Be Well: Medicaid 'spend down' strategy can cover high long-term care costs. But do not go it alone

The U.S. Department of Health and Human Services estimates that more than half people over age 65 will need help with daily activities such as bathing, dressing or eating at some point, either for an extended period or the rest of their lives. Some research suggests that share may be as high as two-thirds.

Yet relatively few older Americans have private long-term care coverage. AHIP, a trade association representing the U.S. health insurance industry, estimates that only 3% to 4% of Americans over 50 have an active policy that covers extended care. Medicare, the main health insurance program for older Americans, generally does not pay for continuing support services in a nursing home or assisted-living community.

As the youngest baby boomers approach their mid-60s, many families, couples and individuals may be planning to rely on savings, unpaid caregiving arrangements or Medicaid, the joint state and federal assistance program for the poor. The first two options can prove inadequate, while qualifying for residential care under Medicaid is difficult due to the program's low income and asset limits.

Eldercare experts say an approach to consider, especially if the person needing care is middle-class or of modest means, is to deliberately, but systematically, put yourself or a relative into poverty so Medicaid picks up the costs of a nursing home or assisted living services sooner than later.

This is known as a Medicaid “spend down” strategy.

In order to get someone qualified for Medicaid for nursing home care, families need to systematically, and transparently, use a family member’s assets on appropriate costs in order for the strategy to work. One example would be to use an elderly family member’s dwindling assets on prepaying for a funeral or purchasing a burial plot.

Intentional poverty

Deliberately reducing a person's income and savings to qualify for Medicaid can sound daunting. But without planning, the high cost of long-term care can quickly drain savings anyway. Assisted living and nursing home care can cost thousands of dollars a month, often forcing families to exhaust their resources before qualifying for assistance.

A 2024 study by insurance company Genworth Financial found that a home health aide cost an average of roughly $78,000 a year, while the average cost of semiprivate room in a nursing home was roughly $111,000. This is compared to the median retirement savings of 65 to 74-year-olds of $200,000, according to data from the Federal Reserve. An unplanned long-term stay in a nursing home will eat up those savings within a couple of years.

“There’s a reasonably high likelihood that you’ll need nursing care for a period of their lives, and there’s a good chance you may need it for a long period of time,” said Eric Carlson, director of long-term services and supports advocacy with Justice in Aging, a national nonprofit legal advocacy organization focused on older Americans. Carlson has worked on these issues for 35 years.

Medicaid eligibility for long-term or skilled nursing care is generally limited to people with low incomes and minimal assets, though the exact thresholds vary by state. In most states, an individual must have monthly income below $2,800 to $3,000 a month. A person can have no more than in $2,000 in assets for an individual, excluding certain property such as a primary residence, a vehicle and personal belongings.

Due to the complicated nature of Medicaid eligibility, eldercare experts say it’s best to work with elder care specialists to make sure an individual’s assets are used appropriately and you don’t inadvertently disqualify the person who needs assistance from accessing Medicaid.

For example, families do not want to just transfer the assets of a person needing nursing care from their bank accounts to the family's bank accounts to appear poor on paper. Medicaid applications often have what is known as a five-year “look back" policy, where examiners will look at a person's assets and bank accounts to see if there might have been any improper transfers out of the applicant's bank accounts It's important to keep track of the expenses that are going into the senior's cost of nursing care. Those types of expenses are paying out of pocket for nursing home care, hospital bills as well as personal items and clothing. An applicant can also use their remaining assets to pay down their mortgage, or other debts.

“People shouldn’t be doing ‘do it yourself’ financial planning in these matters. It can create significant problems with a person’s estate,” Carlson said. “You don’t want to wait until the day nursing care is absolutely necessary to make these sorts of decisions.”

Because Medicaid is a joint state and federal program, states administer these programs in different ways. In New York, for example, residents whose income exceeds Medicaid limits can still qualify through an ‘excess income’ or spend-down program, deducting medical expenses such as doctor visits, prescriptions or home care from their income until they meet eligibility thresholds. Once that amount is reached, Medicaid covers additional care for the rest of the month.

Similar ‘medically needy’ programs exist in more than 30 states, allowing people with high health care costs to qualify even if their income is initially too high.

Carlson recommends using resources like Justice for Aging, the Kaiser Family Foundation and other elder-care advocates in your states and communities to help navigate these issues. There are also liaisons in cities and states that work with Medicaid to walk a family through the process.

For those who are years off from needing nursing care, make sure to create a long-term plan for this type of care, especially since most Americans are likely to need this care at some point in their lives. One option is to buy a long-term care policy, which is typically bought by individuals or families in their late 40s or early 50s. A policy of a couple hundred dollars a month could end up paying for care that's tens of thousands of dollars a year in the future.