Can a Penalty Period Be Tolled?

Can an uncompensated asset transfer penalty be tolled once it begins?  The director of New Jersey’s Medicaid program correctly agrees that it cannot.

Medicaid is a health payment plan for needy individuals.  If an individual qualifies for Medicaid, the program will pay for many of the costs of his care.

There are several different Medicaid programs, but primarily, Medicaid programs can be broken down into community Medicaid and institutional Medicaid.  Community Medicaid is essentially health insurance for a needy individual.  Institutional Medicaid is for an individual who requires long-term care services, such as a home health aide, an assisted living residence, or a nursing home.

In order to qualify for Medicaid, an individual must have insufficient income with which to pay for his care, and he must have a limited amount of assets, typically less than $2,000.  Certain assets, however, are exempt, such as a home in which an individual resides, an automobile, and certain small policies of life insurance.

Applications for Medicaid are filed with the county board of social services for the county in which the applicant resides.  So, if you live in a nursing home in Monmouth County, you file your application for Medicaid benefits with the Monmouth County Division of Social Services.  When an individual applies for institutional Medicaid, his finances are reviewed during the five years that preceded the date of his application for benefits.  This review is commonly known as the “five-year lookback.”  So, for instance, if Mr. Smith applies for Medicaid on April 1, 2018, then the County asks for financial statements for the applicant’s finances back to May 1, 2013.

If the applicant made any uncompensated asset transfers during the five-year lookback period, then he can be rendered ineligible for Medicaid benefits for an unlimited period of time.  The greater the value of the assets that the applicant transferred during the lookback period, the longer the period of ineligibility for Medicaid benefits.

A period of ineligibility for Medicaid benefits is known as a “penalty period.”  The penalty period is designed to render the applicant ineligible for Medicaid benefits for a period of time that is commensurate with the period of time for which the money he gave away could have paid.

In order to begin a penalty period, an applicant must be eligible for Medicaid benefits in all ways except for the fact that he made an uncompensated asset transfer during the lookback period.

About twelve years ago, the federal government issued guidance on the Medicaid program, specifically, how a penalty period begins and when it ends.  According to the federal government’s guidance, once a penalty period begins, it cannot be tolled.  So, if Mr. Smith applies for Medicaid and it is discovered that he gifted $150,000 within the five-year lookback period, then the County will assess a one year penalty against him.  Mr. Smith will be ineligible for institutional level Medicaid benefits for one year and will have to private pay for the cost of his care during that period of time.

No matter what Mr. Smith’s finances are after the penalty period is imposed, the penalty period cannot be stopped.  So, if Mr. Smith inherited money during that one-year penalty period, the penalty would continue to run.  At the end of the penalty period, Mr. Smith might be ineligible for Medicaid benefits because he now owns the inherited money, but the penalty period would have run and could not be imposed against him again for the $150,000 of transfers that he made during the lookback period.

Applying for Medicaid

Medicaid is a health payment plan for needy individuals.  In order to qualify for Medicaid benefits, an individual must have limited assets and insufficient income with which to pay for his care.  If an individual qualifies for Medicaid benefits, Medicaid will pay for most of the costs of his care.  For instance, if an individual is in a nursing home and qualifies for Medicaid benefits, Medicaid will pay for his nursing home care; the Medicaid beneficiary will only owe a portion of his income to the nursing home.

For almost twenty years, I have been helping people apply for Medicaid benefits. I am uncertain how many people I have assisted in apply for Medicaid benefits during that period of time, but it is a great many.

You apply for Medicaid benefits with the county board of social services in which the applicant for benefits resides.  If the applicant were in a nursing home in Monmouth County, then he would file an application for Medicaid benefits in Monmouth County, even if his home were in Middlesex County.  The county acts as an agent for the state of New Jersey.  The State contracts with the County to handle applications for Medicaid benefits.

When you file an application for Medicaid benefits, the County will ask the Medicaid applicant to sign various forms.  Some of those forms permit the County to verify the applicant’s income and assets.  The County has the right to contact banks and other financial institutions.  The County could, for instance, obtain statements and information about financial transactions that the applicant made.

The County, through its computer system, also has access to information about an applicant.  For instance, the County could verify the applicant’s Social Security income and date of birth.

Just because you file an application for Medicaid benefits, it does not mean that you will ultimately be approved for Medicaid benefits.  In fact, the system is set up in a way that seeks to deny an application for Medicaid benefits.

If people know anything about the laws governing the Medicaid program, they know something about the five year lookback period.  The five year lookback period is the five year period of time prior to the date on which the application for benefits is filed.  The County is entitled to look at financial transactions that the applicant made during the lookback period.  If the applicant made any uncompensated transfers during the lookback period, he can be determined to be ineligible for Medicaid benefits for a period of time without limit.  The more money that the applicant transferred during the lookback period, the longer the period of ineligibility will be.

If the application process were simply set up to approve your application, there would be no scrutinizing of the application’s finances for the past five years.  There would simply be a verification that your assets are currently limited and that your income is insufficient to pay for your care.  But that is not what the application process is about.  The application is primarily about the lookback period and about closely reviewing the financial transactions that the applicant made during the lookback period, with an eye toward denying the application for benefits if the applicant made any uncompensated transfers.

Some people believe that since the County has the authority to access the applicant’s financial information—based upon the authorizations an applicant signs when he files his application—that the County has the obligation to obtain any financial information it wishes to see.  In other words, some people believe that the County ultimately has the obligation to obtain the applicant’s bank statements and other verification documents, not the applicant.  But a recent cases tells us that this is not the case.  In this case, the court held that the applicant has the obligation to provide the verifications the county requests, not the County.  If the applicant fails to provide the information, the applicant can and will be denied benefits.