Medicaid Spend-Down Rules: What Your Family Needs to Know

Medicaid is the primary payer for nursing home care in America — covering 62% of all nursing home residents. But getting there requires spending down almost all of your assets first. Understanding these rules before a crisis can mean the difference between protecting $200,000 of assets and losing everything. Here's what the rules actually say.

The spend-down requirement

Medicaid is a means-tested program. To qualify for nursing home Medicaid, your "countable assets" must be below the state threshold — typically $2,000 for a single person. This means you must spend down (use for care) or properly structure your assets until you reach that limit.

Countable vs. exempt assets

Not all assets count toward the limit. Exempt assets don't need to be spent before qualifying:

The 5-year look-back period

Medicaid looks back 60 months (5 years) before your application date at all asset transfers. Gifts, sales below market value, and transfers to family members within this window can result in a penalty period — months of ineligibility proportional to the amount transferred.

Penalty calculation: Penalty months = amount transferred ÷ average monthly nursing home cost in your state. If your state's average is $9,000/month and you transferred $90,000 to your children 3 years ago, penalty period = 10 months of Medicaid ineligibility — during which you must pay for care privately.

Spousal impoverishment protection

If a married person enters a nursing home, Medicaid cannot impoverish the spouse remaining at home (the "community spouse"). Protections in 2026:

• Community Spouse Resource Allowance (CSRA): The community spouse may keep up to $154,140 in countable assets (2026 federal maximum; states may set lower limits, but not less than $30,828)
• Community Spouse Monthly Income Allowance (MMMNA): If the community spouse's income is below $2,555/month (2026), they may receive a portion of the institutionalized spouse's income
• The home is protected: As long as the community spouse lives in it, the home is fully exempt — no lien while they're alive

Medicaid estate recovery

After the Medicaid recipient dies, the state can seek repayment from the estate — including the previously exempt home. States are required to attempt recovery for assets received after age 55. This means the home exemption is temporary, not permanent. Strategies to protect the home from estate recovery include:

• Irrevocable Medicaid Asset Protection Trust (MAPT) — must be funded 5+ years before application
• Life estate deed — transfers remainder interest now while retaining use during lifetime
• Both require an attorney familiar with your state's Medicaid rules