Let's Take A Look At Medicaid's Look-Back Period
When an individual applies for Medicaid to pay for long-term care, his or her eligibility depends upon meeting Medicaid's asset limit. Simply put, a successful applicant cannot have
more assets than the limit established by Medicaid.
The Medicaid look-back period was created to prevent applicants from giving away assets, or selling them for less than fair market value, in an attempt to meet the asset limit and
become eligible for Medicaid. From Medicaid's perspective, assets that were given away or sold below market value could have been used by the applicant to pay for long-term care
out-of-pocket. If Medicaid discovers that an applicant has violated this rule, a penalty period will be instituted.
The penalty period is the amount of time during which the applicant will not be eligible for Medicaid.
The look-back period begins on the date a person applies for Medicaid. In 49 states and Washington, D.C., the look-back period is five years. In California, it is 30 months. So, for
example, if you reside in any state other than California and apply for Medicaid on January 1, 2020, your look-back period goes back 60 months to December 31, 2014. Financial
transactions made during this period of time will be subject to review. (Transactions made before the look-back period will not be reviewed, nor are they subject to penalty.)
Many seemingly innocent transactions can lead to a penalty: a college graduation gift to a granddaughter; a vehicle donated to charity; even payments made to a professional
caregiver without a formal care agreement in place.
In addition, assets gifted, transferred, or sold for less than fair market value by a non-applicant spouse can violate the rule and result in the applicant being penalized.
To make matters more confusing, while the federal government sets basic parameters for Medicaid, each state is allowed to operate within these parameters in its own way. As we have
seen, California's look-back period is only 30 months.
Additionally, the "penalty divisor" used to calculate penalties for those who violate the look-back period also varies by state.
The penalty divisor is tied to a state's average cost of nursing home care. Some states use a monthly average, others use a daily average. Similarly, some states don't enforce the
look-back period for in-home care, or they don't penalize applicants for small gifts made during the look-back period.
Calculating the penalty period: How the penalty divisor works in practice.
Let's say your local Medicaid agency has determined that you sold your home to your son for $100,000 less than its fair market value within the five-year look-back period.
To calculate your penalty--the amount of time during which you will be ineligible for Medicaid--the agency will divide $100,000 by the average monthly cost of nursing home care in
your area. For the sake of discussion, let's use the average monthly cost of a private room in a nursing home in the United States: $8,365. In this hypothetical example, Medicaid
would calculate your penalty as follows:
$100,000 ÷ $8,365 = 11.95
Therefore, you would be ineligible for Medicaid for almost 12 months, meaning you would have to cover the cost of nursing home care out-of-pocket for nearly a year... a significant
The rules surrounding Medicaid eligibility and the look-back period are complicated. Although some asset transfers are allowed under certain circumstances, and there are ways to
make gifts without violating look-back period rules, the risks of doing so improperly are high. We can design a plan to protect your assets against the high cost of long-term care
while helping to ensure you receive the care you need.