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Is there a Penalty Period for Medicaid?

by Jeffrey Asher, Estate Planning Expert
July 29, 2011

Question: I was told there is a 5-year penalty period for Medicaid. Is that true?

Answer:

No, it is not true.  When making an application for Medicaid benefits, in addition to everything else the applicant must consider, we pay special attention to the “5-year look-back period” and the “transfer penalty period”.  Although these are parts of the same problem, each is a distinct issue on its own.
 
When a person makes a Medicaid application for nursing home care (there is no such penalty period if the person is applying for Medicaid home care services), usually known as Institutional Medicaid, which includes not only a nursing home but also certain community-based services (depending on the state in which the person applies), the applicant must document his or her resources (i.e., assets) for the previous 5 years.  This is known as the “5-year look-back period”.  In other words, Medicaid may review the applicant’s assets (e.g., account statements) for the 5-year period immediately prior to the date the application is made.  The purpose of the look-back period is two-fold:  First, Medicaid wants to see what assets the applicant has – and determine whether or not the applicant has excess resources that would result in a disqualification and spend-down for Medicaid purposes.  And, second, Medicaid wants to see if there had been any non-exempt transfers or gifts during the 5-year look-back period.  It is the non-exempt transfers or gifts during the 5-year look-back period that result in the “transfer penalty”.
 
Examples of exempt transfers are transfers between spouses, or transfers of the applicant’s home to a spouse, or to a disabled child who has cared for the transferor for at least two years prior to the transferor’s admission to the nursing home, or to a sibling with an equity interest in the home who has lived in the home for at least one year.   And, there is an exception to the transfer penalty if the application of the penalty would result in undue hardship to the applicant.
 
If Medicaid discovers non-exempt transfers during the 5-year look-back period, then Medicaid will impose a “transfer penalty period”.  The transfer penalty period is the period of time the applicant is disqualified for Institutional Medicaid coverage as a result of the non-exempt transfers.  Medicaid will calculate the transfer penalty period by dividing the dollar value of the total transfers during the 5-year look-back period by the average monthly cost for one month of nursing home care, which is a rate put out by the Medicaid regulations.  For example, if the average monthly cost for one month of nursing home care, as set forth by Medicaid, is $10,579 (the rate, for example, for NYC in July 2011), and the 5-year look-back period uncovered $100,000 of non-exempt transfers, then the transfer penalty period is equal to 9.45 months ($100,000/$10,579), rounded up to 10 months.  But, as you can see, having a transfer penalty period of 10 months is vastly different than what people believe to be a 5-year penalty period.  So, while we cannot avoid the 5-year look-back period, it is the transfers that we discover during this period, and the resulting transfer penalty calculation, that we should be worried about.
 
Please note that the calculation of the average monthly cost for one month of nursing home care, as is the calculation of the transfer penalty period, will be different from state to state, and possibly county to county.

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Jeffrey Asher is a prominent Trusts & Estates and Elder Law attorney in Westchester County and New York City. Mr. Asher concentrates primarily in the areas of Estate Planning, Probate and Estate Administration, Elder Law, Medicaid Planning, and Special Needs Planning. Mr. Asher provides comprehensive legal services, tailored to meet your specific needs.

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