Medicaid Spend-Down and the Five-Year Look-Back: What Families Need to Know

Before anyone moves money to "get Dad on Medicaid," read this. The rules reward planning and punish guessing.

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Your dad's savings are draining at $9,000 a month for the nursing home, and a neighbor says, "Just put the money in your name and let Medicaid pick it up." It sounds simple. It's also the single most expensive mistake families make. Medicaid looks back five years for exactly that kind of transfer, and a gift made today can leave your dad with no coverage and no money at the moment he needs both. The rules are strict, but they're learnable, and there's far more flexibility in how money is spent than in where it's moved.

Why Medicaid, and why the rules are strict

Medicare doesn't pay for long-term custodial care: the months or years of help with bathing, dressing and eating in a nursing home or at home. Medicaid does, and for most American families it's the only program that does. That's why so much planning revolves around it, and why the rules exist. Medicaid is for people who have run out of money, so the state checks carefully that your parent actually has.

Two things get checked: income and assets. For people 65 and older, Medicaid.gov says financial eligibility is generally decided using the income rules of the Supplemental Security Income (SSI) program. In 2026 the SSI resource standard is $2,000 for an individual and $3,000 for a couple, according to the CMS bulletin on 2026 standards. Many states base their long-term care asset limit on that figure; some set their own, so ask the state Medicaid office for the current number. Your parent also has to need a nursing-home level of care, which the state assesses separately. If you're weighing whether long-term care insurance could have covered this instead, here's whether long-term care insurance is worth it.

What counts and what doesn't

Not everything your parent owns counts toward the limit. The details are state by state, so confirm with the Medicaid office or an elder law attorney, but the pattern is consistent:

• Usually counted: checking and savings, CDs, stocks, bonds, retirement accounts in some states, a second car, a second home, cash value in some life insurance.
• Usually not counted: the home your parent lives in, up to an equity limit; one vehicle; household goods and personal belongings; a prepaid funeral arrangement; a small life insurance policy.
• The home has a ceiling. Federal law bars long-term care Medicaid when home equity is above a limit that each state sets within a range. For 2026 the range is $752,000 to $1,130,000, per the CMS bulletin. The limit doesn't apply at all if a spouse, a child under 21 or a blind or disabled child lives in the home.
• A married couple's assets are pooled. The state looks at what both spouses own, then protects a share for the spouse who stays home (more on that below).

What spend-down actually means

Spend-down has two meanings, and families mix them up.

Spending down assets means your parent uses their own money on their own needs until what's left is under the limit. Paying the nursing home, paying off the mortgage or a credit card, repairing the house, buying a better wheelchair or hearing aids, prepaying a funeral: these are purchases at fair value for your parent's benefit, and they don't trigger a penalty. The money is gone, but it was spent on them.

Income spend-down is a separate pathway in the 36 states plus Washington, D.C. that offer it, according to federal Medicaid guidance. If your parent's income is over the limit, they can qualify by incurring medical expenses that bring it down, the way a deductible works. Ask the state Medicaid office whether your parent's state has a medically needy program.

What spend-down never means is handing money to children. That's a transfer, and transfers are what the look-back is for.

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The five-year look-back and the penalty

When your parent applies for long-term care Medicaid, the state reviews the 60 months before the application for anything given away or sold for less than it was worth. Under federal law, the penalty is a period of months when Medicaid won't pay for long-term care. The math: the total value transferred, divided by the average monthly private cost of a nursing home in that state. Give away $100,000 in a state where a nursing home runs $10,000 a month, and your parent is ineligible for about ten months.

The part that catches families is when the clock starts. Since the Deficit Reduction Act of 2005, the CMS backgrounder explains, the penalty begins on the later of the transfer date or the date your parent is in a nursing home and would otherwise qualify. In other words, the penalty runs at the exact moment your parent is out of money and needs care. The same rules treat some annuities, promissory notes and loans as transfers unless they meet strict conditions.

Things that commonly trip the look-back: cash gifts to children or grandchildren, adding a child's name to the deed, selling the house to family for a bargain price, and paying a family member for care with no written agreement showing what the money was for. If you've been caring for your parent and want to be paid for it, the Caregiver's Survival Guide's paid caregiver page explains the programs that do it properly.

Federal law does allow some transfers without penalty. Each has conditions, so get them in writing from a lawyer before relying on one:

• To a spouse. Assets can move between spouses freely.
• The home to a child under 21, or a child of any age who is blind or disabled.
• The home to a caregiver child who lived in the home for at least two years before the nursing home and whose care kept your parent at home. If this describes you, document the two years and the care carefully.
• The home to a sibling who already owns a share of it and lived there for at least a year.
• Undue hardship. States must have a process to waive the penalty when it would threaten your parent's health or life, or leave them without food, clothing or shelter. A nursing home can apply on a resident's behalf with their consent.

What protects a spouse who stays home

Congress wrote "spousal impoverishment" rules so that one spouse going into a nursing home doesn't leave the other broke. The spouse at home, called the community spouse, keeps a protected share of the couple's combined assets. For 2026 the CMS bulletin sets the range at a minimum of $32,532 and a maximum of $162,660; each state picks its rules inside that range. The community spouse can also keep a monthly income allowance from the nursing home spouse's income if their own is low, and the home they live in isn't counted at all.

These protections are automatic in principle but messy in practice. The timing of the "snapshot" of the couple's assets, which assets are counted, and how retirement accounts are treated all vary by state. This is exactly the situation an elder law attorney earns their fee.

Estate recovery: the bill that comes later

After a Medicaid recipient dies, federal law requires states to try to recover what Medicaid spent on long-term care for anyone 55 or older, from the estate, which can include the house. Recovery can't happen while a surviving spouse, a child under 21, or a blind or disabled child is alive, and states must waive it when it would cause undue hardship. This is why "the house doesn't count" and "the house is safe" are different statements.

If a move is coming anyway, read about when to talk to your parent about assisted living, and make sure the power of attorney documents are in place: whoever handles this application will need them.

What to do now, in order

Gather five years of statements for every account, the deed, insurance policies and any gifts over a few hundred dollars. Call the state Medicaid office and ask for the current asset limit, the home equity limit and whether the state has a medically needy program. Then book an elder law attorney, ideally before anyone moves a dollar.

If your parent qualifies, ask about care at home as well as in a nursing home. Under Medicaid's home and community-based waivers, states can pay for personal care, adult day health and respite for people who need a nursing-home level of care, though states cap how many people they serve. For the full picture of what keeping a parent at home costs, see aging in place: what it actually costs.

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