Medicaid Spend Down: How It Works and What Expenses Count

Reviewed October 5, 2026. A Medicaid spend down lets people whose income is too high for regular Medicaid qualify anyway by subtracting their medical bills from their income. Once your medical expenses reach the difference between your income and your state’s “medically needy” income level, Medicaid covers your remaining eligible care for the rest of that budget period. According to Medicaid.gov, 36 states and the District of Columbia use spend down programs, either as medically needy programs or as 209(b) states.

Quick answer: “Spend down” means two different things. The income spend down (medically needy program) uses your medical bills to qualify. The asset spend down is how people reduce savings to meet Medicaid’s asset limit for nursing home or long-term care coverage, within strict rules, including a five-year look-back on gifts and transfers.

How the Medicaid income spend down works

Medicaid.gov explains it this way: “Once an individual’s incurred expenses exceed the difference between the individual’s income and the state’s medically needy income level (the ‘spenddown’ amount), the person can be eligible for Medicaid” (Medicaid.gov).

1. Your state sets a medically needy income level (MNIL) and a budget period, typically between one and six months.
2. The state calculates your excess income: your countable income minus the MNIL.
3. You incur medical expenses equal to that excess during the budget period. The bills can be paid or unpaid.
4. Medicaid starts paying for covered services once you meet the spend down, through the end of that budget period.
5. The cycle restarts with the next budget period.

Example (illustrative numbers only)

In this example, once this person’s medical bills in the six-month period reach $4,800, Medicaid covers eligible care for the rest of that period. Each state sets its own income level and budget period, so contact your state Medicaid agency for real figures.

What expenses count toward a Medicaid spend down

Federal rules allow a broad range of medical costs. The National Health Law Program summarizes them as including (NHeLP):

• Medicare and other health insurance premiums, deductibles, copays and coinsurance
• Hospital, doctor and home health services
• Therapy, rehabilitation and personal care or attendant services
• Prescriptions and medical supplies such as bandages, crutches and braces
• Dentures, eyeglasses and hearing aids
• Transportation to medical appointments
• Some over-the-counter items, such as cold medicine
• Paid and unpaid bills, and in some cases older unpaid bills

Bills for household members, such as a spouse or child, may also count. Keep every receipt, statement and Explanation of Benefits, and submit them to your caseworker on time.

Why Medicare premiums matter

If you have Medicare, your Part B premium ($202.90 a month for most people in 2026), Part D premium and Medigap premium can count toward your spend down. You may also qualify for help that lowers those costs. See Medicare Savings Programs and Extra Help.

Pay-in options

Some states let you pay your excess income directly to the state or county Medicaid program each month instead of tracking bills. This works like a premium: once you pay, you have Medicaid for that month. New York, for example, calls this its “pay-in” option within its excess income program. Ask your state whether it offers a pay-in option.

The asset spend down for nursing home care

Medicaid is the largest payer of long-term nursing home care, but it has strict asset limits. Many families reduce countable assets, such as savings, before applying. This is often called an asset spend down. Allowed approaches commonly include:

• Paying for care, medical bills and debts
• Making home repairs or modifications to a home you live in
• Buying items that are exempt under your state’s rules, such as a car used for transportation
• Setting up an irrevocable prepaid funeral or burial arrangement

What you can’t do is give money away or sell assets for less than they’re worth. Medicaid.gov states that people who need long-term services and supports “will be denied LTSS coverage if they have transferred assets for less than fair market value during the five-year period preceding their Medicaid application.” Rules for married couples protect some income and assets for the spouse at home. Because penalties can be costly, consider talking with an elder law attorney before moving money. For a state example, read our guide to the New Jersey Medicaid look-back period and what “Medicaid pending” means for nursing home residents.

Income spend down vs. asset spend down

How to apply for a Medicaid spend down

1. Check whether your state has a medically needy or spend down program. Not every state does.
2. Apply for Medicaid online, by phone or at your local office. See how to sign in to your state Medicaid portal.
3. Gather proof of income and medical bills, including insurance premiums.
4. Read your notice carefully. It should show your spend down amount and budget period.
5. Submit bills as you incur them so coverage can start as soon as you meet the amount.

Changes to watch

The 2025 federal budget law shortens retroactive coverage starting in 2027 and, from 2028, limits the home equity a person can have and still qualify for Medicaid long-term care. Read what the 2025 Medicaid changes mean. If an inheritance or windfall is coming, see how an inheritance affects Medicaid.

Frequently asked questions

What is a Medicaid spend down?

It’s a way to qualify for Medicaid when your income is above the limit. You incur medical expenses equal to your excess income over the state’s medically needy income level, and Medicaid then covers eligible care for the rest of the budget period.

What expenses qualify for a Medicaid spend down?

Health insurance premiums (including Medicare), deductibles and copays, doctor and hospital bills, prescriptions, medical supplies and equipment, dentures, eyeglasses, hearing aids and medical transportation, among others. Both paid and unpaid bills can count.

How long is a spend down period?

States choose a budget period between one and six months.

Does every state have a Medicaid spend down?

No. Medicaid.gov says 36 states and the District of Columbia use spend down programs.

Can I give money to family to qualify for Medicaid?

Gifts or transfers for less than fair market value within five years before applying for long-term care can lead to a penalty period without coverage. Get advice before transferring assets.

This article is general information, not legal or financial advice. Medicare365 is not affiliated with or endorsed by CMS, any state Medicaid agency or any U.S. government agency. Talk with your state Medicaid agency or an elder law attorney about your situation.

Sources

• Medicaid.gov: Eligibility policy (medically needy and spend down)
• National Health Law Program: Q&A on spend down
• CMS: 2026 Medicare Parts A and B premiums and deductibles