend-down that concerns income, and it exists only where a state elects it. Under 42 CFR 435.301(a), an agency "may provide Medicaid" to individuals whose income exceeds the standard but who "have incurred medical expenses at least equal to the difference between their income and the applicable income standard". The regulation's own phrasing, "if the agency chooses this option", is the tell that this is a state election.

Where a state does cover the medically needy, 42 CFR 435.831 sets the mechanics. The agency uses budget periods of no more than six months. It then deducts incurred medical expenses from income, including "expenses for Medicare and other health insurance premiums, and deductibles or coinsurance charges" and expenses for necessary medical and remedial services. When the deductions bring countable income down to the standard, the person is eligible. One consequence catches families off guard: the regulation states that "expenses used to meet spenddown liability are not reimbursable under Medicaid", so those bills stay the family's own.

Timing helps here more than it usually does. Under 42 CFR 435.915(a), a state must make eligibility effective no later than the third month before the month of application where the person received covered services in that period and would have been eligible at the time. Bills already incurred can matter, which is a reason not to delay an application while a family assembles paperwork.

Estate recovery arrives after the death, and it looks at the home

The protection that keeps a home out of the resource count and the protection that keeps it out of a state's hands after death are two different protections, and the second one is weaker. Medicaid.gov's estate recovery page states that "for individuals age 55 or older, states are required to seek recovery of payments from the individual's estate for nursing facility services, home and community-based services, and related hospital and prescription drug services". The same page adds that states have the option to recover for other Medicaid services provided to those individuals.

The same page sets out the limits. "States may not recover from the estate of a deceased Medicaid enrollee who is survived by a spouse, child under age 21, or blind or disabled child of any age". It also says "states are also required to establish procedures for waiving estate recovery when recovery would cause an undue hardship". The statute behind it, 1396p(b)(2), adds that recovery may be made only after the death of a surviving spouse. It also bars enforcing a lien on the home while a qualifying sibling or caregiver child who has lived there continuously since the admission is lawfully residing in it.

Lifetime liens follow a similar pattern. Medicaid.gov states that a state "may also impose liens on real property during the lifetime of a Medicaid enrollee who is permanently institutionalized, except when one of the following individuals resides in the home: the spouse, child under age 21, blind or disabled child of any age, or sibling who has an equity interest in the home". The same page says the lien must come off when the enrollee is discharged and returns home.

One planning route intersects this directly. Section 1396p(b)(1)(C) ties estate recovery to qualified state long-term care insurance partnership policies, under which a state disregards assets in an amount equal to the benefits the policy paid. Whether that route was ever open depends on when a policy was bought and what it contains, which is covered in our guide to how long-term care insurance works, including its section on partnership policies.

State agencies hold the numbers that decide your case

The federal figures in this article are the resource standard and the home equity minimum and maximum. Both appear on one CMS standards chart, which also carries the spousal impoverishment allowances this article does not use. CMS issues that chart late in the year for the year ahead, then revises it when the July 1 allowances move. The current 2026 chart is dated April 27, 2026.

The rest are state figures, and there is no national table for them. The state Medicaid agency sets all of these:

• The resource limit the state actually applies.
• The average private-pay nursing facility cost used as the penalty divisor.
• Whether the state covers the medically needy.
• How the state treats retirement accounts.
• What the state counts as an estate for recovery.

That agency is the correct first call.

For the legal side, the National Academy of Elder Law Attorneys keeps a Find A Lawyer directory of member attorneys at naela.org. An attorney is doing something a family cannot do alone here: reading the state's own version of every rule above, checking five years of transfers against the exceptions, and deciding what to file and when.

One piece of groundwork comes before any of this. Nothing on this page can be done by a family member without legal authority to act for the parent, which means a durable financial power of attorney signed while the parent still has capacity. Our guide on setting up power of attorney for an aging parent covers the two documents most families need and the capacity requirement behind them.