When applying for Medicaid to help pay for long-term care, the state uses a 5-year look-back period to review your financial records. This review prevents people from transferring or gifting away assets to meet Medicaid’s strict income and asset limits.
Understanding how this look-back period works and what it means for you is important when doing Medicaid planning.
What transactions do they review?
During the 5-year look-back period, which is 60 months prior to the first date of long-term care service, the state looks at bank statements, tax returns, real estate transfers and credit card statements. They review transactions such as large gifts or transfers for less than fair market value. Any gifts or transfers made simply to qualify for Medicaid may trigger a penalty period.
What is a penalty period?
If the state discovers gifts or transfers during the look-back period that would have made the applicant ineligible for Medicaid at the time, they implement a penalty period. The length of the penalty period depends on the value of the transfer. Your penalty period depends on dividing the transfer amount by the average cost of a nursing home in the state. For example, a $10,000 gift may trigger a 4-month penalty period in a state where the average monthly cost of a nursing home is $2,500. During these months, you are ineligible for Medicaid coverage of long-term care services.
How can you avoid penalties?
There are legitimate ways to transfer assets that will not trigger Medicaid penalties. For example, you might be able to transfer a home to a spouse or disabled child. Certain transfers for fair market value will not cause penalties. Proper planning can help maximize eligibility for Medicaid long-term care coverage.
Over 30% of the total Medicaid spending in 2020 was on long-term care services. Understanding Medicaid eligibility rules is crucial when planning for future long-term care needs.