When Does a Medicaid Penalty Period Begin?
When you apply for Medicaid, the government will “look back” at the previous five years preceding the date of your application. Specifically, Medicaid evaluates how many gifts of money you gave to individuals or entities, with some exceptions. These gifts are added up and then divided by Medicaid’s penalty divisor to determine how many “penalty period” months they attach to your application.
What is a Penalty Divisor?
Penalty divisors are the approximate average costs of nursing homes in each state. This figure is published every year by that state’s Department of Health and Human Services.
For example, a father gifts his adult son a $10,000 check in two states. One state’s penalty divisor is a little under $5000 per month while another state’s penalty divisor is $12,000 per month. This means there would be a penalty period of two months in the state with the $5000 penalty divisor but only a penalty period of one month in the state with a $12,000 penalty divisor.
Medicaid Allows for a Limitless Penalty Period
Any gifts made by a Medicaid applicant within five years of submitting their Medicaid claim results in a period of disqualification occurring after the applicant is deemed eligible for Medicaid. This time frame is called the “penalty period”. Note that penalty periods start running on the day a person is eligible to have Medicaid pay their medical expenses, not the date they give someone a sum of money.
Another example: if a grandmother writes a check for $10,000 to her grandson and then applies for Medicaid within five years of making out the check to her grandson, Medicaid will delay paying the grandmother’s nursing home expenses for a certain period of time.
One Family’s Experience with the Medicaid Penalty Period
Mark named his son George as a joint tenant on his residence deed. The value of Mark’s home was $100,000 at the time he added George to the deed. Consequently, Medicaid considers George as having half ownership of the house (a “gift” of $50,000).
A year later, Mark became seriously ill and could no longer take care of himself. George put Mark in a nursing home that cost $5000 per month. Since Mark had not other assets besides his half of the house, George submitted a Medicaid form requesting assistance with paying Mark’s nursing home expenses. George listed the gift value of his father’s residence on the form.
Upon evaluation, Medicaid officials determined that Mark was ineligible for Medicaid benefits for 10 months. The penalty period of 10 months came from dividing $50,000 (George’s gift) by the monthly expense of keeping Mark in a nursing home ($5000).
Mark tried but could not find a way to pay for his father’s first 10 months of care in the nursing home. Consequently, the nursing home did not accept George.
Estate Planning and Medicaid
For some senior citizens, qualifying for Medicaid may be simple because they do not have many assets or cash resources. Others will find it incredibly complex and frustrating when they must answer numerous questions about gifts, assets and other financial entities comprising their income.
If you are a Medicaid applicant and your gross income exceeds the current monthly income cap set by Medicaid, you will need to set up a Miller Trust, or a Medicaid Qualified Income Trust. An income only type of trust where all your monthly income exceeding the cap is put into a trust and paid to specific expenditures, namely a nursing home or other nursing facility in which you are staying.
Before filing a Medicaid application, estate planning attorneys strongly recommend engaging in advance planning strategies to optimize asset eligibility and possibly reduce or eliminate the Medicaid penalty period.