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Just what is "Spend down," anyway?

Fairness does not mean that everyone gets the same thing. It means that everyone gets what they need.

–Rick Riordan (1964- ), author of The Sea of Monsters, The Lightning Thief and The Red Pyramid

I am not going to take a position on whether, or to what extent, Medicaid is fair, either to the people who use it or to those who pay for it. But I would like to highlight the aspects of the program that make it fairer that it might seem at first.

Medicaid has certain eligibility rules because it is, essentially, welfare. It’s available to people whose income falls below a certain level, and who have a condition that prevents them from earning more. For example: they are children or they have a permanent and a substantial disability. For states like Illinois that expanded it, Medicaid is also available to those with low income that is based on under- or unemployment. But two different people, with the same income, may have very different needs for health care and support services. One person, who earns above the Medicaid threshold, may be able to pay for medical care because s/he requires very little of this benefit. However, another person, with the same income, may have medical and support expenses that are so high, it is completely impossible to pay them from income alone.

So, in addition to its rules, Medicaid also has exceptions; though these exceptions also have their own rules, which can be complex. One of the more confusing exceptions is the Medically Needy Program within Medicaid, colloquially known as “Spenddown”. The program may also be called something like “Share of Cost” or “Excess Income”. People, who have income above the Medicaid threshold for their state but who also have high medical or service/support needs (for those with disabilities), can “spend down” their excess income and qualify for Medicaid. Strictly speaking, the Medicaid applicant does not have to actually spend the money. Rather, the applicant must demonstrate that s/he has enough current and even past unpaid medical or service/support bills such that, if paid, the bills would reduce the person’s income for the period to below the Medicaid threshold. The applicant should then be eligible for Medicaid.

The spenddown amount is determined by Medicaid and, in Illinois, must be met for every month. However, it is possible to submit enough bills at one time to meet the spenddown for multiple months. For example, if I have a spenddown amount of $1,000/month and I could provide $5,000 worth of medical bills, I would be eligible for Medicaid for five months. At the end of that period, I would need to show more medical bills. Alternatively, if I spend $1,000 of out-of-pocket every month to cover physical therapy, doctors’ visits and medicine, I would qualify for Medicaid on an ongoing basis. One can also have a spend-down due to excess resources (generally cash and cash-equivalent assets). This kind of a spend-down would not need to be met monthly, but only whenever one’s resources grew above the Medicaid threshold.

In Illinois, people, who don’t want to gain and lose Medicaid eligibility on a month-to-month bases due to an uneven flow of medical or support bills, can enroll in “pay-in, spenddown” If at any point they do not have enough expenses to meet their spenddown, they can pay the spenddown amount to Medicaid and remain eligible.

Just as the Medically Needy or Spenddown Program is an exception to the Medicaid income and resource limit rules, there are also exceptions to the Spenddown rules. People with disabilities and their families should be aware of these. If you are a person with a disability and you received Supplemental Security Income and Medicaid but then became ineligible for both due to increased income and if:

  1. The increase is due to your own wages from work and you still have your original disabling condition(s) and you need medical or support services in order to continue working and your work earnings are not sufficient to pay for them, then you continue to qualify for Medicaid without a spend-down under Section 1619(b) of the Social Security Act or…

  2. The increase is due to your transition to “Disabled Adult Child” (sic) benefits, also known as “Childhood Disability Benefits” (even though the recipient may not be a child) based on your parents’ work record, then you remain eligible for Medicaid without a spend-down under Section 1634 of the Social Security Act or…

  3. The increase is due to a Cost of Living Adjustment (COLA) applied to your Social Security Disability Insurance (SSDI) or a Social Security retirement or spousal benefits, then you continue to qualify for Medicaid without a spend-down due to the so-called Pickle Amendment, (enacted in 1977). (Reference for above exceptions)

You want to be aware of these exceptions because you may very well receive a letter from you state’s Medicaid administrator, claiming that you must now meet a spenddown to maintain Medicaid eligibility, even though you qualify for an exception. This is, regrettably, a regular occurrence in Illinois. Medicaid rules and exceptions along with exceptions to the exceptions may seem, well, exceptionally complicated. You don’t want to end up covering a spenddown that you don’t really have. If you are enrolled in Medicaid it pays, quite literally, to be informed. Medicaid can be fairer when you understand where any exceptions to rules apply.

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