Fourth Quarter 2019

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 penalty indeed.

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.

Understanding The Different Components Of Medicare Insurance

Medicare is a federal health insurance program for United States citizens and permanent residents who are 65 or older. It is also available to certain younger people with disabilities, people with End-Stage Renal Disease (ESRD), and people with Amyotrophic Lateral Sclerosis (ALS, also known as Lou Gehrig's disease).

Medicare provides insurance coverage through either Original Medicare (Part A and Part B) or private insurance companies contracted with Medicare. Here are brief definitions of the four main Medicare components.

Medicare Part A

This is the hospital insurance component of the federally administered Original Medicare program. It provides coverage for inpatient hospital services, short-term skilled nursing care, hospice care, and certain types of home health care.

Medicare Part B

Medicare Part B is the medical insurance component of the federally administered Original Medicare program aimed at diagnosing or treating medical conditions in an outpatient setting (such as doctor's office or outpatient surgery center). It covers physician fees, durable medical equipment, and some preventive services.

Medicare Part C

Also known as Medicare Advantage, Medicare Part C is administered by private insurance companies approved by Medicare. If you join a Medicare Advantage Plan, it will provide all of your Part A and Part B coverage. Medicare Advantage Plans typically offer extra coverage, such as dental, vision, hearing, and/or health and wellness programs. Medicare Advantage Plans can charge various out-of-pocket costs and use different rules for how a person obtains services.

Medicare Part D

This covers prescription medications. Like Medicare Advantage plans, stand-alone Medicare Part D prescription drug plans are offered by private insurance companies contracted with Medicare.

Many people also choose to purchase Medicare Supplement plans (also known as Medigap). These plans are available from private companies and cover costs that Original Medicare does not, such as deductibles, copayments, coinsurance, and other out-of-pocket costs.

It is important to note that Medicare open enrollment runs from October 15 to December 7. During Medicare open enrollment, you can:

Change Medicare Advantage plans
Switch from Medicare Advantage back to Original Medicare, or vice versa
Join a Medicare Part D prescription drug plan
Switch from one Part D plan to another
Drop Medicare Part D coverage

If you make these changes now, they will take effect on January 1st, 2020.

Some flexibility to the traditional open enrollment period was added in 2019, but only for people who have coverage under Medicare Advantage plans. The Medicare Advantage open enrollment period runs from January 1 to March 31 and allows Medicare Advantage enrollees to either switch to Original Medicare (plus a Part D plan if they wish) or switch to a different Medicare Advantage plan. Enrollees are only allowed to make one change during this three-month window. For example, you can't switch to a Medicare Advantage plan in February and then switch again to a different one in March.

You can learn much more about Medicare by visiting www.medicare.gov.