Calculating a Just Penalty

Medicaid is a health payment plan for needy individuals.  What this means is, if a person qualifies for Medicaid, the Medicaid program will pay for many of the person’s health care needs.

In order to qualify for Medicaid, the person’s assets must be below a certain level, typically $2,000.  His income must be insufficient to pay for his care; for instance, if he is living in a nursing home costing $12,000 a month, then his income (Social Security, pension) must be less than $12,000 a month.  Finally, he must meet certain clinical criteria.  He must require hands-on assistance with three of the basic activities of daily living, such as clothing, bathing, toileting, eating.

If the person meets all three of those criteria, then he can qualify for Medicaid.  If he is residing in a nursing facility, the Medicaid program will pay for most of the costs associated with his care at the nursing home.  Medicaid will also help pay for care in an assisted living residence and at home.

When a person applies for Medicaid, the Medicaid Office requests financial documents for the past five years.  Essentially, the Medicaid Office is performing a forensic accounting of the applicant’s finances for the past five years.  The Medicaid Office is looking to verify that the applicant has less than $2,000 in assets currently and that the applicant has not given away any assets in the past five years.

If the applicant has given assets away in the past five years, then he will be rendered ineligible for Medicaid for a period of time.  The more the applicant gave away in the past five years, the longer the period of ineligibility.  The period of ineligibility is called a “penalty period.”  During a penalty period, the applicant must pay for his care privately; Medicaid will not pay for his care during the penalty period.

A penalty period is calculated by taking the aggregate assets that the applicant gave away during the five years immediately preceding the date of his application, called the “lookback period,” and dividing that figure by a penalty divisor figure that the State publishes every year.

The divisor is supposed to be based upon the average cost of a semi-private nursing home room in the state in which the applicant lives.  So, for instance, if the average cost of a nursing home is $400 in New Jersey, then the penalty divisor is $400.  If the applicant gave away $12,000 during the lookback period, then the applicant will be ineligible for Medicaid benefits for one month, because a $400 daily penalty divisor is equal to $12,000 a month ($400 * 30 = $12,000).    If the applicant gave away $24,000 during the lookback period, then he would be ineligible for two months.

Last year, in 2017, the state published a divisor figure that was $423 per day.  This year, the state is attempting to publish a daily divisor figure that is only $343 per say, or approximately $80 lower than last year’s divisor number.  This would result in longer penalty periods for people applying for Medicaid benefits because the divisor figure is lower.

This is odd because the cost of nursing homes in New Jersey keeps increasing every year.  The cost of a nursing home certainly did not decrease by 19% from 2017 to 2018 ($80/$423 = 19%).

There are several hundred nursing homes in New Jersey, and the divisor figure is supposed to reflect the average cost of care at all of them. From my perspective in Monmouth County, I can say that the cost of a nursing home ranges from $350 per day to $450 per day.  I think the state may need to look at the figures it is using again to ensure the accuracy of the divisor.

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