Medicaid ’Spend Down’ and Medicare Part D

What do people with Medicare and Medicaid need to know about Medicare prescription drug coverage?

People with Medicare and Medicaid automatically qualify (and don’t need to apply) for Extra Help paying for Medicare prescription drug coverage. This means they may pay only a small copayment when they fill prescriptions covered by their Medicare drug plan. Medicaid will still pay for some or all of a person’s health care costs that Medicare doesn’t cover.

In very limited cases, this can include prescriptions for drugs not eligible for coverage by Medicare prescription drug coverage. Except in limited cases, Medicaid can’t cover drugs for people who are enrolled, or who could be enrolled, in a Medicare drug plan.

The example below shows how qualifying for "Extra Help" in 2024 may affect Medicaid eligibility.

Month 1

Julie has Medicare and gets $700 a month in Social Security. Her income is too high for her to qualify for Medicaid in her state. Her state’s Medicaid income limit is $500 a month. If Julie has at least $200 a month in medical expenses, she could spend down (or reduce her income) to the state’s income limit for Medicaid.

Julie pays $150 a month out-of-pocket for prescription drugs and $75 most months for visits to her doctors for a total of $225 per month. After she has $200 in medical expenses, she qualifies for Medicaid. Medicaid pays the additional $25 of her medical expenses, leaving her with $500 for other expenses. Since Julie paid for her prescriptions after the effective date of Extra Help, her Medicare drug plan will pay her back for the prescription costs covered by the Extra Help.

Julie gets Medicaid and automatically qualifies for Extra Help paying Medicare prescription drug costs for the rest of the calendar year, even if she doesn’t qualify for Medicaid in some later months because she has lower medical expenses.

Month 2

With "Extra Help" and a Medicare drug plan, Julie pays no monthly premium, has no deductible, and pays only small copayments. Her copayments will be $1.55 for each of her 10 generic prescriptions, for a total of $15.50. She spends $75 for her doctor visits, for a total of $90.50 in medical expenses. Julie needed at least $200 in medical expenses to qualify for Medicaid through spend down. She will not receive Medicaid in Month 2, but since she keeps the Extra Help for the entire year, her prescription expenses remain low and therefore she has more income available to her. She now has $609.50 available for other expenses, $109.50 more than she had before getting the Extra Help.

Month 3

During a month where Julie’s medical expenses for items other than prescription drugs are high, she will qualify for Medicaid once she has medical expenses of at least $200. For example, Julie has another $210 in medical expenses (such as doctor visits) and $15.50 in total prescription drug copayments for a total of $225.50. She meets her spend down amount and qualifies for Medicaid. She hasn’t lost her ability to rely on the Medicaid program in months when she has higher medical expenses.

What if a person is notified that he or she no longer qualifies for Extra Help as of January 1 next year?

Each fall, Medicare uses data from the states to decide whether a person will continue to automatically qualify for Extra Help for the coming year.

Using the example from the previous page, let’s say Medicare determines that Julie no longer automatically qualifies for Extra Help. Medicare reviews data from her state for a month where she doesn’t qualify for Medicaid (Month 2). Medicare sends her a gray letter saying she doesn’t automatically qualify and encourages her to apply for Extra Help through Social Security to see if she qualifies based on her income and resources. Even though she no longer automatically qualifies, Julie may still qualify for Extra Help if she applies.

After not qualifying (month 2), Julie can meet spend down again in a later month (month 3). Her state tells Medicare, and she gets a letter from Medicare saying she automatically qualifies for Extra Help beginning from the month she qualified for Medicaid at least until December 31 of the same year.