A Medicaid spend down is a way for people whose income or assets are too high for Medicaid to become eligible by using their excess money on medical expenses. It works like a health insurance deductible: once your medical costs reach a certain threshold, Medicaid kicks in and covers the rest. Thirty-six states and the District of Columbia offer some form of spend down program.
How Income Spend Down Works
Some states run what’s called a “medically needy” program. If your income is above your state’s Medicaid limit but you have significant medical needs, you can qualify by accumulating medical bills that eat up the difference between your income and the state’s medically needy income level (MNIL). That difference is your spend down amount.
Here’s how it plays out in practice. Say your monthly income is $1,800 and your state’s MNIL is $1,200. Your spend down amount is $600. Once you’ve racked up $600 or more in medical expenses (paid or unpaid), Medicaid covers you for the remainder of that budget period. You’re responsible for the bills up to $600. Medicaid pays everything above it.
The types of expenses that count toward your spend down include doctor visits, prescription medications, health insurance premiums, hospital bills, and other medical charges. Both paid and unpaid bills can be applied. You can also qualify retroactively for up to three months before your application date, as long as you would have been eligible and received covered services during that time.
Budget Periods Vary by State
Each state sets its own “budget period,” which is the window of time over which your income and medical expenses are measured. States can choose a budget period as short as one month or as long as six months. With a one-month period, you need to meet your spend down amount every single month to stay eligible. With a longer period, both the income standard and your countable income are multiplied by the number of months, giving you a larger window to accumulate qualifying expenses. A six-month period can be easier to meet because a single expensive medical event, like a hospital stay, can cover your liability for the entire stretch.
How Asset Spend Down Works
Income isn’t the only barrier to Medicaid eligibility. If your countable assets (savings, investments, certain property) exceed your state’s resource limit, you’ll need to reduce them before qualifying. This is the asset spend down, and it’s especially relevant for people seeking Medicaid coverage for nursing home or long-term care.
You can spend down assets by paying for medical care, settling outstanding debts, making home repairs, prepaying funeral expenses, or purchasing other items that Medicaid doesn’t count as assets. What you cannot do is give money away or sell assets below fair market value. Medicaid applies a 60-month look-back period, reviewing all financial transactions from the five years before your application. If you transferred assets for less than their worth during that window, Medicaid will impose a penalty period during which you’re ineligible for coverage. The penalty begins on the date of the transfer or the date you enter a nursing facility and would otherwise qualify, whichever comes later.
Spousal Protections
When one spouse needs nursing home care and the other continues living at home, Medicaid doesn’t require the at-home spouse to become impoverished. Federal rules allow the community spouse (the one living at home) to keep a protected share of the couple’s combined assets. For 2025, the minimum resource allowance is $31,584 and the maximum is $157,920. The exact amount a spouse can keep depends on state rules and the couple’s total countable resources, but it will fall somewhere within that federal range.
Pooled Income Trusts
In some states, particularly New York, people with excess income can use a pooled income trust to stay Medicaid-eligible without spending down in the traditional sense. A nonprofit organization establishes and manages the trust. You deposit your surplus income into an individual account within the trust each month, and that money is no longer counted as your income for Medicaid purposes. The trust then pays certain bills on your behalf, covering things like rent, utilities, phone bills, and other living expenses. Any funds distributed directly to you, however, do count as income.
These trusts must be set up by the disabled individual, a parent, grandparent, legal guardian, or a court. Upon the trust holder’s death, any remaining funds that the nonprofit doesn’t retain go to the state to reimburse Medicaid for benefits paid. You’ll need to provide your local social services office with a copy of the trust and a written statement showing how much income you’ll deposit each month.
Which States Offer Spend Down Programs
Not every state has a spend down option. States that operate medically needy programs include Arkansas, California, Connecticut, the District of Columbia, Florida, Georgia, Hawaii, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, and Wisconsin.
States without a medically needy program, such as Alabama, Alaska, Arizona, Colorado, Delaware, Idaho, Indiana, Mississippi, Missouri, Nevada, New Mexico, Ohio, South Carolina, South Dakota, Texas, and Wyoming, generally use strict income caps. In those states, if your income exceeds the threshold, you typically cannot qualify through a spend down. Some of these states may offer other pathways, like qualified income trusts, but the medically needy route isn’t available.
Because eligibility rules, income limits, and budget periods all differ by state, the spend down amount that applies to you depends entirely on where you live. Your state Medicaid office can tell you the exact income standard, asset limit, and budget period length that apply to your situation.