Indiana Medicaid Spend Down Rules for Long-Term Care

What "Spend Down" Actually Means in Indiana

Indiana is an income-cap state, which creates a common misconception. Unlike states that allow applicants to "spend down" excess income on medical bills to qualify, Indiana requires that applicants whose income exceeds the cap ($2,982 per month in 2026) establish a Qualified Income Trust (Miller Trust) instead. There's no income spend-down pathway.

The spend-down that does apply in Indiana is on the asset side. To qualify for Medicaid long-term care — whether through a nursing home placement or the PathWays or Health and Wellness Waiver — a single applicant must reduce their countable assets to $2,000 or below. For married couples where both spouses are applying, the combined limit is $3,000.

That $2,000 figure sounds devastating until you understand what Indiana excludes from the count.

Assets That Don't Count

Indiana exempts several major asset categories from the $2,000 limit:

The primary residence. If the applicant, their spouse, a minor child, or a disabled child lives in the home, it's fully exempt regardless of value. If no one meeting those criteria lives there, the home is still exempt as long as equity doesn't exceed $752,000. This single exemption protects most families' largest asset.

One vehicle. One automobile of any value is completely exempt. You don't need to sell your parent's car to qualify.

Irrevocable prepaid burial arrangements. A prepaid funeral and burial plan that's been made irrevocable is excluded from countable assets entirely. This is a common and legitimate spend-down strategy — converting countable cash into an irrevocable burial plan.

Household goods and personal effects. Furniture, clothing, keepsakes, and personal property are non-countable.

The Community Spouse Resource Allowance (CSRA). When only one spouse needs long-term care, the at-home spouse keeps between $32,532 and $162,660 of the couple's combined assets — calculated as half the couple's total countable assets on the "snapshot date" (the date of continuous institutionalization or waiver eligibility), subject to those floor and ceiling amounts.

How the Spend-Down Process Works

The practical sequence looks like this:

1. Tally countable assets. Add up bank accounts, investment accounts, non-exempt real estate, and any other financial assets. Subtract exempt items.
2. Calculate the CSRA (if married). The community spouse's protected share comes off the top. Only the excess above the CSRA needs to be spent down.
3. Spend the excess on allowable items. Pay off debts, make home repairs, prepay burial arrangements, purchase a better vehicle (since one is exempt), or pay for care costs directly. Every dollar spent must go toward legitimate expenses — not gifts or below-market transfers, which trigger look-back penalties.
4. Apply for Medicaid once countable assets are at or below the limit. The application goes through the Division of Family Resources, either online at fssabenefits.in.gov or by calling 1-800-403-0864. Processing takes up to 90 days.

The Home Equity Cap

The $752,000 home equity exemption protects the majority of Indiana homeowners, but families with higher-value properties need to plan carefully. Equity above that cap makes the applicant ineligible for Medicaid long-term care — even if the home is their primary residence and they intend to return.

If your parent owns a home worth more than $752,000 in equity and no spouse, minor child, or disabled child lives there, the home becomes a countable asset above the exemption. Options in that scenario include consulting an elder law attorney about whether a caregiver child exemption or other transfer strategy applies.

When a community spouse still lives in the home, the entire property is exempt regardless of equity value. This is one of the most powerful protections in Indiana Medicaid rules and one of the most misunderstood.

Common Mistakes That Trigger Penalties

Indiana applies a 60-month look-back period to all asset transfers. Any gift, property transfer, or sale below fair market value within five years of the Medicaid application triggers a penalty period during which Medicaid won't pay for care.

The penalty formula uses the state's penalty divisor ($8,027 per month, effective July 1, 2026). A $80,000 gift made within the look-back window creates roughly a 10-month penalty period — and that penalty clock doesn't start ticking until the applicant is otherwise eligible and admitted to care or approved for a waiver slot. During the penalty period, the family pays entirely out of pocket.

Exceptions to the penalty include transfers to a spouse, transfers to a blind or permanently disabled child, and the caregiver child exemption — which requires the child to have lived in the parent's home for at least 24 consecutive months immediately before the parent's admission, providing verified care that delayed institutional placement.

The Indiana Dementia & Memory Care Guide includes a Look-Back Audit Sheet that walks you through the past 60 months of financial transactions, flagging potential penalty triggers before you submit the Medicaid application.

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