In a Medicaid spend down, you can spend money on medical bills and insurance premiums, repairs and accessibility work on your home, one vehicle, an irrevocable prepaid funeral, household goods you actually need, legitimate debts you already owe, and properly documented pay for a family caregiver. The common thread across every allowable category is that you receive fair market value for what you spend. Gifts, below-value transfers, and money parked with someone else until you qualify are treated as uncompensated transfers and can trigger a penalty period that delays your coverage.
Before working through the categories, it helps to know which situation you’re in. If your monthly income is over your state’s limit, you spend down by running up qualifying medical expenses each cycle under the “medically needy” pathway. If your countable assets are over the limit for long-term care Medicaid, you spend down once by paying obligations or converting cash into things that don’t count against you. Medical expenses work for both. The property, debt, and caregiver categories below are mainly asset spend-down moves.
Medical Bills, Insurance Premiums, and Care Costs
Medical costs are the cleanest category and the one that carries the most weight for income spend down. Paid and unpaid medical bills both count, including old bills you haven’t settled yet. Prescription drug costs, nursing home charges, and payments to home health aides all qualify. Dental work, vision care, and hearing aids you’ve been putting off reduce your countable resources when you finally handle them.
Health insurance premiums count too: Medicare Part B and Part D, Medigap policies, and any private coverage you carry. Transportation to and from medical appointments qualifies. Many states let you apply older unpaid medical bills to your spend-down calculation, working through them from oldest to most recent, so pull those out of the drawer before you assume you’re short.
Home Repairs and Accessibility Modifications
Your primary residence is generally exempt from Medicaid’s asset count, which makes spending money on it one of the strongest asset spend-down moves available. You’re converting countable cash into value stored in a home that doesn’t count against you.
The list of allowable home expenses is broader than most applicants expect. Plumbing repairs, a new roof, landscaping, structural additions, and general renovation all qualify. Health-related modifications are clearly permitted: wheelchair ramps, grab bars, stair lifts, widened doorways, and walk-in tubs. You are not limited to disability modifications, though. Ordinary maintenance and improvement on your primary home is fine.
There is one ceiling to watch. Your home only keeps its exempt status if your equity falls below your state’s threshold. In 2026, states set that limit somewhere between $752,000 and $1,130,000, depending on where you live. If your equity is higher, the home loses its exemption for long-term care Medicaid. The equity cap does not apply if your spouse, a child under 21, or a blind or disabled child of any age lives in the home.
Converting Cash Into Exempt Property
Several other categories of property don’t count toward Medicaid’s asset limit, and moving cash into them is a straightforward way to reduce what’s countable.
- One automobile is typically exempt regardless of value, as long as it’s used for transportation by you or your household.
- An irrevocable prepaid burial plan is exempt with no dollar cap in many states, which makes it a powerful tool. Revocable burial funds are more limited, often capped around $1,500 per person. Burial plots and related items like headstones are separately exempt.
- Household goods and personal effects — furniture, appliances, clothing — are generally exempt. Replacing worn-out furniture or a failing appliance with quality items you actually need is a legitimate way to reduce cash.
One rule runs through all of these conversions: you must pay fair market value. Buying a car from your nephew for twice its worth reads as a disguised gift, and Medicaid will treat it as one.
Paying Off Debts You Already Owe
Paying down legitimate debts reduces your countable assets without triggering a penalty. Mortgage balances, car loans, credit card debt, personal loans, back taxes, and outstanding utility bills all qualify. You can pay a debt in full rather than making minimum payments.
The debt has to be real and documented. Paying off a credit card you’ve been carrying for years is fine. Suddenly “owing” your adult child $50,000 with no loan agreement, no payment history, and no paper trail will be treated as a gift. Medicaid agencies are experienced at spotting fabricated debts, and the penalty for getting caught is a period of ineligibility that can last longer than the amount you tried to protect was worth.
Paying a Family Member for Caregiving
You can pay a family member for caregiving services, but this is where families most often stumble into penalty territory. Every state requires a written personal care agreement that spells out the services, the hours, and the pay rate. The rate has to be reasonable, meaning comparable to what a home care agency would charge in your area.
The biggest trap is prepayment. Paying your daughter $30,000 upfront for “future caregiving” will almost certainly be treated as a gift and trigger a penalty. Payments must be for services already performed, backed by time logs and a signed agreement that predates the work. Talking to an elder law attorney before writing the first check is worth the cost here.
What You Cannot Spend On
Knowing the boundary matters as much as knowing the categories. Gifts to family members, charitable donations, and any transfer where you don’t receive something of equal value in return will be treated as uncompensated transfers. Buying something for another person — paying off your child’s mortgage, for example — is a gift even when it feels like an ordinary family expense.
Luxury items at inflated prices, vacations, and cash moved into non-exempt forms won’t survive review. When Medicaid reviews your finances during the five-year look-back, any assets you gave away or sold below fair market value during the previous 60 months can trigger a penalty period, calculated by dividing the transferred amount by your state’s average monthly cost of nursing home care. The principle is consistent across every allowable expense: the money either buys you something of equal value or pays down something you actually owe.
Keeping Records That Hold Up
Every dollar you spend during the process needs a paper trail. A legitimate expense without proof might as well not exist. Save original receipts, invoices, cancelled checks, and bank statements for each transaction. For home health services or a personal care agreement, keep the signed contract, time logs, and proof of payment together.
Organize the records by date so the agency can follow the reduction of your assets or the accumulation of medical expenses against your income. For asset spend down, you’ll typically need account balances before and after the period along with documentation for every significant expenditure in between. For income spend down, keep medical bills organized by date of service; many states apply them oldest to newest.
A Note on What Happens After Coverage Starts
Spending down is only the front end. Federal law requires every state to seek reimbursement from the estates of deceased Medicaid beneficiaries who were 55 or older when they received long-term care benefits.1U.S. Department of Health and Human Services. Medicaid Estate Recovery How you structure the assets you keep — the home, an exempt vehicle, a prepaid funeral — affects what your family is left with later. That’s another reason large financial moves during spend down deserve professional guidance before, not after, the checks are written. Medicaid rules vary significantly by state, and the consequences of getting the categories wrong include penalty periods and delayed coverage that can outlast the money you were trying to protect.