The Difference Between Medicaid’s Lookback and Penalty Periods

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Most people have heard that gifting an asset can cause problems if you later need to apply for Medicaid to cover a nursing home stay.

But what exactly are the rules you need to be aware of when helping an elderly loved one qualify for Medicaid?

Lookback period

That five-year period that precedes the date of your Medicaid application is known as the "lookback period."

It doesn't matter how many gifts you made during that period, or to whom they were given (with certain exceptions discussed below); all gifts you made during that five-year lookback period will be added up and divided by the penalty divisor to come up with the number of months in your penalty period.

Penalty period

The general rule is that any gift an individual makes within five years of applying for Medicaid will result in a subsequent period of disqualification, which will occur after that person applies and becomes eligible for Medicaid coverage.

This chunk of time is referred to as the "penalty period."

For example, if you write a check to your son for $10,000 and apply for Medicaid within five years from the date on the check, then Medicaid will delay covering your expenses in the nursing home for some period of time.

Note that the clock for the penalty period begins running the day a person becomes eligible for Medicaid coverage, not the date on which they gifted the money.

The length of the penalty period depends on the state's "penalty divisor." The penalty divisor is the approximate average cost of a nursing home in your state; a figure published annually by each state's Medicaid department.

For example, in Arkansas, the penalty divisor is currently just under $5,000, while on Long Island, NY, it is over $12,000 per month. Thus, that $10,000 gift would cause a two-month penalty period in Arkansas, but a less than one month penalty period on Long Island.

There is no limit to how long a penalty period can be.

For example, if you live in a state with a $5,000 penalty divisor, deeded your $350,000 home to your daughter, and then you applied for Medicaid within the next five years, you would be faced with a 70-month penalty period! Since that is longer than the five-year (60-month) lookback period, you would want to delay applying for Medicaid until the five-year period had passed, in order to avoid that harsh result. You could apply for Medicaid the day after the five-year lookback period expires and the gift of that house would be ignored by the Medicaid department in your state.

Exceptions to the Medicaid gift rule

Not all gifts cause the imposition of a penalty.

For example, say your daughter lived in the aforementioned house while taking care of you for at least two years before you applied for Medicaid. If your daughter's care enabled you to delay a move to a nursing home, then the transfer of the house into your daughter's name will not result in any kind of penalty, even if you apply for Medicaid within five years of the transfer.

Another exception to the general rule is a gift (or the creation of a trust) for a child who is blind or disabled under the Social Security rules. No penalty will attach to such a gift, no matter how large.

Finally, there is never any penalty on gifts between spouses. Since the total assets of both spouses are counted when one spouse applies for Medicaid, there is no reason to impose a penalty on such transfers, and indeed that is exactly how the law reads.

K. Gabriel Heiser is an attorney with over 25 years of experience in elder law and estate planning. He is the author of "How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets," an annually updated practical guide for the layperson.

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8 Comments

The penalty divisor I believed is usually based on the cost of care in the state where you are located, that's why it varied just like how the cost of long term care services varied per state (www.infolongtermcare.org/ltci-learning-center/what-is-long-term-care-insurance/government-long-term-care/). I personally think it is not a wise idea to hide money or asset from the government, they always have a way of finding it.
My mother has Alzheimer's and I am considering moving from Missouri to Michigan and live with her in her house to care for her. I know that it is possible at some point she may have to go into a nursing home and apply for Medicaid. What do I need to do to prove that I lived in her house for 2 years to care for her. Do I have her immediately transfer the house or deed it to me right away as soon as I can. I am in my 60's myself and for me to do this I would have to sell my home in Missouri and after my mother's is gone I want to be able to continue to live in her home. I would be too old and couldn't afford to start over with a new mortgage and house payments.
We have Long Term Care insurance to protect our assets. We have been paying for it since turning 50. Is this unwise? It has no limits as to time for paying out. A friend says it is the best thing her mom ever bought. She didn't start it long before she was in the NH. Ours has home care as well. I just read read here "How do I get Medicaid?". My parents have Long term care insurance as well. It worked for mom. I hope dad never needs to use it.