In order to qualify for Medicaid coverage, there are many rules and regulations for applicants, many of which incentivize applicants to spend down their assets in order to meet Medicaid qualifications. This is called a Medicaid spend down, and there are several dos and don’ts to be aware of before you begin.

A Medicaid spend down is a financial strategy used when a person’s income is too high to qualify for Medicaid. In order to qualify, some of the person’s income needs to be spent to make their income low enough to become eligible for Medicaid.

The current rule of thumb is that a Medicaid applicant can spend down their money on anything that would benefit them, though that is vague and a bit confusing. Here are some qualified purchases to keep in mind when spending down your assets.

What a Medicaid applicant CAN do with their money in order to still qualify for coverage:

• Prepay funeral expenses
• Pay off a mortgage or car loan
• Buy a new home or make repairs
• Pay for medical care or equipment
• Pay for personal items like household goods, clothing or furniture

What a Medicaid applicant CAN’T do with their money, that would make them ineligible for Medicaid benefits:

• Applicants cannot have more than $2,000 in “countable assets.” All money and property that can be valued and turned into cash is a countable asset.

• Applicants cannot transfer assets for less than market value. Applicants for Medicaid and their spouses should protect their savings by spending them on non-countable assets.

• For married couples, the spend down should only occur after one of the spouses moves into a nursing home, if the amount of money would affect the spouse.

Keep in mind that each state has different requirements for Medicaid spend down regulations. The process can be confusing and stressful, especially since Medicaid won’t pay for any bills until you’ve submitted the bills that make up the spend down amount. It is a good idea to talk to your estate planning attorney for more accurate information about the proper Medicaid planning strategy for you or your loved ones.