Medicaid 'spend-down'

PERSONAL FINANCE | ADVICE

More than 1.4 million people lost Medic-aid coverage in 2023 because they no longer meet the eligibility requirements, according to August tracking data from KFF, a health policy nonprofit.

After a pause on disenrollments during the COVID-19 public health emergency, beneficiaries now must prove that they still meet the income limits for Medicaid. People whose income has gone up risk losing their coverage.

What some beneficiaries might not realize is that even if their income seems too high for Medicaid, they might be able to spend down some income to qualify. For certain beneficiaries, spending on medical bills, including Medicare premiums, can be subtracted from their income when applying for Medicaid.

What is a Medicaid spend-down?

A spend-down is like a health insurance deductible, according to Catrice Simpson, a supervisory social service representative for the Washington, D.C., Department of Health Care Finance.

"It is the amount you must show proof of meeting or exceeding before the insurance plan starts to pay, in this case it's before Medicaid starts to pay," Simpson said.

For example, someone with income $200 above their state's limit for Medicaid might become eligible if they have at least $200 in qualifying medical bills.

People who qualify as "medically needy," such as those with certain disabilities, children or people age 65 and older, are eligible to spend down income to qualify for Medicaid.

Rules for who counts as medically needy vary by state. For example, in Washington, D.C., parents or caretakers of children under 21 years old, pregnant people and people living in nursing homes can also spend down to become eligible for Medicaid.

How does spending down affect medical bills?

Spending down to meet the income requirements for Medicaid means that Medicaid can cover some of your medical bills. But it won't cover the bills you used to qualify.

For example, if you pay $300 out of pocket for a doctor's visit and subtract that amount from your income, Medicaid won't reimburse you for it later. But additional bills you didn't use for the spend-down could be covered by Medicaid.

If you have both Medicaid and another kind of coverage, they can work together to pay for your care.

For example, if you have both Medicare and Medicaid, Medicare pays for services first, and then Medicaid pays for additional costs that Medicare didn't cover, such as certain copays, coinsurance and deductibles.

Benefits for Medicare beneficiaries

For people age 65 and older and those with certain disabilities, Medicare covers most health care, but not everything.

"There's often the misconception that Medicare will pay for long-term care, and it will not," says Connecticut elder law attorney Daniel Tully.

Medicaid does cover long term care, Tully says, and could be an option for those facing high costs Medicare won't cover. Those beneficiaries might be able to qualify by spending down or taking other estate planning actions such as establishing a Medicaid-compliant trust, Tully says.

Medicare beneficiaries who spend down to qualify for Medicaid get an additional benefit: the "Extra Help" subsidy. Extra Help pays for the premiums, deductible and most of the out-of-pocket costs for Medicare Part D, which covers prescription drugs. The government estimates that it's worth about $5,300 per year.

Help for the spend-down process

Your Medicaid agency can provide the details on Medicaid eligibility rules, including the spend-down process, in your state.

Find eligibility and enrollment details and contact information by selecting your state on Medicaid.gov.

Tully describes the laws for Medicaid planning as "very complicated." "You really want to take the time to make sure you're being advised by a professional," he recommends.

You can get free, personalized counseling from your State Health Insurance Assistance Program, or SHIP. SHIPs have offices and counselors who can speak on the specifics of your state and your situation when it comes to Medicare, Medicaid and related programs. Find your local SHIP office at shiphelp.org.

Most people find the spenddown overwhelming at first, Simpson wrote, but once it's explained to them, people with medical bills usually don't hesitate to start the process.