A colleague of mine recently had a victory for individuals applying for Medicaid that bears mentioning. Medicaid is a health payment plan for needy individuals. Medicaid is a federal and state program. The federal government pays for, at least, 50% of the costs associated with Medicaid. In order to participate in the Medicaid program, a state must agree to be bound by the federal rules governing the program.
In order to qualify for Medicaid, an individual must have limited resources (typically less than $2,000) and income that is insufficient to pay for the cost of his care. In other words, if Mr. Smith lives in a nursing home and owns $1,000 in assets and has monthly income of $1,500, then he could qualify for Medicaid because the cost of his care is probably in the neighbor of $12,000 a month; accordingly, his income and assets are insufficient to pay for the cost of his care. (If Mr. Smith had monthly income of $13,000 and his care cost $12,000, he would not qualify for Medicaid, but few people have income that high).
If an individual makes an uncompensated asset transfer within the five year period of time prior to applying for Medicaid, then he can be penalized for having made the transfer. The five-year period of time is commonly known as the “lookback period.” The lookback period is the only period of time that the Medicaid office can look at to see if the applicant made uncompensated asset transfers.
The manner in which Medicaid penalizes an applicant who has made an uncompensated transfer during the lookback period is by making the applicant ineligible for Medicaid for a period of time commensurate with the period of time the money transferred could have paid for his care. In short, for every $12,700 (approximate) that an applicant gives away during the lookback period, the applicant is ineligible for Medicaid for one month. The $12,700 figure is derived from the average cost of care in a nursing home in New Jersey. Essentially, what the government is saying with the penalty period is, “If you hadn’t given away that $12,700, you could have paid for your care in a nursing home for one month, so we are going to make you ineligible for Medicaid for one month.”
Although the state can only look at financial transactions that the applicant made during the lookback period, the penalty period can be unlimited in duration. So, for instance, if Mr. Smith gave away $1,000,000 three years prior to applying for Medicaid benefits, he would be rendered ineligible for Medicaid for months 78 months, which is $1,000,000/12,700 = 78.
Once a penalty period begins, it cannot be tolled. In other words, once the state imposes a penalty period, the penalty period does not stop running even if the financial circumstances of the applicant change. The federal government has told the various states this fact, so since the states must abide by the federal rules governing the program, the states, including New Jersey, must abide by this rule.
Recently, a county attempted to stop an imposed penalty period claiming that after the penalty period was imposed, the applicant’s income rose to a level that made him ineligible for Medicaid for several months. The county attempted to stop the penalty period from running during the months the applicant received a higher level of income
An administrative law judge ruled that because the federal government does not permit penalty periods to be tolled, the county could not toll the penalty period. This is the correct result because this is what the federal law on the issue states.
Medicaid penalty rules can be more complex than they first appear, especially when timing becomes an issue. Knowing how and when a penalty period applies can make a significant difference in planning for care.