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Medicaid's Five-Year Look Back

More on Medicaid's Five-Year Look Back and Calculating the Penalty Period

By Don Drake, Connelly Law Offices, Ltd.

Rhode Island Medicaid Planning
Attorney RJ Connelly III

"After our last post on Medicaid, I received additional questions about the "Five-Year Lookback period, so I will try to provide additional clarity to this subject," said professional fiduciary and certified elder law Attorney RJ Connelly III. "To be eligible for Medicaid-funded nursing home care, assisted living, adult foster care, or in-home care, individuals must meet strict income and asset limitations. The federal government has enacted the look-back period to prevent individuals from manipulating the system by giving away their resources. During this time, Medicaid will carefully scrutinize all the applicant's financial transactions in the five years before applying for assistance."

"If any asset transfers made by an applicant or their spouse during the Look-Back Period violate Medicaid's rules, a Penalty Period of Medicaid ineligibility will be established. This is because the assets could have been used to pay for the individual’s long-term care."

Attorney Connelly pointed out that other activities can violate Medicaid rules and result in penalties, such as gifting, transferring, or selling assets below fair market value. Payments to a caregiver without a written agreement can also violate the look-back period. Additionally, asset transfers by the applicant’s spouse can lead to a Medicaid penalty period.

There Are Differences

"While Medicaid has parameters set by the federal government, each state is permitted to set its own rules for Medicaid eligibility within these parameters," stated Attorney Connelly. "This basically means that every state may not have the same rules for Medicaid eligibility, nor will they have the same rules for its Look-Back period. This can lead to confusion for applicants."

Connecticut Medicaid Planning
States have differing rules

This year, only California and New York have exceptions to the 60-month "look back" period for Medicaid. California has a 30-month "look back" period, which does not apply to Nursing Home Medicaid. New York has a 60-month "look back" period for Nursing Home Medicaid but no "look back" for Community Medicaid. However, starting March 31, 2024, New York plans to implement a 30-month "look back" period for Community Medicaid.

"To add even more confusion to this, the Penalty Divisor (which we discussed in our last post about Medicaid) used to calculate the Penalty Period for violating the Look-Back Rule also varies by state," said Attorney Connelly. "There are also exceptions to the Look-Back Rule for small gifts in some states. This is why using an experienced and knowledgeable elder law attorney is best when applying for long-term care Medicaid."

Explaining the Calculation

The length of penalization for Medicaid applicants (or their spouses) is personalized based on the amount gifted or assets sold below fair market value and the average cost of nursing home care in their state. The penalty is equivalent to when one could have paid for long-term care without the gifted/sold assets.

To calculate the length of a Medicaid applicant's Penalty Period, Medicaid adds up the value of all countable assets given away or sold under fair market value during the Look-Back Period and then divides this by the Penalty Divisor to determine the penalty duration. We are going to use the explanation from our last blog on the subject:

If an applicant has $500,000 in resources and gifts $250,000, and the Medicaid regional rate for nursing home care is $10,500, then the gift amount is divided by the regional monthly rate resulting in 23.8 months of ineligibility for Medicaid coverage ($250,000 divided by $10,500 equals 23.8). Therefore, the Medicaid applicant must privately pay for nursing home care for 23.8 months.

This calculation considers private pay cost, monthly income, and actuarial calculation of promissory note/annuity payment during the Medicaid ineligibility period. The nursing home payment must be less than the private pay rate in accordance with Medicaid regulations. After the Medicaid ineligibility period ends, the applicant can update and resubmit their application for nursing home Medicaid approval. Below is a chart of Medicaid divisors by state for 2023.

Massachusetts Medicaid Planning

Paying Down Assets

If your parents didn't create a trust or transfer their assets to you over five years ago, all is not lost. There are still options that won't raise any red flags with Medicaid. Each state has regulations regarding the types of gifts that can be given to specific individuals during the look-back period and even after entering long-term care. Here are some general allowances but remember that your state Medicaid eligibility may differ.

  • Spouse: When evaluating Medicaid eligibility for married couples, it is essential to note that all assets are considered joint, but the non-applicant spouse is allotted a more significant portion. The Community Spouse Resource Allowance has a federal cap that differs depending on the state.

  • Children: Establishing trusts for disabled, under twenty-one, or legally blind children is a viable option that should be seriously considered.

  • Siblings: A Medicaid recipient's home can be transferred to a sibling who is a co-owner and has lived in the home for at least one year before the recipient's nursing home stay.

  • Caregiving child: A home can be transferred to an adult child who was the parent's caregiver, provided they spent at least two years caring for the parent before they moved into an assisted living facility.

A Final Note

"If you have received gifts and are worried it may affect your Medicaid eligibility, options are available," said Attorney Connelly. "Medicaid appeals and Undue Hardship petitions can be utilized in an attempt to gain eligibility, but it is important to understand that these are intricate legal proceedings and not always successful. To ensure that you avoid any penalties or negative consequences, working with an elder law attorney with extensive experience and knowledge of the Medicaid system is recommended to create a solid plan well in advance."

Rhode Island Medicaid Planning

The information provided in this blog does not and is not intended to constitute legal or medical advice; all information, content, and materials available in this blog are for general informational purposes only. Information in this blog may not constitute the most up-to-date legal, medical, or other information. This blog may contain links to other third-party websites. Such links are only for the convenience of the reader, user, or browser. Connelly Law Offices, Ltd. does not necessarily recommend or endorse the contents of the third-party sites. Readers of this blog should contact their attorney or medical provider to obtain advice with respect to any particular legal matter or medical issue.

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