How Does Medicaid Spend-Down Work in 2026?

Full answer: It depends on where you live. About 32 states plus DC run a Medicaid medically needy (also called share-of-cost) program that lets people whose income is too high for regular Medicaid spend the excess on medical bills until it falls to the state's medically needy income limit (MNIL), then Medicaid pays the rest for that budget period of 1 to 6 months. The other roughly 25 income cap states do not allow spend-down for long-term care Medicaid; applicants over the cap (300% of the SSI federal benefit rate, $2,982 a month for an individual in 2026) must set up a Qualified Income Trust (Miller Trust) instead. Most MAGI-based Medicaid groups, ACA expansion adults especially, have no spend-down option at all.

Medicaid spend-down (also called medically needy or share-of-cost Medicaid) is the mechanism that lets someone whose income is above the regular Medicaid limit still qualify by incurring enough medical expenses to bring their countable income down to the state's threshold. It exists specifically for people who need Medicaid but earn slightly too much, often seniors on Social Security, people with disabilities, or nursing home residents whose income is a few hundred dollars over the cutoff.

This guide breaks down how the 2026 spend-down calculation works, which states offer it, what the income cap alternative looks like, and what to do if your state does not have a medically needy program. For the broader income-eligibility picture, see Medicaid income limits and check your eligibility directly.

Coverage Breakdown

Coverage by type
Eligibility Pathway	Spend-Down Available (2026)?	How It Works	Where It Applies
Medically needy / share-of-cost Medicaid (non-institutional)	Yes	Spend income above the state's medically needy income limit (MNIL) on medical bills each budget period	About 32 states plus DC in 2026
Nursing home Medicaid in spend-down states	Yes	Same medically needy math applies to institutional care, usually a lower MNIL than community cases	States with a medically needy program
HCBS waiver Medicaid (home and community-based services)	Partial	Most states use the 300% special income group instead of spend-down for waiver applicants	Varies; check your state waiver rules
Long-term care Medicaid in income cap states	No	Spend-down not allowed; income over 300% of the SSI federal benefit rate ($2,982/month individual, 2026) requires a Qualified Income Trust (Miller Trust)	About 25 income cap states
MAGI Medicaid (children, pregnant women, caretakers, ACA expansion adults)	Partial	No spend-down for expansion adults; pregnant women, children, and caretaker relatives may use the medically needy option only in states that adopt it for those groups	Federal mandatory medically needy groups where the state elects the program

A state that elects the medically needy option must cover pregnant women, children under 18, and parents/caretaker relatives at minimum; it may extend the option to aged, blind, and disabled individuals. States that do not elect the medically needy option have no spend-down pathway at all for any group.

Source: Medicaid.gov Eligibility Policy, Medicaid.gov Implementation Guide: Handling Excess Income (Spenddown), 2026

Direct answer: how Medicaid spend-down works

It depends on your state. Roughly 32 states plus DC let you spend-down: pay medical bills until your income drops to the state's medically needy income limit, then Medicaid covers the rest of that 1 to 6 month period. Income cap states use a Qualified Income Trust instead, and MAGI groups like ACA expansion adults usually have no spend-down option in 2026.

What a Medicaid spend-down actually means

Every state sets a medically needy income limit (MNIL): the maximum monthly income Medicaid will disregard once someone qualifies as medically needy. If your countable income is above your state's regular Medicaid limit but you have significant medical needs, the medically needy pathway lets you subtract, or spend down, the difference between your income and the MNIL by incurring medical or remedial care expenses. Once your incurred bills equal that spend-down amount for the budget period, Medicaid pays for covered services for the remainder of the period.

The 2026 medically needy income limits range widely by state, from around $425 a month for an individual in Pennsylvania to more than $1,300 a month in states like Minnesota, because each state sets its own MNIL and the federal government only requires a floor for mandatory groups. Federal rules cap the budget period at 6 months maximum; several states use a shorter 1 or 3 month period instead.

Which states have a Medicaid spend-down program in 2026

About 32 states plus the District of Columbia currently run a medically needy program for at least one Medicaid category: Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Pennsylvania, Rhode Island, Utah, Vermont, Virginia, Washington, West Virginia, and Wisconsin. The remaining states either use only strict income cutoffs plus a Qualified Income Trust for long-term care, or have no medically needy option at all.

Coverage under the medically needy option is not identical to full Medicaid in every state: some states cover the same full benefit package, while others cover a narrower set of services for medically needy enrollees. Always confirm which benefit package applies through your state Medicaid agency before assuming full coverage.

Income cap states: Qualified Income Trusts instead of spend-down

About 25 states, mostly in the South and West, are income cap states for long-term care Medicaid: they do not allow spend-down at all for nursing home or HCBS waiver applicants. Instead, the income limit for long-term care Medicaid in these states is set at 300% of the SSI federal benefit rate, which is $2,982 a month for an individual in 2026 (300% of the $994 monthly SSI federal benefit rate). If your income is above that cap, the workaround is a Qualified Income Trust, commonly called a Miller Trust: an irrevocable trust that receives your excess income each month so it no longer counts toward the Medicaid limit.

A Miller Trust must be set up correctly (an attorney or elder-law specialist typically drafts it) and the state Medicaid agency, not the applicant, is named as the remainder beneficiary. Money deposited into the trust each month can only be used for specific allowed purposes, including a personal needs allowance, a spouse's income allowance, and the applicant's share of cost.

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Step-by-step: a Medicaid spend-down calculation example

Say a state sets its medically needy income limit at $1,000 a month for an individual and someone's countable income is $1,300 a month. The spend-down amount is the $300 difference. Over a 3-month budget period, that person must incur $900 in unreimbursed medical or remedial expenses (doctor visits, prescriptions, hospital bills, even old medical debt in some states) before Medicaid picks up the rest of the covered costs for the remainder of that period.

Step 1: The state calculates your countable monthly income using its Medicaid income-counting rules.
Step 2: The state subtracts the medically needy income limit (MNIL) from your countable income to get the spend-down amount.
Step 3: You submit bills, paid or unpaid, for medical and remedial care incurred during the budget period.
Step 4: Once your incurred bills equal the spend-down amount, Medicaid coverage begins for the rest of that budget period.
Step 5: When the budget period ends, the process starts over for the next period.

Who can actually use the spend-down pathway

Spend-down is primarily used by non-MAGI Medicaid populations: people age 65 and older, people who are blind or disabled, and nursing home or HCBS waiver applicants whose income is a modest amount over the limit. States that elect the medically needy option must also extend it to three mandatory groups: pregnant women, children under 18, and parents or caretaker relatives, though a state may choose not to extend it to aged, blind, or disabled individuals separately under a 209(b) rule.

Adults who qualify through the ACA Medicaid expansion group, generally adults under 138% of the federal poverty level in the 40 states plus DC that expanded, are a MAGI category and cannot use spend-down even in states that offer the medically needy option to other groups. Their eligibility is a hard income cutoff with no exceptions for medical bills.

How Medicaid spend-down interacts with Medicare for dual-eligible seniors

A large share of people using the spend-down pathway are 65 or older and already enrolled in Original Medicare, which has no income test of its own for Medicare Part A hospital coverage or Part B medical coverage. Once someone spends down and becomes fully Medicaid-eligible for that budget period, Medicaid can pick up Medicare Part A and Part B cost-sharing, which often means a standalone Medigap policy is no longer worth paying for since Medicaid covers the same gaps. Someone enrolled in Medicare Advantage instead of Original Medicare may become eligible to switch into a Dual-Eligible Special Needs Plan (D-SNP) once Medicaid eligibility is established through spend-down.

Medicare Part D drug coverage is affected too: someone who becomes Medicaid-eligible through spend-down for even one month is typically deemed eligible for the Part D Extra Help low-income subsidy, which caps drug copays for the rest of the calendar year regardless of whether the spend-down continues every month.

Alternatives if your state does not offer spend-down

If you live in one of the roughly 25 income cap states and do not qualify for regular Medicaid, five alternatives are worth checking in 2026 before assuming you have no options.

Qualified Income Trust (Miller Trust): the standard fix in income cap states for long-term care Medicaid; deposit excess income monthly so it is excluded from the eligibility calculation.
Medicare Savings Programs (QMB, SLMB, QI): for people on Medicare with limited income who do not qualify for full Medicaid, these state-run programs pay Medicare Part B premiums and sometimes cost-sharing.
ACA marketplace subsidies: if you are under 65 and your income is too high for Medicaid with no spend-down option, an ACA-compliant marketplace plan must cover the 10 essential health benefits and cannot deny you or charge more for a preexisting condition.
Part D Extra Help / state pharmacy assistance programs: help offset prescription costs for people who do not qualify for full Medicaid but still have limited income.
HCBS waiver 300% special income group: many states use a separate income standard, 300% of the SSI federal benefit rate, specifically for home and community-based waiver applicants instead of medically needy spend-down.

Frequently Asked Questions

What is a Medicaid spend-down in simple terms?

A Medicaid spend-down is a way for people whose income is too high for regular Medicaid to still qualify by incurring enough medical expenses to bring their income down to their state's medically needy income limit (MNIL). Once incurred bills equal the spend-down amount for the budget period, Medicaid pays for covered services for the rest of that period. About 32 states plus DC offer this option in 2026.

How do I calculate my Medicaid spend-down amount?

Subtract your state's medically needy income limit (MNIL) from your countable monthly income; the difference is your spend-down amount for that budget period. For example, if the MNIL is $1,000 a month and your countable income is $1,300, your spend-down amount is $300 per month, or $900 over a 3-month budget period. Your state Medicaid agency can confirm the exact MNIL and budget period length for your household size.

Which states have Medicaid spend-down (medically needy) programs in 2026?

About 32 states plus DC run a medically needy program in 2026, including California, New York, Florida, Illinois, Massachusetts, and Pennsylvania. The remaining roughly 18 states have no spend-down pathway; long-term care applicants in those states typically use a Qualified Income Trust instead once their income exceeds 300% of the SSI federal benefit rate ($2,982/month individual, 2026).

What counts as a medical expense for Medicaid spend-down?

States generally count doctor visits, hospital bills, prescription drugs, dental and vision care, medical equipment, home health aides, and even old unpaid medical debt toward your spend-down amount. Health insurance premiums, including Medicare Part B premiums, also typically count. Ask your state Medicaid caseworker for the specific list of allowable expenses, since it varies by state.

What is a Qualified Income Trust and do I need one?

A Qualified Income Trust (also called a Miller Trust) is an irrevocable trust used in roughly 25 income cap states for long-term care Medicaid, where spend-down is not allowed. If your income exceeds 300% of the SSI federal benefit rate ($2,982/month individual, 2026), depositing the excess into a properly structured Qualified Income Trust each month excludes it from the Medicaid eligibility calculation. You generally need one only if you live in an income cap state and are applying for nursing home or HCBS waiver Medicaid.

Can I use spend-down for ACA Medicaid expansion coverage?

No. Adults who qualify through the ACA Medicaid expansion group (up to 138% of the federal poverty level in 2026) are a MAGI category, and MAGI Medicaid has no spend-down option in any state. If your income is above 138% FPL and you are under 65, look at ACA marketplace subsidies instead of spend-down.

How long does a Medicaid spend-down budget period last?

Federal rules cap the budget period at a maximum of 6 months, but states can choose shorter periods. Many states use a 1-month period, meaning you must meet your spend-down amount every single month to stay eligible for that month, while others use 3 or 6-month periods that let you accumulate medical bills over a longer stretch.

What happens if I don't incur enough medical expenses to meet my spend-down?

If your incurred medical bills fall short of the spend-down amount for that budget period, you are not eligible for Medicaid coverage for that period; you remain responsible for your medical bills out of pocket. You can reapply and try again for the next budget period once new medical bills accumulate.