Medicaid Spend-Down Notice — What It Means & What to Do

⚠️You Have 30-60 Days to Reduce Resources Below the Limit

This letter means you have countable resources above your state's Medicaid limit (usually $2,000 individual / $3,000 couple). You need to reduce your resources to stay eligible. The good news: there are smart, penalty-free ways to spend down — medical care, home repairs, prepaid burial, and ABLE accounts. The bad news: giving money away to family can trigger a transfer penalty. Let me help you spend down strategically.

What Counts as Resources (and What Doesn't)

Counts Toward Limit	Does NOT Count
Cash, bank accounts, savings	Primary residence (home)
Money market accounts, CDs	One vehicle (usually)
Investment accounts, stocks, bonds	Personal items, jewelry, clothing
Real estate (2nd property, rental)	Household goods, furniture
Inheritance or settlement money	Life insurance (term, whole, universal)
Gifts (if received recently)	Retirement accounts (IRA, 401k) — may vary by state

Penalty-Free Spend-Down Options

What You Can Spend On Without Triggering Penalties

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Medical Care & Debt

Pay off medical bills, hospital debt, doctor bills
Dental work, vision care, hearing aids
Prescriptions, medical equipment
Long-term care insurance premiums

Home & Housing

Home repairs and maintenance
Accessibility modifications (ramps, bathrooms, lifts)
Property taxes or mortgage payments
Utilities or HOA fees

Burial & Funeral Planning

Prepaid burial/funeral services
Burial plot, casket, marker
Cremation arrangements
Most states allow up to $15,000 for burial

ABLE Accounts (if eligible)

If you have disability onset before age 26, you can open an ABLE account
Deposit up to $100,000 without affecting Medicaid
Over $100,000, benefits suspend temporarily
This is NOT a gift and does not trigger penalties

Personal Necessities

Clothing, shoes, personal items
Household goods, furniture (some restrictions)
Transportation (car repairs or down payment on modest vehicle)

Education & Self-Care

Education expenses (tuition, books)
Job training or certification programs

What Triggers Transfer Penalties (AVOID THESE)

Actions That Can Disqualify You

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Giving money to family — Gifts to children, grandchildren, or relatives trigger a "transfer penalty." You become ineligible for Medicaid for a period of time.
Selling property below fair market value — If you sell a house or land for less than it's worth to reduce resources, it's treated as a gift and triggers penalty.
Loans to family without written agreements — If you give money as a "loan" but don't formalize it, it's treated as a gift.
Co-signing loans or mortgages — This can make money a countable resource even though you're not spending it.

Penalty rule: If you transfer assets for less than fair market value, Medicaid becomes ineligible for a period based on the value transferred. The penalty period can last months or years, depending on your state and the amount.

Action Steps to Spend Down Strategically

Get exact amount you're over the limit — Call your state Medicaid agency or check your notice. If the limit is $2,000 and you have $7,500, you need to get down to $2,000 or less.
List all permitted spend-down options — Medical bills, home repairs, ABLE account, burial planning.
If eligible for ABLE account (disability before age 26) — Open one immediately and deposit up to $100,000. This is your best option: money sheltered without being "spent."
Prepay burial/funeral expenses — Most states allow this, it removes money from countable resources, and it's something you'd eventually need anyway.
Pay off medical debts — Hospital bills, medical credit cards, past-due prescriptions.
Home repairs and modifications — Accessibility ramps, bathroom upgrades, roof repairs, electrical work.
Get receipts for everything — Keep documentation: invoices, paid bills, ABLE account statements.
Report spend-down to state with documentation — Don't just spend money and hope. Tell Medicaid what you did. Send receipts. Many people forget this step and lose benefits anyway because the state doesn't see evidence of the spend-down.

Dr. Ed's Insider Tip

The Strategic Spend-Down Approach

"If you need to spend down, do it strategically. Medical care and home modifications are universally okay. If you received a settlement or inheritance, check your state's rules about transfer penalties before giving any money away. That's the trap people fall into: they think they're helping a family member, and instead they trigger a penalty that makes them ineligible for months.

If you're eligible for an ABLE account, that's your best option — it shelters money without spending it. You can have up to $100,000 in there and still be Medicaid-eligible. That's better than spending money on something you don't need.

And prepaid burial is a smart move — every state allows it, it removes money from your countable resources, and it's something you'd eventually need anyway. You're not wasting money; you're planning ahead."

Sample Spend-Down Plan

Example: You're $4,500 Over the Limit

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Scenario: Medicaid limit is $2,000. You have $6,500. You need to spend down to $2,000.

Pay off medical debt: $2,000 (hospital bills, dentist)
Prepay funeral services: $1,500 (burial plot, cremation)
Home repairs (roof leak): $1,000 (contractor invoice)
Total spent: $4,500 → New balance: $2,000 ✓

What to do next: Keep all receipts. Send them to your state Medicaid office with a letter: "I am reporting spend-down of $4,500 to meet resource limits. Attached are receipts for medical debt, funeral arrangements, and home repairs." Include your case number.