What You Need to Know About Medicaid’s Look-Back Period
When a person applies for Medicaid to pay for long-term care, their eligibility depends upon meeting Medicaid’s asset limit. That is, a successful applicant cannot have more assets than the limit established by Medicaid.
What is the Medicaid look-back period?
The Medicaid look-back period was created to prevent applicants from giving away assets, or selling them for less than fair market value, in an effort to meet the asset limit and become eligible for Medicaid. In Medicaid’s view, assets that were given away or sold under market value could have been used by the applicant to pay for long-term care out-of-pocket. If it’s discovered that an applicant violated this rule, a penalty period will be established. The penalty period is the amount of time during which the applicant will not be eligible for Medicaid.
The look-back period begins on the date a person applies for Medicaid. In 49 states and Washington, D.C., the look-back period is five years. In California, it’s 30 months. For example, if you’re a Maryland resident and apply for Medicaid on January 1, 2020, your look-back period goes back 60 months to December 31, 2014. Financial transactions made during this period of time will be subject to review. Of course, transactions made before the look-back period will not be reviewed, nor are they subject to penalty.
What can lead to penalties in Medicaid’s look-back period?
Many seemingly innocuous transactions can lead to a penalty: a gift to a grandson for graduating from college; a car donated to charity; even payments made to a caregiver without a formal care agreement in place. Assets transferred, gifted, or sold for less than fair market value by a non-applicant spouse can violate the rule and result in the applicant being penalized.
To make matters more confusing, although the federal government sets basic parameters for Medicaid, each state can operate within these parameters in its own way. We have seen that California’s look-back period is only 30 months. In addition, the “penalty divisor” used to calculate penalties for people who have violated the look-back period also varies by state. The penalty divisor is linked to a state’s average cost of nursing home care. Some states use a monthly average penalty divisor, others use a daily average. Similarly, some states don’t enforce the look-back period for in-home care, or they don’t penalize applicants for small gifts made during the look-back period.
Determining the penalty period: How the penalty divisor typically works
Let’s say your local Medicaid agency has determined that you sold your home to your son for $100,000 less than its fair market value during the five-year look-back period. To calculate your penalty—the amount of time during which you will be ineligible for Medicaid—the agency will divide $100,000 by the average monthly cost of nursing home care in your area. In Washington, D.C., the average cost of a private room in a nursing home is approximately $9,700. Medicaid would calculate your penalty as follows:
Thus, you would be ineligible for Medicaid for more than 10 months, meaning you would have to cover the cost of nursing home care out-of-pocket for more than 10 months. That’s a significant penalty indeed.
The rules governing Medicaid eligibility and the look-back period are complicated. While some asset transfers are allowed under certain circumstances, and there are ways to make gifts without violating look-back period rules, the risks are high. We can design a plan to protect your assets against the high cost of long-term care while helping to ensure you receive the care you need.
Get the Help You Need from an Elder Care Attorney
Clifford M. Cohen has more than 35 years of experience and dedicates his practice to guiding aging individuals in the Maryland and D.C. area through all facets of elder care law. Contact us today at 202-895-2799 for a free case evaluation.