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Frequently asked questions
If your loved one applies for Medicaid but is found to have gifted assets within the five-year look-back period, then they will be disqualified from receiving Medicaid benefits for a certain number of months. This eligibility penalty is referred to as the Medicaid penalty period.
The best way to describe how it works is by using an example.
Let’s say you gave your adult daughter a gift of $20,000 and apply for Medicaid long-term care within five years of the date on the check. When Medicaid reviews the look back period, they will see the gift as a violation as it was given within five years of the application for Medicaid. Medicaid will then delay granting you eligibility for Medicaid and the services they provide because you could have used that money to pay for them yourself. When a penalty period is assessed, it begins when your loved one applies for Medicaid coverage, not the date they gifted the money.
The length of the penalty period depends on the total amount of assets given away and your state’s “penalty divisor.” which is the average monthly cost of a nursing home in your state. (Some states have different ways of calculating this). The “penalty divisor” amounts are published annually by each state’s Medicaid program.
As an example, the monthly penalty divisor in your state is $5,000. The $20,000 gift mentioned earlier would then cause a penalty period of four months ($20,000 ÷ $5,000 = 4 months. You and your family would then have to pay for the cost of care during those four months out of your own pocket.
It is a common misconception that the IRS gift exemption extends to Medicaid rules. It does not. The tax-free annual gift exclusion is an IRS rule that only applies to taxes. This misconception can unknowingly make your loved one ineligible for Medicaid long-term care. Those gifts, even within the IRS guidelines, are still considered gifts by Medicaid and would violate Medicaid’s look back rule.
Medicare and Medicaid are two very different programs that cover different things. Let’s review what each program covers and does not when it comes to nursing home costs.
Medicare consists of two parts Part A and Part B. You can also purchase private Medicare Supplement, Medicare Advantage, and Part D (Prescription Drug) plans that include additional benefits and reduced cost-sharing (copays, coinsurance, deductibles). In most cases, to qualify for Medicare, you must be 65 years old. However, there are some other ways to qualify, including permanent disability.
Medicare Part A (hospital insurance) covers Medicare in-patient care that is care received while in a hospital, skilled nursing facility, and, in certain circumstances, at-home treatment.
Medicare Part B (medical insurance) covers medical services provided by doctors, nurses, and other health care professionals. Part B coverage includes outpatient care, ambulance services, preventive services, and durable medical equipment. It also covers part-time home care and rehabilitative services, including physical therapy.
Medicare does NOT cover long-term nursing home or in-home care.
Like Medicare, Medicaid provides comprehensive in-patient health care coverage, including services and costs associated with nursing facilities and rehabilitation facilities. To qualify for Medicaid, you must meet certain criteria that differ from state to state, and the rules are incredibly complex. They are generally based on having very low income and assets. This is different from Medicare that generally uses age as the primary qualifying criteria.
Medicaid CAN cover long-term nursing home or in-home care provided you meet the criteria for needing long-term care.
Medicaid is the single largest payer of nursing home bills in America. It has become, by default, the long-term care insurance provider for middle-class Americans who can’t afford private Long Term Care insurance. The average cost of a nursing facility is $115,000 per year and rising. If you or a family member needs long-term care, it will not take long for the average family to deplete all of their savings. More than 68% of all nursing care recipients now rely on Medicaid to pay their Long Term Care costs. Working with a professional Medicaid planner is the best way to determine if you or your loved one can qualify for Medicaid and put plans in place to give you the best chance of preserving assets while still qualifying for Medicaid.
The Affordable Care Act established a new methodology for determining eligibility for Medicaid, based on Modified Adjusted Gross Income (MAGI). Medicaid will review both income and assets to determine eligibility for the program.
To be eligible for Medicaid, individuals must also meet specific non-financial eligibility criteria. Medicaid beneficiaries generally must be residents of the state in which they are receiving Medicaid. They must be either citizens of the United States or certain qualified non-citizens, such as lawful permanent residents. Some eligibility groups are also limited by age, pregnancy, or parenting status.
The simple answer is yes. However, Medicaid does have strict guidelines around what you can protect and under what circumstances. You may retain assets and still qualify; If the applicant has a spouse, the Medicaid eligibility criteria may differ. A couple may keep assets up to $125,600, and home equity limits are as high as $552,000 (PA), $828,000 (NJ). Some exemptions allow spouses to keep resources and income from the applicant. Making a mistake and overspending resources may result in the spouse who still lives in the community, spending significant money that could otherwise have been funded through Medicaid. This can create a situation where the spouse no longer has adequate resources or income to live. Single applicants have options also.
It is critical to work with a professional who understands the Medicaid rules to avoid common mistakes that can leave applicants vulnerable to periods of ineligibility and financial hardships.
Once your application for Medicaid has been submitted, a caseworker will be assigned to your application to review the documents submitted. If the application is clear, precise, and has all supporting documents attached, and it is evident that you meet the qualification criteria, they may approve the application within a short amount of time. However, if the application and documents are not organized, prepared, and presented in a professional format, your application review can take significantly longer, potentially months. Suppose the individual completing the application is not experienced in understanding and navigating the complex rules and requirements of Medicaid eligibility mistakes can be made. In that case, the caseworker may deny the application or impose a penalty. This is why it is essential to work with an experienced Medicaid Planner to ensure your Medicaid application is processed quickly and with the highest chance of approval.
Not all 50 states do not have the same Medicaid look-back period rules; however, as of 2020, all states except California have a Medicaid look-back Period of 5 years. California has a look-back period of 2.5 years.
When someone is applying to get long-term care from Medicaid, whether in one’s home, an assisted living residence, or a nursing home, there is an asset limit that must be met. To be eligible, you can’t have assets over that limit. Medicaid’s look-back period is in place to prevent Medicaid applicants from giving away assets or selling them for less than fair market value to meet the Medicaid asset limit.
All asset transfers within the look-back period are reviewed. If the applicant is found to have violated the rule, a penalty period (a period of Medicaid ineligibility) is put in place. Medicaid does this because those assets could have been used to pay for the services Medicaid would be required to pay for. If you give gifts or transfer assets before the look-back period, there is no penalty.
The role of a Medicaid Planner is to help clients structure their finances and prepare documentation to give them the best possibility of being accepted into the Medicaid program for long term care or home care services. A Medicaid planner will help you create trusts, manage asset transfers, and convert countable assets into exempt assets to ensure the best chance at eligibility and preserve your family’s financial resources.
While you can take on responsibility for the application process yourself, there are many nuances that will affect your loved ones’ situation, and one mistake can lead to them not being accepted into the Medicaid program, which can have significant financial implications.