Medicaid 2026 - The Medicaid Penalty Period for Look Back Violations

Attorney RJ Connelly III Certified Elder Law Attorney Professional Fiduciary

The Medicaid Penalty Period, sometimes referred to as a Divestment Penalty Period, represents a timeframe during which an individual is ineligible for Medicaid benefits due to a violation of Medicaid’s Look-Back Rule. Specifically, this penalty applies when a Medicaid applicant transfers or sells assets for less than fair market value during the Look-Back Period—actions that would otherwise make them eligible for long-term care Medicaid if not for the infraction.

As professional fiduciary and certified elder law Attorney RJ Connelly III explains, “It’s crucial for applicants to understand that the Penalty Period doesn’t start when the disqualifying transfer occurs, but rather when the Medicaid application is submitted and denied solely because of the Look-Back Rule violation.” In certain states, this period may begin on the first day of the month in which the application and denial occur. Once the Penalty Period concludes, the individual may reapply for long-term care Medicaid. For a deeper understanding of these issues, we invite you to read more in today’s blog.

Understand the Penalty Period

To properly explain the Medicaid Penalty Period, it is important to understand Medicaid’s Look-Back Rule (which we covered in a previous blog post). When one submits a Medicaid long-term care application, a “look back” period of generally 60 months immediately precedes the date of application. During this period, the Medicaid agency reviews financial records to ensure that no assets were gifted or sold for less than fair market value, as this could affect eligibility.

This process is designed to prevent individuals from transferring assets solely to qualify for Medicaid and applies to both Nursing Home Medicaid and Home and Community-Based Services (HCBS) Medicaid Waivers. However, it is important to note that there is no “look back” for the Regular Medicaid Program, which, for seniors, is often referred to as Aged, Blind, and Disabled Medicaid. Because rules can vary between states, it’s recommended to check state-specific Look-Back Rules for accurate information.

For Medicaid eligibility, there is an asset (resource) limit that applicants must meet. While asset limits vary by state, most set the individual limit at $2,000. If your assets exceed this amount, you will need to “spend down” the excess to qualify, but it’s critical to do so in a way that does not violate the Look-Back Rule. Improperly transferring assets—by giving them away or selling them below market value—can be considered a “disqualifying transfer.” Medicaid views these transfers as attempts to meet the asset limit and may impose a penalty period, during which you are denied Medicaid long-term care benefits. The length of the penalty period depends on the amount transferred and the average cost of care in your state, so understanding these rules can help you plan effectively and avoid unexpected denials.

It’s helpful to know that not all asset transfers are penalized under the Look-Back Rule. For example, spousal transfers—where assets are transferred from an applicant spouse to a non-applicant spouse—are allowed and do not trigger a penalty. Additionally, there are exceptions, such as the Caregiver Child Exemption and the Sibling Exception, that allow certain transfers without penalty when specific criteria are met. Educating yourself about these exceptions and seeking guidance from a Medicaid planning professional can significantly protect your assets and ensure you remain eligible for benefits.

Caregiver Child Exemption: The Child Caregiver Exception (or Child Caretaker Exemption) lets seniors transfer their primary home to an adult child without affecting their eligibility for long-term care Medicaid, as long as the child has provided care that delayed the need for Medicaid-funded nursing home care. This means the home can be given to the caregiving child without triggering Medicaid’s Look-Back Period or risking future estate recovery by the state. In some states, even seniors receiving Medicaid services at home are considered "institutionalized," so this exemption still applies.

The Sibling Exception: A special provision in Medicaid rules that permits seniors to transfer ownership of their primary residence to a brother or sister without affecting their eligibility for Medicaid, provided certain requirements are met. To qualify for this exemption, the sibling must have an ownership interest in the home and have lived in it as their primary residence for at least one year immediately before the senior entered a nursing home or another medical institution. This exception helps families preserve their home and ensures that the sibling who has been sharing the household does not lose their place of residence or face financial penalties when the senior applies for Medicaid.

The Penalty Divisor

A Penalty Divisor, sometimes referred to as a Divestment Penalty Divisor or Transfer Penalty, is a figure used by Medicaid to calculate the length of time an individual will be ineligible for Medicaid long-term care benefits after transferring assets for less than fair market value. Essentially, the Penalty Divisor represents the average monthly or daily cost of private-pay nursing home care in a particular state, or even in specific regions or facilities within a state.

When someone gifts, sells, or otherwise disposes of assets below fair market value—often in an attempt to qualify for Medicaid—the total value of those transferred assets is divided by the Penalty Divisor. The result is the number of months (or days) the individual must wait before Medicaid will cover their long-term care costs. For example, if a state's Penalty Divisor is $5,000 per month and a person gives away $55,000, they will be ineligible for Medicaid for 11 months.

It's important to note that Penalty Divisors are not uniform across the United States. In fact, the value can vary significantly by state and, within a state, by region or nursing home. Some states use a Monthly Penalty Divisor, while others use a Daily Penalty Divisor for greater precision. A few states may employ both methods, depending on local guidelines or the specifics of the case.

Penalty Divisors are typically updated on an annual basis to reflect changing nursing home costs, but the schedule for these updates varies from state to state. The timing can vary by local policy and regulatory changes, so the divisor may be adjusted at any point during the year in one state, while in another, updates always occur at a set time.

Please refer to the chart below from the American Council on Aging for 2026.

Medicaid Penalty Divisors by State (in 2026)
Alabama	$8,200 per month
Alaska	Varies by facility
Arizona	$8,666.72 per month in Maricopa, Pima, & Pinal Counties / $8,132.22 per month in all other counties (eff. 10/01/25 – 9/30/26)
Arkansas	$8,834 per month (eff. 4/1/25 – 3/31/26)
California	$13,656 per month (2025)
Colorado	$10,814 per month (eff. 1/1/26 – 12/31/26)
Connecticut	$15,526 per month (eff. 7/1/25 – 6/30/26)
Delaware	$439.84 per day / $13,378.33 per month (eff. 1/1/26 – 12/31/26)
District of Columbia	$15,238.80 per month (2025)
Florida	$10,645 per month (eff. 4/1/25)
Georgia	$10,965 per month (eff. 4/1/25 – 3/31/26)
Hawaii	$8,850 per month (2025)
Idaho	$363.37 per day / $10,901.03 per month (eff. 1/1/26 – 12/31/26))
Illinois	Varies based on the monthly private pay rate of the specific nursing home. Specific to the Supportive Living Program, the penalty divisor is $181 per day / $5,430 per month. (2025)
Indiana	$7,651 per month (eff. 7/1/25 – 6/30/26)
Iowa	$319.17 per day / $9,702.77 per month (eff. 7/1/25 – 6/30/26)
Kansas	$287.14 per day (eff. 7/1/25 – 6/30/26)
Kentucky	$325.41 per day
Louisiana	$236.71 per day / $7,200 per month (eff. 9/1/24, but does not necessarily change annually)
Maine	$12,294 per month (eff. 6/1/25 – 5/31/26)
Maryland	$411 per day / $12,501 per month (eff. 7/1/25 – 6/30/26)
Massachusetts	$450 per day (eff. 11/1/25 – 10/31/26)
Michigan	$12,216.30 per month (eff. 1/1/26 – 12/31/26)
Minnesota	$11,653 per month (eff. 7/1/25 – 6/30/26)
Mississippi	$309 per day / $9,430 per month (eff. 7/1/25, but does not necessarily change annually)
Missouri	$7,909 per month (eff. 4/1/25 – 3/31/26)
Montana	$322.72 per day / $9,816.05 per month (eff. 7/1/25 – 6/30/26)
Nebraska	Monthly private pay rate
Nevada	$10,417.00 per month (eff. 4/1/25 – 3/31/26)
New Hampshire	$423.82 per day / $12,892.60 per month
New Jersey	$402.74 per day (eff. 4/1/25 – 3/31/26)
New Mexico	$9,209 per month
New York	Varies based on geographic location. Central $14,146 per month, Long Island $15,193 per month, NYC $15,282 per month, North East $14,783 per month, North Metro $15,024 per month, Rochester $15,675 per month, and Western $13,765 per month (eff. 1/1/26 – 12/31/26)
North Carolina	$384 per day / $10,904 per month
North Dakota	$442.22 per day / $13,450.86 per month
Ohio	$7,787 per month (eff. 9/1/25 and is updated every two years)
Oklahoma	$247.72 per day (eff. 7/1/25 – 6/30/26)
Oregon	$14,585 per month (2025)
Pennsylvania	$421.20 per day / $12,811.50 per month (eff. 1/1/26 – 12/31/26)
Rhode Island	$335 per day / $10,190 per month (eff. 8/1/23, but does not necessarily change each year)
South Carolina	$320.83 per day / $9,758.58 per month (eff. 10/1/25 – 9/30/26)
South Dakota	$320.55 per day / $9,749.92 per month
Tennessee	$295.87 per day / $8,846.10 per month
Texas	$242.13 per day / $7,339 per month (eff. 9/1/25, but does not necessarily change each year)
Utah	$7,344 per month (eff. 7/1/25 – 6/30/26)
Vermont	$417.84 per day / $12,535.13 per month (eff. 10/1/25 – 9/30/26)
Virginia	Varies by geographic location. $9,703 per month in Alexandria, Fairfax, Falls Church, Loudoun, Manassas, Manassas Park, and Prince William Counties. $7,324 per month in all other counties. (eff. 1/1/25, but does not necessarily change each year)
Washington	$462 per day / $14,059 per month (eff. 10/1/25 – 9/30/26)
West Virginia	$396.76 per day / $11,903 per month (2025)
Wisconsin	$352.06 per day / $10,708.49 per month (eff. 1/1/26 – 12/31/26)
Wyoming	$10,114 per month

For families and caregivers planning for long-term care, knowing the current Penalty Divisor for their state—and understanding how asset transfers can affect Medicaid eligibility—is crucial for informed financial and legal decision-making. Consulting with elder law professionals who are Medicaid planning experts can help navigate these complex rules and avoid unintended periods of ineligibility.

Paying for Long-Term Care During this Period

During the Penalty Period, Medicaid will not pay for long-term care services, and the applicant will be responsible for covering all care expenses themselves. This situation is especially challenging because most Medicaid applicants have limited income and few savings. Paying for nursing home or assisted living care out of pocket can quickly deplete remaining resources. Frequently, relatives or friends feel pressured to step in and help pay for care during this difficult time, which can create additional financial strain on the entire family.

Because giving away assets can delay Medicaid eligibility and increase out-of-pocket costs, careful Medicaid planning is essential for anyone who may need long-term care in the future. Medicaid planning involves understanding the rules governing asset transfers and ensuring financial moves are made well in advance. With the guidance of a professional, individuals and families can legally protect their savings and property, arrange their finances according to Medicaid’s requirements, and avoid unintentional mistakes that might trigger a Penalty Period.

Professionals can help with strategies such as setting up trusts, spending down assets in approved ways, or making allowable transfers. With healthcare costs continually rising and Medicaid’s regulations being complex, this type of planning is crucial to avoid unnecessary hardship, maintain eligibility for benefits, and safeguard resources for the applicant’s loved ones.

For those who receive Supplemental Security Income (SSI) and live in a nursing home, following Medicaid’s asset rules is even more critical. If such an individual breaks these rules by transferring assets inappropriately, not only do they lose Medicaid coverage for their care during the Penalty Period, but their SSI payment is also sharply reduced. In this situation, their monthly SSI check drops to $30, a reduced rate for nursing home residents, plus any additional amount provided by the state. This steep reduction leaves the individual with even less money to cover basic needs, further increasing financial pressure on them and their families. In summary, understanding and complying with Medicaid’s asset transfer rules is vital to avoid costly errors and maintain access to the care and support needed.

Options for the Penalty Period

If someone applying for Medicaid violates the Look-Back Period rule, they may have options to address the issue. "Curing" the penalty usually means returning the money or assets that caused the problem. If all funds are returned, the state might remove the penalty period entirely. If only some of the funds are returned, the penalty period could be shortened. However, not every state allows applicants to return only part of the money; some require that it all be returned to eliminate the penalty.

If the applicant gets the assets back, they may have more money than Medicaid allows, so they’ll need to spend down their assets in ways that follow the Look-Back rules before becoming eligible for long-term care benefits. In rare cases, if the money can't be returned, some states might offer what’s called an Undue Hardship Waiver, but this is not common. States typically require proof that all available legal steps were taken to recover the assets before proceeding.

If you believe you did not break the Look-Back Rule but your Medicaid application was denied for this reason, you have the right to appeal the decision. The appeal process lets you provide evidence and explain your case in hopes of having your eligibility approved.

A Final Thought

"With decades of experience in elder law and a highly skilled Medicaid planning team, our firm stands as a trusted partner in navigating the complexities of Medicaid eligibility and asset protection," stated Attorney Connelly. "Our seasoned professionals provide comprehensive guidance through the intricacies of the look-back period, identify relevant exemptions, and develop customized strategies designed to minimize penalties and optimize benefits. By choosing Connelly Law, clients can be assured that their assets are protected, their loved ones' needs are prioritized, and access to essential care is secured with the utmost competence and diligence."

The information presented within this blog is intended exclusively for general informational purposes and should not be construed as legal, financial, or healthcare advice. The content, materials, and insights provided may not reflect the most recent developments in these fields and, therefore, should not be relied upon for personal or professional decisions. Further, this blog may contain links to third-party websites, which are included solely for the convenience of our readers. It is essential to note that Connelly Law Offices, Ltd. does not automatically endorse or recommend the contents of these external sites. Given the complexities and nuances of legal, financial, or healthcare matters, we strongly encourage individuals to consult a qualified attorney, a professional fiduciary advisor, or a healthcare provider regarding any specific issues or concerns. Your well-being and informed decision-making are of paramount importance to us.