Tag Archives: medicaid rules

Medicaid penalty period: What is it and how is it calculated?

There is a penalty period during which you will not be eligible for Medicaid benefits.  You should understand how this may affect you.

Q.
What happens if you give some of your assets to your children and then have no funds to pay for your long term care costs?

A.
When you apply for Medicaid, you are required to complete a financial qualifications form.  This form asks you to provide an inventory of your financial assets.  It also asks you to list any gifts you have made in the past five years.

The Tax Incentive Reduction Act of 2005 changes how gifts of your assets impact your eligibility to receive Medicaid.  The law extends the Medicaid “look back” period to five years.

Most important, the date for removing the value of the gifts from the Medicaid eligibility calculations starts the day you apply for Medicaid, not the date you made the gift.  The look back rule applies to all transfers made on or after February 8, 2006.

If you made gifts within five years before applying for Medicaid, Medicaid will not begin paying for your long term care until the cumulative monthly costs of your care exceed the value of the gifts you made.  This period of time when Medicaid is not available is known as the Medicaid Penalty Period.

A Family Story: Medicaid Penalty Period.

David added his son Eric as a joint tenant on the deed of his personal residence in 2007. At that time, the fair market value of David’s house was $100,000.  Medicaid will consider Eric’s half of the property a gift from David with a value of $50,000.

In May, 2008, David fell and became unable to take care of himself.  Eric located a nursing home, but it would cost $5,000 a month. Since David had no assets other than his house, Eric filled out a Medicaid application form requesting help paying for David’s nursing home care. David had to list and value the gift of the house on the application form.

David was not eligible for Medcaid benefits for a period 10 months. The 10-month penalty period was determined by dividing the value of David’s gift to Eric ($50K) by the monthly cost of David’s long-term care ($5K).

Someone had to find the money to pay for David’s care the first 10 months. The long term care facility would not accept David as a patient without some means to pay for his care.