Last year, I filed a federal lawsuit against the state of New Jersey. In the lawsuit, I demanded that the State use an accurate divisor number in calculating the penalty period for asset transfers that occur within the Medicaid lookback period. I am happy to report that this past week, I was able to negotiate a settlement with the State. The settlement I was able to reach with the State will have a significant impact on the Medicaid program in this State.
As an elder law attorney, clients frequently ask me to qualify them for Medicaid benefits. Medicaid is a health insurance program for needy individuals; however, unlike most health insurance programs, Medicaid will pay for long-term care costs, such as nursing homes and assisted living residences.
In order to be “needy,” a person must have limited assets and income that is insufficient to pay for the cost of his care. For instance, if Mr. Smith is residing in a nursing home that costs $12,000 a month and his income is only $1,000 a month, then his income is insufficient to pay for the cost of his care. If his assets are below $2,000, then he is financially eligible for Medicaid.
Because Medicaid is only available to needy individuals, some people who are seeking to qualify for Medicaid benefits try and give their money away to family members. The belief is, if Mr. Smith simply transfers his assets to his children, he will be financially eligible for Medicaid.
The people who wrote the Medicaid law thought about this basic human reaction and drafted provisions to the law to handle this contingency. Essentially, the laws governing the Medicaid program provide that if an applicant for benefits gratuitously disposes of his assets during the five years that proceed the application for benefits, then he will be rendered ineligible for Medicaid benefits for a period of time commensurate with a period of time that the gifted assets would have paid for his care in a nursing home. Stated otherwise, if you give away an asset, you will be ineligible for Medicaid for as long as that asset would have paid a nursing home.
The Medicaid Office reviews every applicant’s bank statements for the five-year period of time that proceeded the application. This is called the “lookback period.” If the applicant gave away assets (stocks, bonds, money, a bank account, a car, a house, etc.), then the Medicaid Office will aggregate the value of those gifts and divide the sum of the gifts by a divisor number. That divisor number is supposed to equal the average statewide cost of a nursing home room in New Jersey.
For instance, assume that Mr. Smith applies for Medicaid on December 1, 2013. The Medicaid Office will request bank statements for December 1, 2008, through December 1, 2013, or five years. Assume that Mr. Smith gifted $10,000 on March 4, 2009, $15,000 on June 7, 2010, and $25,000 on September 9, 2012, or $50,000 in the aggregate within the lookback period. The Medicaid Office will take that $50,000 figure and divide it by their divisor number, which is currently $7,787 and come up with a result of 6.4 ($50,000/$7,787 = 6.4). The result, 6.4, is the number of months during which Mr. Smith is ineligible for Medicaid benefits, because according to Medicaid, he could have used the $50,000 he gave away to pay a nursing home for 6.4 months.
The divisor the State uses, currently $7,787, should be accurate; it should actually reflect the cost of a nursing home room in New Jersey. I can assure you that a nursing home in New Jersey does not cost $7,787.
The settlement I was able to work out with the State compels the State to conduct a survey of every nursing home in New Jersey and calculate a divisor figure that is accurate. This suit will help a large number of people who apply for Medicaid benefits and made gifts during the lookback period.
While Medicaid rules often seem fixed, they can change when challenged in court. This settlement serves as a reminder that eligibility decisions are not always final and that legal action can have a significant impact on thousands of individuals and families.