There are a lot of misconceptions out there as to this illusive Medicaid Look Back Rule and what it actually means. With this article, I hope to demystify this rule and give you some helpful information which you can apply to your lives moving forward.
This discussion is based on the current (June 2019) Medicaid rules in Pennsylvania. It is important to note that although Medicaid is a Federal program each state has implemented the program differently and may have different laws and requirements for Medicaid; this article is specifically dealing with Pennsylvania Medicaid Rules.
Despite the complexities within the Medicaid Rules itself, the look back rule is pretty straight forward. Currently, in Pennsylvania the look back rule is five years (it has not changed in some years now and there is nothing on the horizon which indicates the government is going to change it in the near future.) The five year look back is triggered when an individual is applying for Medicaid to assist with long-term care costs. The assistance office or whoever is reviewing your application will look back five years from the date of your application to see if you made any substantial gifts. As an example; your spouse enters a nursing home on June 28, 2019 and you spend down assets to the limit by September 6, 2019. On September 6, 2019 you apply for Medicaid Assistance, that application triggers the worker to look back into your assets five years to September 6, 2014.
Substantial gifts/transfers are those greater than $500 in a month, cumulative. Meaning that all gifts given in a particular month cannot exceed the $500 amount; this includes all gifts to children, church, grandchildren etc. Understandably, people get angry when we tell them there is this gift restriction, it is your money and you should be able to do with it what you please. Realistically you can, the government is not telling you, “No you cannot give to your loved ones or your church” what they are saying is that if you want us to come in and help pay for your long term care then you cannot give your money away in substantial transfers five years prior to when you may need care. However, if you have money to gift away and pay for your care, by all means gift away.
A misconception of the look back period is that if you gift away money or a home in that five year period it is an outright bar to Medicaid. Gifting within that five year period is not an outright bar but rather an individual is penalized.
The penalty an individual must endure is a denial of Medicaid benefits for a period of time. The penalty is based upon the amount of assets gifted during that five year period and how many days that would have paid for long term care. The state has a “penalty divisor” they use to make their determination and that divisor changes each year depending on the state average for a stay in a nursing home (2019 the divisor is $342.58).
As an example let’s say you signed your house over to your children (which I previously cautioned against in an earlier article) and gifted your grandchildren $5,000; in total you have given away $120,000 within the past five years. To figure out the penalty that will be applied to you, you take the $120,000 and divide that by the penalty divisor of $342.58 for a total of approximately 364 days. Meaning that you would have to use other assets or have others help you pay your long term care bill for approximately one year before Medicaid will pick up the bill. Once you get through that penalty period (364 days) Medicaid will pay for your care for the remainder of the time you are in the long term care facility (barring that you do not get kicked off the program for a different reason).
Moreover, one should know that the Rule is only five years; meaning when you apply for Medicaid you only have to discuss any gift made within those five years. You do not need to tell them that you transferred a car to your grandchildren five years and 6 months ago or 8 years ago, the government is only interested in the five years immediately preceding your request for benefits.
Engaging in trust planning or gifting more than five years before applying for Medicaid can be an effective strategy to protect assets from nursing home costs. Gifting ahead of time can reduce the amount of available assets an individual will have at the time a Medicaid application is completed. It is important to talk about trust planning and gifting with your elder law attorney if you are considering going down one of these paths. You should know all of the facts and have proper guidance before making a decision that could make you ineligible for such benefits in the future.