The New Jersey Medicaid office recently increased the penalty divisor used for calculating periods of ineligibility for Medicaid benefits. This is a good thing.
Medicaid is a health payment plan for needy individuals. To qualify for Medicaid benefits, an individual must have very limited assets (typically less than $2,000 in assets) and insufficient income to pay for the cost of his care. With a married couple, the spouse who does not need long-term care, called the “community spouse,” can retain certain assets for her own benefit, such as the home, a car, and a certain amount of cash.
Most people never think they will have to qualify for Medicaid benefits. Most people never think they will ever require long-term care. But the long-term care industry is a billion-dollar industry, not because people want to utilize the services of this industry, because people find the services of this industry to be necessary.
For instance, my mother always said to me, “Just shoot me if I need to go to a nursing home.” While there was some hyperbole in her statement, which she made to me numerous times, there was a lot of sincerity too. She adamantly did not want to go to a home, and she thought she never would.
My mom suffered several strokes and lived in a nursing home for six years before she died at aged ninety-four. If she were aware of the fact she lived in a nursing home for six years—and due to her mental state, she was not aware of her living arrangements—she would have been upset.
Long-term care is a necessary evil. No one wants to need long-term care, but sometimes, long-term care is the only option. It happens for many people and affects many families. It’s unfortunate, but true.
Needing long-term care is bad enough. The limitations on your life, on the lives of your family members. Paying for long-term care is adding insult to injury, and the insult can be quite expensive. Long-term care costs anywhere from $6,000 to $15,000 a month. The total cost of my mom’s care would have been $1,000,000. My parents were working class people. They didn’t have $1,000,000, so my parents would have been bankrupt and still unable to pay for the cost of my mom’s care if I hadn’t qualified her for Medicaid benefits.
Since Medicaid is for people who are financially needy, the Medicaid program punishes people who give away their assets during a specified period, called the “lookback period.” The lookback period is the sixty months (five years) that precede the date of application.
The Medicaid office asks an applicant to supply all of her financial statements for each month during the lookback period. A couple must supply the financial statements for the husband and wife. The Medicaid office is reviewing the monthly statements to see if the applicant (or her spouse) gave away any assets during the lookback period.
For instance, assume that Mrs. Smith applies for Medicaid effective July 2022. The lookback period will be from July 2017 to July 2022. Assume that Mr. and Mrs. Smith gave their son Joe $10,000 in October 2018, $20,000 in April 2019, and $15,000 in January 2022. The Medicaid office will aggregate these transfers, totaling $45,000.
The Medicaid office will then divide this transfer figure ($45,000) by a divisor figure of $11,232, which is based upon the statewide average cost of a nursing home in the state of New Jersey. The result is approximately 4 ($45,000/$11,232 = 4). That is the number of months that Mrs. Smith will be ineligible for Medicaid benefits because of either Mr. Smith or Mrs. Smith giving $45,000 away during the lookback. The divisor figure is adjusted annually for inflation, and the figure recently increased by approximately $500, resulting in a shorter duration of a period of ineligibility for Medicaid benefits.
Only transfers made during the lookback can be punished. So, for instance, if the Smiths gave away $500,000 in June 2017, that transfer could not be punished by the Medicaid office, and therein lies a lot of opportunity to plan for Medicaid eligibility.