A recent decision of the Superior Court of New Jersey, Appellate Division, has a familiar ring to it for me. The case involves the Medicaid program and its transfer of asset rules.

Medicaid is a health insurance program for needy individuals. In order to qualify for Medicaid benefits, an individual must have a limited amount of assets, typically less than $2,000.

Because an applicant for Medicaid benefits must have very limited assets and because many applicants would simply try and artificially impoverish themselves by gifting their assets to family members, Medicaid punishes applicants who give away their assets. Medicaid looks at gifts that were made during the five-year period prior to applying for Medicaid benefits. This five-year period of time is called the lookback period.

If an individual gives away assets prior to the five-year lookback period, then Medicaid cannot punish the applicant for having given away those assets. If an individual gives assets away during the lookback period, then Medicaid can punish those transfers.

Medicaid punishes a transfer by making the applicant ineligible for Medicaid benefits for a specified period of time. The more assets an individual gives away during the lookback period, the longer the period of ineligibility.

The period of ineligibility that results from a gift made during the lookback period is called a penalty period. A penalty period is calculated by aggregating all transfers that the applicant made during the lookback period and dividing that aggregate figure by a divisor number.

The divisor number is the statewide average cost of a nursing home room. Currently, the divisor figure is $9,535.

So, for instance, if Mrs. Smith gifted $10,000, $20,000, and $10,000 to her son, then Medicaid would aggregate those gifts ($40,000). Medicaid will then divide that aggregate gift figure by $9,535, resulting in roughly four months of ineligibility for Medicaid benefits ($40,000/$9,535 = 4).

Medicaid can only punish gifts that were made in order to enable the applicant to qualify for Medicaid. If the applicant can prove that she made the gifts for a reason exclusively other than to qualify for Medicaid, then Medicaid cannot punish the gifts.

The rules governing Medicaid establish several factors that the Medicaid office should consider in determining whether or not a gift was made for a reason other than to qualify for Medicaid. For instance, if the Medicaid applicant had a sudden onset of an illness after the gift (a stroke, for instance), then the Medicaid office might believe that the applicant made the gift and did not anticipate needing long-term care at the time she made the gift.

In a recent case entitled S.L. v. Division of Medical Assistance, the applicant was a 96 year old woman. She made several gifts to her family, and the Medicaid office assessed a penalty period against her. The court upheld the assessment of that penalty despite the fact that all the evidence showed that S.L. did not make the gift to qualify for Medicaid, that she was living independently at the time she made the gifts, and that she suffered a stroke after she made the gifts.

I have found that when an applicant is elderly, as many applicants for Medicaid are, the Medicaid office will not accept the argument that the applicant had a sudden onset of a illness, essentially opining that an older person should have anticipated their illness. In my opinion, this is an incorrect assessment of the law.

The law focuses on the applicant’s mindset, did she make the transfer for reasons other than to qualify for Medicaid? If she did, then the inquiry should cease there. Someone who is 96 and living independently may honestly believe that she will never be in a nursing home. She shouldn’t be punished simply because she is old.

Public benefit programs are often shaped by competing priorities and limited resources. As a result, policies that appear straightforward on paper can have very different effects on the people expected to follow them. Understanding those impacts is an important part of evaluating whether the system is working as intended.