What Is a Medicaid Spend Down? Texas Explained

A Medicaid spend down is a process where you reduce your income or assets to meet Medicaid's eligibility limits. Think of it like a deductible: you pay medical expenses out of pocket until your remaining income falls below the threshold, and then Medicaid kicks in. It is one of the most searched Medicaid topics, but here is the catch: Texas does not use a traditional income spend down. Texas is an "income cap" state, which means a completely different set of rules applies.

Key Takeaways

• A Medicaid spend down lets people in some states subtract medical expenses from their income to qualify for Medicaid.
• Texas does not allow income spend down. Texas is an income cap state. If your income exceeds the cap, you cannot "spend down" to qualify.
• The Texas income cap for nursing home and waiver Medicaid is $2,982 per month (2026).
• If you are over the income cap, a Qualified Income Trust (Miller Trust) is the workaround.
• Asset spend down is allowed in Texas. You can reduce countable assets to meet the $2,000 limit.

Why Texas Is Different

In about half of U.S. states, if your income is above the Medicaid limit, you can subtract qualifying medical expenses until your income drops below the threshold. That is a traditional spend down.

Texas is one of roughly 16 states that use an income cap instead. For nursing home Medicaid and waiver programs like STAR+PLUS, the limit in 2026 is $2,982 per month. If your income is even one dollar over, there is no mechanism to subtract medical bills to get below it. This trips up families who read about spend down online and assume it applies everywhere.

The Miller Trust: Texas's Workaround

If your income exceeds the cap, Texas allows a Qualified Income Trust (QIT), commonly known as a Miller Trust.

An elder law attorney sets up an irrevocable trust (usually $500 to $1,500). Each month, you deposit the income that exceeds the Medicaid limit into the trust. That money no longer counts toward eligibility. After Medicaid pays for your care, the trust pays any remaining patient share to the care provider.

The Miller Trust does not shelter money or let you keep extra income. It simply lets people in income cap states qualify when their income is above the limit.

Asset Spend Down: This Does Apply in Texas

While Texas does not allow income spend down, you can spend down your assets to qualify. The countable asset limit is $2,000 for a single applicant.

Many things are exempt: your primary home (up to $752,000 in equity), one vehicle, household furnishings, prepaid burial arrangements, and life insurance under $1,500 face value. Everything else counts: bank accounts, investments, and additional real estate.

Legitimate ways to spend down assets include paying off debt, making home repairs, purchasing exempt items like a prepaid funeral, and paying for medical or dental care.

Be careful with gifts or transfers. Texas has a 60-month lookback period. If you gave away money or sold property below fair market value in the five years before applying, HHSC will impose a penalty period during which Medicaid will not cover your long-term care.

What This Means for Your Family

• Income over $2,982/month? You need a Miller Trust, not a spend down. Talk to an elder law attorney.
• Assets over $2,000? You can spend down assets on legitimate expenses before applying. Plan carefully and keep records.
• Do not give away money in the five years before a Medicaid application. The penalties are severe.

For the full application process, see How to Apply for Medicaid in Texas. To understand which programs cover long-term care, read Texas Medicaid Programs for Seniors.

The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Medicaid rules vary by state and change frequently. Always verify eligibility and benefits with your state Medicaid agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.