What is a Medicaid Penalty Period?
When it comes to Medicaid, you may have heard talk of a “penalty period.” It is a real problem for some seniors hoping to use Medicaid to pay for long-term care. Here, we will address how a penalty period works and what can be done to minimize the effect of a penalty period.
Who can get Medicaid?
For the majority of Americans, Medicaid is the primary method of paying for nursing home care. After all, in some areas, it can cost upwards of $8,000 per month for long-term skilled nursing care. However, Medicaid is there for people who are impoverished and have no other means of paying for care. In general, you must have less than $2,000 in total qualifying assets to receive Medicaid. Nevertheless, the law allows seniors to take advantage of numerous options to protect their assets and become eligible for Medicaid. From trusts to gifts, careful planning can protect assets and income that could perhaps be better preserved for other reasons, including an inheritance for children and grandchildren or to care for a disabled dependent.
What is the best way to ensure my money is safe?
Good planning is the best way to ensure these extreme long-term care expenses do not wipe out your life savings. Many people discover that they must have less than $2,000 and believe they can just give away everything to their children and qualify. This is incorrect. Medicaid has a look-back period of five years. Every transaction made in that time period is subject to scrutiny.
What happens if I gave away assets in the last five years?
When you are admitted to a nursing home and apply for benefits, Medicaid will look back at every transaction you made for the past five years, from purchases and gifts, to income and sales. Any impermissible transfer can trigger a penalty. Penalties are periods of time that you must wait before Medicaid funds will kick in to pay the bill.
How does Medicaid calculate my penalty period?
Let’s look at a common example. Say Steve enters a nursing home on January 1. The nursing home charges $8,000 per month. Within the last five years, Steve deeded his home, valued at $80,000, to his son. He also gave $8,000 to his daughter as a gift. He now has just a few hundred dollars technically in his name. Provided these transfers cannot be justified through one of the many exceptions permitted under Medicaid rules, Medicaid will likely penalize him the number of months relative to the amount given away. Here, Steve is probably going to have to wait about 11 months before Medicaid will start paying for care. ($88,000 total disallowed transfers ÷ $8,000 per month = 11 months). This is just a broad example, and each case will likely differ greatly. But it should illustrate how dangerous it is to make large transfers without the advice of an attorney who understands the rules.
What can be done to avoid the penalty period?
Anyone can suffer a crisis. A senior may have every intention of getting an estate plan put together but suffer a serious medical complication without warning. Likewise, one may have a perfectly good will, but it may not address Medicaid planning options.
The attorneys at the Millhorn Elder Law Planning Group in the Villages routinely work with seniors who find themselves in these tricky situations. For whatever reason, they did not get around to putting together a plan that protects their assets. While every case is unique, there are usually options that can at least minimize the effects of a penalty period. Sometimes it is as simple as knowing how to justify transfers under the correct regulations. Other times, it may be more complicated. Whatever the issue, your best option is to consult an elder law attorney as soon as possible to begin working on a solution that fits your situation.
