Medicaid Spend-Down Rules 2026: How It Works

"Spend-down" is the process of reducing your parent's assets to qualify for Medicaid coverage of long-term care. It's one of the most confusing—and anxiety-inducing—parts of elder care planning.

This guide explains exactly how it works, what counts as an asset, and legal strategies to protect what you can.

What is Medicaid Spend-Down?

Medicaid is a needs-based program. To qualify for nursing home coverage, your parent must have limited income and assets. If they have too much, they must "spend down" those assets until they reach the limit.

This isn't about gaming the system—it's how Medicaid was designed to work. People pay for their own care until they can't, then Medicaid steps in.

2026 Asset Limits

Limits vary by state, but typical 2026 limits are:

• Individual: $2,000 in countable assets
• Married couple (both need care): $3,000
• Married couple (one needs care): Community Spouse Resource Allowance (CSRA) up to $154,140

What Counts as an Asset?

Legal Ways to Spend Down Assets

You can reduce assets through legitimate expenses. The key: money must be spent on things of fair value—not given away.

Approved Spend-Down Strategies

1. Pay off debt — Mortgage, credit cards, car loans
2. Home improvements — Roof, HVAC, accessibility modifications
3. Vehicle purchase — Replace an older car (one vehicle is exempt)
4. Prepaid funeral — Irrevocable funeral plans are exempt
5. Pay for care — Home care, assisted living before Medicaid
6. Medical expenses — Dental work, hearing aids, glasses
7. Legal fees — Elder law attorney for Medicaid planning
8. Pay off family loans — Must be documented, legitimate debts

The 5-Year Look-Back Period

When your parent applies for Medicaid, the state reviews all financial transactions from the past 5 years (60 months). They're looking for gifts or transfers made for less than fair market value.

What Happens If They Find Gifts?

The total value of improper transfers is divided by the average monthly cost of nursing home care in your state. The result is a penalty period during which Medicaid won't pay.

Example: If your parent gave away $100,000 and nursing home care costs $10,000/month, they'd face a 10-month penalty period. During those 10 months, they'd need to pay for care themselves—without the money they gave away.

Spousal Protections

Medicaid rules protect the "community spouse" (the one who doesn't need nursing home care). They can keep:

• The home — No equity limit if spouse lives there
• One vehicle — Any value
• Community Spouse Resource Allowance (CSRA) — Up to $154,140 in 2026
• Monthly income allowance — Some of the nursing home spouse's income can go to the community spouse

Advanced Medicaid Planning Strategies

Elder law attorneys use legal strategies to protect assets while qualifying for Medicaid. These must be done properly to avoid penalties:

• Medicaid-compliant annuities — Convert countable assets to an income stream
• Caregiver agreements — Pay family members fair market rate for care provided
• Promissory notes — Structured loans rather than gifts
• Irrevocable trusts — Must be created 5+ years before needing care
• Home equity protection — Various strategies depending on state

Step-by-Step: The Spend-Down Process

1. Calculate total countable assets — List everything, determine what's exempt
2. Determine the gap — How much needs to be spent to reach the limit?
3. Create a spend-down plan — Prioritize legitimate expenses
4. Keep meticulous records — Save every receipt, document every expense
5. Apply for Medicaid — When assets are at or near the limit
6. Submit documentation — 5 years of bank statements, bills, receipts
7. Wait for approval — Can take 45-90 days

Common Questions

Can I sell my parent's house?

Yes, but proceeds become countable assets that must be spent down. If a spouse still lives there, the house is protected. If not, you may want to explore other options with an attorney.

What about my parent's retirement accounts?

In most states, IRAs and 401(k)s count as assets. However, in some states, if the account is in "payout status" (taking required minimum distributions), only the income counts, not the principal. Check your state's rules.

Can I pay myself for caregiving?

Yes, but it must be documented with a formal Caregiver Agreement, at fair market rates, and for services actually provided. Retroactive payments for past care are often seen as gifts.

How long does Medicaid approval take?

Typically 45-90 days, but it can take longer if there are issues with documentation. Many nursing homes will admit residents "pending Medicaid" and Medicaid will pay retroactively once approved.

Related Resources

• Medicare vs Medicaid Explained
• How to Pay for Nursing Home Care
• Benefits Eligibility Checker
• Estate Planning Workbook