If you plan to use Medicaid to pay for your or a loved one’s long-term care, you will need to first meet the program’s strict financial eligibility requirements. One such requirement is that all of your countable assets and/or income must not exceed the state’s Medicaid limits.
Initially, this may seem like an easy requirement to meet. However, states’ income and asset limits are so low that even seniors with very limited resources struggle to meet them. If you, like many, think you can qualify by simply spending down your assets, you would be right. However, if you make the mistake of spending down assets within a certain period before applying for Medicaid — a period the government refers to as the lookback period — you could incur penalties or sabotage your eligibility altogether.
The Medicaid lookback period
According to AgingCare, the Centers for Medicare and Medicaid Services created the lookback period to prevent seniors from giving away or spending all of their assets simply to qualify for benefits. The lookback period is a window of time that becomes subject to scrutiny by the state’s Medicaid program. Though states have differing Medicaid eligibility requirements, most scrutinize a person’s financial transactions over the course of five or so years from the date of his or her application.
During the lookback period, you can spend down your assets as much as you want so long as you do so for fair market value. For example, you can make improvements to your home, pay down medical expenses and prepay your funeral expenses. However, you cannot gift money or assets during this time. If you do, you will likely incur a penalty.
The Medicaid penalty period
If the state discovers that you gifted money or assets during the lookback period, you will become ineligible for benefits for a certain amount of time. The CMS refers to this period as the Medicaid penalty period.
The length of the penalty period depends on two factors: The total amount of assets you spent down or gave away and the state’s penalty divisor. The penalty divisor is the average monthly cost of nursing home care in the state. New York’s monthly divisor is a little less than $14,000.
So, for example, say you gifted a grandson $30,000 during the lookback period. To determine your length of Medicaid ineligibility, you would divide $30,000 by $14,000, which would be about 2.14. Therefore, your gift would result in a penalty period of a little more than two months. In this case, you would either have to pay for care out of pocket until the penalty period expires or delay applying for Medicaid until the gift falls outside of the lookback period.