If the resident has given away assets in order to spend down to the required financial qualification level, the gift may create a waiting period during which the resident will be ineligible for Medicaid.  This waiting period, often referred to as the "penalty period," begins in the month the gift is made.  The length of the waiting period is determined by dividing the value of the income or assets given away by a "penalty divisor" which is roughly equivalent to the average monthly cost of a private nursing home room.

Because the penalty divisor is based on the cost of nursing home care, the Department of Public Welfare must revise it from time to time.  The Department has announced that the penalty divisor will increase, effective July 1, 2005 , to $6,062.35.  This new divisor applies to applications for Medicaid benefits which are filed on or after July 1^st for nursing home care.  It also applies to applications for home care benefits under the PDA 60+ Waiver program.

Under the current rules, this new divisor means that a gift of $50,000 will create a waiting period of 8 months.  This method of calculating ineligibility, however, may soon change. Legislation is being considered which would impose fractional month penalty periods for asset transfers.  Under the current rules, no penalty period is imposed on partial months and the penalty period is "rounded down." Under the legislative proposal, using the above example, the penalty period would become 8.2476 months. By using the fractional month penalty periods, the already-confusing and complex Medical Assistance process will only become more complicated.  The change would produce only marginal savings to the Medicaid program.

In most cases, if a gift was made more than three years before the Medicaid application is filed, it need not be reported.  However, the reporting period can be extended to five years if a gift is made to or from a trust.  Persons who may need to apply for Medicaid and who want to make gifts should consult with an experienced elder law attorney.  Some gifts may be exempt from the transfer penalty rules. 

Incorrect understanding of the rules regarding gifts can create significant problems not only for the nursing home resident and his or her family, but also for the nursing facility.  Nursing facilities can end up with a resident who cannot pay for care but who is now ineligible for Medical Assistance due to gifts that were made.  Everyone benefits if expert guidance is obtained.

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