Medicaid Spend-Down Explained: How to Qualify When Your Income Is Too High

What Is Medicaid Spend-Down?

Medicaid's standard eligibility is income-based. Most states set the income limit at 138% of the federal poverty level for adults under the ACA expansion, and lower for some eligibility categories (elderly, disabled). If your income exceeds these limits, you would normally not qualify for Medicaid.

Spend-down is the exception. It works like a deductible: your excess income (the amount above the Medicaid limit) becomes your spend-down amount. Once you accumulate medical bills equal to your spend-down amount during the coverage period, you become eligible for Medicaid for the rest of that period.

Example

Say the Medicaid income limit in your state is $1,000/month. Your income is $1,400/month. Your spend-down amount is $400/month. If you incur $400 in medical bills during the month (whether you've paid them or not), you qualify for Medicaid for the rest of that month. The $400 in bills is your "spend-down obligation"—essentially your Medicaid deductible.

How the Spend-Down Process Works Month to Month

1. Determine your spend-down amount. Your state Medicaid agency calculates this: your countable income minus the Medicaid income standard equals your spend-down amount.
2. Accumulate medical expenses. During the spend-down period, collect documentation of all medical expenses: bills from providers, pharmacy receipts, insurance premium payments, and any other allowable costs.
3. Submit documentation to your state Medicaid agency. Once your expenses meet the spend-down amount, submit your bills to the Medicaid office. Many states allow you to submit bills before they are paid (incurred expenses count, not just paid expenses).
4. Medicaid coverage activates. From the date your spend-down is met, you have Medicaid coverage for the rest of the period. Any covered services received after this date are covered by Medicaid.
5. Repeat each period. The process resets at the start of each new spend-down period. Expenses used in a previous period cannot be reused.

What Counts as Medical Expenses

The following generally count toward Medicaid spend-down:

• Doctor and specialist visits (copays, uncovered visits)
• Hospital bills (inpatient and outpatient)
• Emergency room bills
• Prescription drug costs
• Dental and vision care expenses not covered by insurance
• Medical equipment and supplies (crutches, bandages, diabetic supplies)
• Physical therapy, occupational therapy, speech therapy
• Ambulance fees
• Mental health and substance use treatment costs
• Health insurance premiums you pay out of pocket (Medicare Part B premiums often count)
• Medical expenses incurred by your spouse and household members you claim as dependents
• Transportation costs to medical appointments (varies by state)

The following do not count:

• Bills already paid by Medicare, other insurance, or a third party
• Bills from a prior period already used to meet a previous spend-down
• Bills for services not covered by Medicaid (cosmetic surgery, some dental)
• Bills more than three months old in some states

Spend-Down vs. Medically Needy Programs

Spend-down is one component of the broader "medically needy" Medicaid category. The terms are often used interchangeably but technically:

• Medically needy: A Medicaid eligibility category for people who have too much income or assets for standard Medicaid but who have high medical expenses. States that have a medically needy program must cover certain groups (pregnant women, children, some elderly and disabled individuals) but can choose whether to include others.
• Spend-down: The mechanism within the medically needy category by which excess income is "spent down" through medical expenses to reach the income threshold.

Some states use different terminology. Connecticut calls it the "Medicaid Portion Program." New York calls it "Surplus Income Program." The concept is the same regardless of the name.

Which States Allow Spend-Down

Not all states have a medically needy / spend-down program. As of 2026, approximately 36 states and the District of Columbia offer some form of medically needy coverage. States without a spend-down program generally do not have an alternative pathway for people who are over-income for standard Medicaid.

States that do not have a medically needy program include (this list may change): Alabama, Alaska, Arizona, Colorado, Delaware, Georgia, Idaho, Indiana, Kansas, Mississippi, Montana, Nevada, New Mexico, South Carolina, South Dakota, and Wyoming. However, some of these states have expanded Medicaid under the ACA to higher income levels, providing coverage through that expansion instead.

If your state doesn't have spend-down, explore these alternatives:

• ACA Marketplace plans with income-based subsidies
• Medicare Savings Programs if you have Medicare
• Hospital charity care and financial assistance programs
• Community health centers that offer sliding-scale fees

How to Track and Document Expenses

Good documentation is essential for spend-down. Keep these records organized:

• A running log: A simple spreadsheet (or notebook) with the date of service, provider name, service type, amount billed, amount paid by insurance, and your out-of-pocket amount.
• Original bills and statements: Keep every bill, EOB, and receipt. Your state Medicaid agency will want to see itemized documentation.
• Insurance EOBs: Your Explanation of Benefits from Medicare or other insurance shows exactly what they paid and what you owe.
• Pharmacy receipts: Keep all prescription receipts, even for small copays.
• Premium payment records: Keep cancelled checks or bank statements showing insurance premium payments.

Some states have online portals where you can upload spend-down documentation. Others require in-person or mail submission. Ask your state Medicaid office for their preferred submission process.

When to Consult a Medicaid Planning Attorney

For most people applying for spend-down Medicaid, a benefits counselor through your State Health Insurance Assistance Program (SHIP) or a Medicaid enrollment navigator (often available at community health centers) can help you navigate the process for free.

A Medicaid planning attorney becomes valuable when:

• You have significant assets and are concerned about Medicaid's 60-month (5-year) asset look-back period for long-term care
• You or a spouse is entering a nursing home and you need to preserve marital assets (Medicaid spousal impoverishment rules)
• You have a home and want to understand Medicaid estate recovery rules
• You received gifts or transferred assets in the past 5 years that could trigger a Medicaid eligibility penalty
• You have complex income sources (self-employment, annuities, trusts) that require careful analysis

Medicaid planning attorneys typically charge $2,000–$6,000 for a comprehensive Medicaid plan. For a nursing home stay that costs $90,000–$100,000/year, legal fees are almost always worth it.

Practical Tips

• Apply early. Medicaid has no retroactive application for spend-down in all states. Apply as soon as you have medical expenses, even if you haven't met spend-down yet.
• Don't pay bills before checking. Submitting unpaid bills to meet spend-down and then having Medicaid cover future costs is often better than paying bills out of pocket first.
• Ask about old bills. Bills from prior months may be applicable to the current spend-down period depending on your state's rules.
• Keep every receipt, no matter how small. Small pharmacy copays and transportation costs add up and every dollar counts toward your spend-down amount.
• Reapply each period. Spend-down coverage is period-specific. You must reapply and resubmit documentation for each new period.

• Medicaid.gov — Spend-Down
• CMS — State Medicaid Director Letter on Medically Needy Eligibility
• Medicaid Planning Assistance — Spend-Down Overview
• Benefits.gov — Medicaid