Long Term Care Planning: What is Medicaid Spend Down?

A comprehensive estate plan should include a strategy for long term care planning. While it can be uncomfortable to think about, there may come a day when you or your spouse needs assisted living services. The cost of long term care is extraordinarily high. According to the 2020 Cost of Care Survey from Genworth Financial, the average annual cost of a private room in a nursing home in North Carolina is $96,725. The average annual cost of a full-time home health aide is $48,048.

With costs being this high, it is no surprise that long term care costs can quickly eat away at a person’s life savings. There are public benefits available to help cover these costs. However, long-term care benefits through Medicaid are strictly needs based. Not everyone is eligible. In this blog post, our North Carolina wills and estates attorneys explain the most important things you should know about the Medicaid spend down rules.

Medicare provides extremely limited coverage for nursing homes, assisted living support, and other similar long-term care services. Instead, Medicaid is the public program that provides the primary financial support for people in need of nursing home care or assisted living services.

The distinction between the two matters. Medicare is a pure entitlement program. Everyone American over the age of 65 is covered by Medicare. In contrast, Medicaid is only available to people who qualify based on their financial need.

Medicaid has strict financial eligibility requirements—even for long term care coverage. If you have too much income or too many financial assets, you can be denied nursing home coverage or assisted living coverage through Medicaid.

The term ‘Medicaid spend down’ is the colloquial name for a financial strategy used to help people who do not initially qualify for long term care coverage through the program. Here is a basic explanation of home the Medicaid spend down works in North Carolina:

• In order to qualify for long term care support through Medicaid, an applicant must have limited income/financial assets. If either their income or assets are too high, they must “spend down” those resources. By doing so, they can bring their income/assets below the maximum eligibility threshold.

In many cases, this means that money will have to be spent on health-care expenses or other medical costs. However, in some cases, senior citizens can pay off debt—potentially including a mortgage, an auto loan, or a credit card—to get themselves into a position where they will qualify for nursing home/assisting living coverage through Medicaid.

Imagine that you have an elderly parent who gets $1,200 per month in Social Security income. In 2021, a non-married applicant in North Carolina can only qualify for home and community based services through Medicaid if they have a monthly income of $1,073 or less. A spend-down strategy could help ensure that your elderly parent qualifies even though their current income is technically too high. That additional $127 per month could be used for some type of qualifying expense, usually a medical expense or medical debt, to ensure eligibility.

Most people who need long term care support have limited income. Thus, qualifying on that metric is generally not a major challenge. However, as noted above, Medicaid also has a strict asset limit. If a person’s assets are too high—potentially as low as $2,000 in non-exempt financial resources—they may be required to spend that money before they can qualify. This can be extremely frustrating for families.

The good news is that there are some estate planning and assets preservation strategies available that can help to “remove” assets from what Medicaid counts when applying its resource test. That being said, these strategies generally need to be implemented well-before long term care services are required. An attorney can help you put a plan in place to protect your assets.

At Arnold & Smith, PLLC, our North Carolina estate planning attorneys have extensive experience handling long term case planning, including Medicaid planning. If you have any questions or concerns about the Medicaid spend down rules, we are available to help you craft the best strategy for your situation. Contact us now for a confidential evaluation of your case. With offices in Charlotte, Mooresville, and Monroe, we provide long term care planning services throughout North Carolina, including in Union County, Mecklenburg County, Iredell County, and Rowan County.