Allowable Medicaid Spend Down Items for Seniors
A Medicaid spend down does not mean losing your savings to the nursing home bill. Medicaid lets you spend excess money on many things your family needs, as long as you get fair value for each dollar. This page lists the expenses that qualify, the common spend down strategies, the purchases that trigger a penalty, and an example of how a family put it together.
What Is a Medicaid Spend Down?
Medicaid has a strict asset limit. In Iowa, a single applicant can keep $2,000. In Nebraska, the limit is $4,000. Money above the limit must be spent before Medicaid pays for nursing home care.
You can spend it on the nursing home bill. You can also spend it on allowed items that help you or your family. Learn the basics on the Medicaid spend down page.
What Expenses Qualify for Medicaid Spend Down?
The rule of thumb: spend money on yourself, at fair market value, on things Medicaid does not count. Here are the common categories.
Medical and care costs
Unpaid medical bills, dental work, hearing aids, eyeglasses, prescriptions, and equipment such as a wheelchair, walker, or lift chair.
Home repairs and updates
If your home is exempt, you can spend on a new roof, furnace, windows, or plumbing. Updates for safety count too, such as a ramp, grab bars, or a walk-in shower.
A vehicle
Medicaid does not count one vehicle used for transportation. You can replace an older car or make needed repairs.
Paying off debt
Mortgage balances, car loans, credit cards, and other bills you owe.
Personal and household items
Clothing, furniture, appliances, a new mattress, or a TV for a nursing home room.
Funeral and burial costs
An irrevocable funeral trust, a burial plot, a headstone, and other burial space items. In Iowa, burial spaces for you, your spouse, and immediate family members are not counted.
Medicaid Spend Down Strategies
Beyond buying items, families use a few planning tools to move excess assets.
Irrevocable funeral trust
Prepay your funeral in a trust Medicaid does not count, up to your state's limit. Most states allow $15,000 or less. See how Medicaid treats a funeral trust.
Medicaid compliant annuity
A Medicaid compliant annuity turns excess savings into monthly income with no cash value. It is often used when the amount to spend down is large.
Promissory note
A promissory note turns savings into a stream of payments. It only works in a handful of states.
Many families start with the funeral trust. It is simple, it protects money for a bill your family will face anyway, and it takes one call to set up.
What Not to Spend Money On
Gifts to family or friends. Medicaid looks back five years. Gifts made in that window can trigger a penalty.
Paying family for care without a written care agreement. These payments are often treated as gifts.
A funeral trust larger than the funeral will cost. The extra can count as a gift.
Items that still count as assets, such as a second property or new investments.
How a Gift Penalty Works
Medicaid divides the gift by a set monthly amount to figure out how long you wait for coverage. In Iowa, that amount is $9,838.96, the average monthly private pay cost of a nursing home.
$20,000
Gift to a grandchild
÷ $9,838.96
Iowa monthly penalty amount
About 2 months
With no Medicaid coverage
Here is an example. A $20,000 gift to a grandchild divided by $9,838.96 equals about two months with no Medicaid coverage. The family pays the nursing home bill out of pocket for those months.
Example: Spending Down the Right Way
Here is an example. Harold is 86, lives in Iowa, and is moving into a nursing home. He has $60,000 in savings. Iowa lets him keep $2,000, so he must spend down $58,000.
His daughter books a call, and together they make a plan:
$12,000
Into an irrevocable funeral trust
$6,000
New roof on his home
$3,500
Hearing aids and dental work
$4,000
Pay off a credit card
That covers $25,500 with things Harold needs. The rest pays his nursing home bill for a few months. Then Medicaid takes over. Without a plan, the full $58,000 would have gone to the nursing home bill.
Keep Every Receipt
Medicaid reviews how money left your accounts. Save receipts, invoices, and contracts for every spend down purchase. Keep your funeral trust paperwork with them. Clear records make the application easier to review.
Medicaid Spend Down Items FAQs
What can I spend money on to qualify for Medicaid?
Medical bills and equipment, home repairs, a vehicle, debt payoff, clothing and household items, and funeral and burial costs, all at fair market value.
Can I prepay my funeral during a Medicaid spend down?
Yes. An irrevocable funeral trust is one of the most common spend down purchases. Keep it within your state's limit.
Can I give money to my children before applying for Medicaid?
Gifts made within five years of applying can trigger a penalty. Talk to an elder law attorney before you give money away.
Can I pay off my mortgage during a spend down?
Yes. Paying off debt you owe is an allowed spend down expense.
Do I need receipts for spend down purchases?
Yes. Medicaid reviews how money was spent. Keep receipts, invoices, and contracts for every purchase.
Start With Your Funeral Trust
One call shows you your state's limit, what a funeral costs where you live, and how much of your spend down a trust can cover. 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.