Medicaid Spend Down: How It Works and How to Protect Your Savings
A Medicaid spend down is the process of lowering your countable assets to your state's limit so Medicaid will pay for nursing home care. It sounds like losing everything. It does not have to be. Medicaid lets you spend excess money on things you need, and some of it can be protected. This guide explains how a Medicaid spend down works, the rules to follow, the mistakes to avoid, and where a funeral trust fits.
What Is a Medicaid Spend Down?
Nursing home care is expensive. In Iowa, the average private pay cost is about $9,839 a month. Medicare does not pay for long term nursing home care, so most families pay from savings until Medicaid takes over.
Medicaid only pays once your countable assets are under the limit. In Iowa, a single applicant can keep $2,000. In Nebraska, the limit is $4,000. The money above that limit is what you spend down.
Some states also use the term spend down for an income program, where medical bills are used to meet an income limit. This guide covers the asset spend down for nursing home care.
How Does a Medicaid Spend Down Work?
1
Add up your assets
List bank accounts, savings, CDs, investments, extra property, and anything else you own.
2
Take out exempt assets
Your home within the equity limit, one vehicle, household goods, and an irrevocable funeral trust do not count. See the full list of Medicaid exempt assets.
3
Compare to your limit
Subtract your state's asset limit from your countable total. The difference is your spend down amount.
4
Spend on allowed items
Use the excess on things you need at fair market value. See the allowable Medicaid spend down items.
5
Apply for Medicaid
Once your assets are under the limit, you apply. Medicaid reviews five years of records before it approves coverage.
Medicaid Spend Down Rules
The asset limit
Your countable assets must be at or under your state's limit on the day you qualify. Iowa allows $2,000 for a single applicant. Nebraska allows $4,000.
The five-year look-back
Medicaid reviews every transfer you made in the five years before you apply. Gifts and sales below value in that window can trigger a penalty.
Fair market value
Every spend down purchase must be for fair value. Paying a fair price for a new roof is fine. Selling your car to a grandchild for one dollar is not.
The penalty period
If Medicaid finds a gift, it divides the amount by a set monthly figure. In Iowa, that figure is $9,838.96. A $20,000 gift means about two months with no Medicaid coverage.
Keep records
Save receipts, invoices, and contracts for every purchase. Medicaid asks how money left your accounts.
Iowa and Nebraska Spend Down Limits for 2026
Asset limit for a single applicant
$2,000 in Iowa, $4,000 in Nebraska.
Funeral trust limit
$13,125 in Iowa, or $15,000 with itemized goods and services. $6,696 in Nebraska.
Spouse at home can keep
$32,532 to $162,660 in both states.
Iowa monthly penalty figure
$9,838.96.
These numbers change each July. I check your state's figures on our call.
Spend Down Rules for Married Couples
When one spouse needs nursing home care, the spouse at home is protected. In 2026, the spouse at home can keep between $32,532 and $162,660 in countable assets, plus the home, one vehicle, and other exempt assets.
Only the amount above the spouse's share has to be spent down. Each spouse can also have an irrevocable funeral trust.
Medicaid Spend Down Strategies
Families have several ways to spend down while keeping value in the family.
Prepay your funeral
An irrevocable funeral trust is one of the most common first steps. Medicaid does not count it, up to your state's limit. Learn how Medicaid treats a funeral trust.
Buy exempt items
Home repairs, a replacement vehicle, medical equipment, hearing aids, and household items all move money from countable to exempt.
Pay off debt
Paying off a mortgage, car loan, or credit card is an allowed spend down expense.
Use a planning tool
A Medicaid compliant annuity or promissory note can help when the spend down amount is large. Talk to an elder law attorney about these options.
Example: A Medicaid Spend Down Plan
Here is an example. Margaret is 83 and lives in Nebraska. She is moving into a nursing home and has $50,000 in savings. Nebraska lets her keep $4,000, so her spend down amount is $46,000.
Her son books a call. Together they plan:
$6,696
Into an irrevocable funeral trust, the Nebraska limit
$5,000
Hearing aids, glasses, and dental work
$3,500
A new mattress, clothing, and a recliner for her room
That moves $15,196 into things Margaret needs. The rest pays her nursing home bill until she reaches the $4,000 limit. Her funeral is paid, and nothing was given away.
Common Medicaid Spend Down Mistakes
Giving money to children or grandchildren within the five-year look-back.
Keeping burial money in a savings account. Only $1,500 is protected in Iowa.
Buying a revocable prepaid funeral plan. Medicaid still counts it.
Paying family for care without a written agreement.
Throwing away receipts.
Waiting until a crisis to plan.
When to Start Planning
The best time to plan is before a parent needs care. The next best time is now. Even in the middle of a nursing home stay, you can still set up a funeral trust and make allowed purchases before the application is filed.
Where a Funeral Trust Fits
A funeral trust is often the simplest piece of a Medicaid spend down. It takes one call, there are no health questions, and it pays for a bill your family will face anyway. I offer funeral trusts in every state except Michigan and New York. See how to buy a funeral trust.
Medicaid Spend Down FAQs
What is a Medicaid spend down?
The process of lowering your countable assets to your state's limit so Medicaid will pay for nursing home care.
How much money can I keep on Medicaid?
A single applicant can keep $2,000 in Iowa and $4,000 in Nebraska in 2026. Exempt assets do not count toward that limit.
What can I spend money on during a Medicaid spend down?
Medical costs, home repairs, a vehicle, debt payoff, household items, and funeral and burial costs, all at fair market value.
Can I prepay my funeral during a spend down?
Yes. An irrevocable funeral trust is one of the most common spend down purchases. Keep it within your state's limit.
How far back does Medicaid look?
Five years. Gifts or below value sales in that window can trigger a penalty.
Do I need an attorney for a Medicaid spend down?
For complex cases, an elder law attorney helps. For the funeral trust, I can help you directly and work alongside your attorney.
Start Your Spend Down Plan
One call shows you your state's limits, how much of your spend down a funeral trust can cover, and where to go next. There is no cost and no obligation.
Funeral Trust Gal is part of the Aging Parent Resource Center.
Sara Guida is a licensed insurance agent, not an attorney, and does not represent any state Medicaid agency. Content on this site is general education, not legal or financial advice. Medicaid rules and funeral trust limits vary by state.