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.
Medicaid penalty periods can create significant challenges for families already facing long-term care expenses. Understanding when a penalty period may be paused, delayed, or affected by changing circumstances can make an important difference in planning options and financial outcomes.