QMC

Determining the Medicaid Penalty Period

What is the Medicaid Penalty Period?

Clients often ask: What is the Medicaid Penalty Period I have heard about? Will my family member need to wait before he or she can enter long-term care in a nursing home?

These questions concern families. Fortunately, in almost all cases, there is no period of ineligibility for a Medicaid applicant. And if the prospect of a penalty period does present itself, it can be dealt with if the family will address the matter early in the process.

Bottom line: A Medicaid penalty period is NOT typically a major area of concern. But it always pays to contact specialized professionals (such as the team at QMC) to make sure the transition to Medicaid benefits is a smooth one.

But What is It?

Medicaid penalty periods can be assessed to a Medicaid applicant if there has been a non-compensated transfer of assets (i.e. for less than fair market value) within five years prior to the date of the Medicaid application. This retrospective five year window is referred to as the Medicaid Lookback Period. If a prospective nursing home care resident has transferred assets within that time frame, Medicaid eligibility will likely be delayed, with the delay based on the value of the assets gifted.

Each state (including Missouri) has a Penalty Divisor to determine the transfer penalty. The value of the asset gifted is divided by this Penalty Divisor to determine the number of months of the ineligibility. For example, the Penalty Divisor in Missouri is currently roughly $7500; if a prospective applicant to the Medicaid program made a transfer of $75,000 within the 5 year lookback period to the Medicaid coverage application, then that applicant will incur a 10 month penalty before nursing home Medicaid coverage will begin.

Can the transfer be reversed if Medicaid nursing facility coverage is absolutely necessary? YES! The transaction can always be unwound. And there are a variety of other strategies to soften or eliminate the harsh consequences of previous penalty-inducing gifts by the loved one. As always, addressing these issues early is the key.

It is also important to remember that some transfers carry and exemption from the Lookback Rule, allowing transfers while still qualifying under the Medicaid rules. A transfer of otherwise countable assets to a blind or disabled child under an irrevocable trust is exempt from the Lookback rule and does not invoke a penalty for any number of months. In fact, this type of transaction is desired and can be an important component to Medicaid planning and/or estate planning that can preserve family funds for the disabled child while also paying for nursing home costs for the long-term care recipient.

And other exemptions exist. Another example: qualifying caregiver child can receive a gift of the home with no penalty for any period of time. And each situation is different. It is important to work with qualified professionals (such as the QMC team) to ensure that your family takes advantage of all strategies to preserve funds and achieve best-case-scenario.

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