New Jersey Medicaid Spend-Down Explained
“Spend down” is the process of reducing the assets an individual possesses in order to qualify for Medicaid. Simply stated, spend down is nothing more than spending one’s money until the appropriate asset limit is reached. At present the asset limit in the State of New Jersey is $2,000.00 for the “Medicaid Only” program and $4,000.00 for the “Medically Needy” program. It is important to understand, however, that different rules apply to married couples than apply to individuals.
To qualify for Medicaid an individual must be at least 65 years old, have limited income ($1,737/month or less for the “Medicaid Only” program or more than $1,737/month for the “Medically Needy” program but otherwise be incapable of paying for needed medical care), have limited assets (as indicated above) and have medical need. In most cases when dealing with senior citizens the individual is in, or anticipates entering, a nursing home or assisted living facility.
Depending on the facts of the individual case, not all assets, including cash, have to be spent down. Certain assets are exempt from spend down. For example, in the case of a single individual, the individual’s home is exempt if the person intends to return to it. In New Jersey, it should be noted, it is assumed by Medicaid that the person will not return home if the person does not return within six months of entering a nursing home. This is, however, an assumption that can be rebutted. If, on the other hand, the individual in the nursing home is married and the “community spouse” remains in the home then it is exempt from spend down. Similarly, in the case of a married couple, the family car is exempt.
The community spouse, that is, the non-institutionalized spouse, enjoys a “community spouse resource allowance” which means that he/she gets to keep one-half of the assets of the couple up to a predetermined maximum ($95,100.00 for 2005). The assets that comprise the community spouse resource allowance are exempt from spend-down because, by law, the spouse is permitted to keep those assets.
All assets in excess of the community spouse’s share are subject, if not otherwise exempt, to spend down. For example, if the couple have a house and $100,000.00 cash the community spouse would get to keep the house and $50,000.00. The institutionalized spouse, in order to qualify for the Medicaid Only Program, would have to spend $48,000.00 of the funds allocated to him/her. Thus, in this simple example the spend down is $48,000.00.
The maximum amount of assets the community spouse is allowed to keep is determined by Medicaid. For example, if the assets are $200,000.00 the allowance is $95,100.00 and $104,900.00 is deemed to belong to the institutionalized spouse and is subject to spend-down. As indicated previously, exempt resources are not included in the calculation. Thus, for example, if the couple had a house and $250,000.00, the community spouse would get to keep the house regardless of its value plus $95,100.00, and the institutionalized spouse would have a spend-down of $154,900.00. In all examples it is assumed that the institutionalized spouse has monthly income of $1,692.00 or less.
The amount of spend-down is determined based on the assets of the couple as of the day the institutionalized spouse enters a facility, hospital, nursing home or assisted living facility for an extended stay. Regardless of the date the analysis is performed, it relates back to the day of admission. This date is referred to as the “snapshot date” by Medicaid because a “snapshot” is taken of the couples assets as of that date.
Various exemptions and allowances are available to couples which are not available to single individuals. As indicated, the family home is exempt from spend-down as is the family car. A community spouse is also entitled to a “community spouse resource allowance” (the 50% of the assets discussed previously) and a “minimum monthly maintenance needs allowance.” A single individual is not entitled to any allowances (other than a $35/month personal needs allowance) and to only limited exemptions. The allowances for the community spouse are intended to protect the community spouse from being pauperized. A detailed explanation of the community spouse’s allowances is the subject of another report. Suffice it to say that these allowances are significant items when engaging in Medicaid/Asset Protection Planning.
Thus, “spend-down” is the process of disposing of assets in order to qualify for Medicaid. One thing it does not have to be, however, is the robotic spending of money. In other words, an individual or couple can design a Medicaid/Asset Protection Plan, the goal of which is to “dispose” of assets in a systematic, planned manner in order to protect and preserve those assets for the future. Disposal of assets does not necessarily mean “spending” assets. For a couple disposition may mean conversion of assets from “countable” to “exempt” status. One example of conversion from countable to exempt is the purchase of a funeral for the institutionalized spouse. The funds used for this purchase would, if not so used, have to be spent on something else (and the family would still have to purchase a funeral. If the parent’s funds were not used for this purpose the children would be forced to use their own funds and the advantage of conversion would be lost). By converting the funds to exempt status they are protected from spend-down.
It is also important to note that spend down does not mean that the assets must be spent on care, i.e. medical care and/or the nursing facility. Spend down means that the funds are used to purchase items at their “fair market” value. In this regard, one must distinguish spend down from “gifting,” I.e. giving something away or making a purchase for less than “fair market value”. The purchase of clothes, a television, a haircut or other similar items are for fair market value and do not constitute “gifts.” Gifts or purchases for less than fair market value are penalized by Medicaid and the penalties result in periods of ineligibility for Medicaid.
Medicaid/Asset Protection Planning thus is the process of designing a plan for the disposition of assets in such a fashion as to save a maximum amount from spend down, thereby protecting those assets from “loss” by being spent on long term care or for medical purposes. Usually, planning involves the transfer of the funds to the children of the couple or individual and once given belong to the recipient(s) to do with as they wish. Routinely, the children will hold the funds, in the event the parent may have a need Medicaid will not supply, to be used for the parent. This decision is entirely up to the children.