A recent decision of the Superior Court of New Jersey, Appellate Division, serves as a cautionary tale for those seeking to qualify for Medicaid benefits on their own. Medicaid is a health payment plan for needy individuals.
If a person qualifies for Medicaid, the program will pay for their long-term care needs, such as care in a nursing home. Nursing homes cost anywhere from $9,000 to $12,000 a month, so many people who never thought they might want to qualify for Medicaid find themselves being desirous of qualifying for the program when they require long-term care.
Being a means-tested program, an individual must have very limited assets in order to qualify for Medicaid benefits. In New Jersey, the asset limit is $2,000.
A natural instinct that people have is to give away their assets when they are failing and may need care. The idea being, if I don’t have the money, then I’ll qualify for Medicaid.
Obviously, the politicians who wrote the Medicaid laws are acutely aware of this natural inclination. So, they wrote certain provisions into the Medicaid laws that punish people for disposing of their assets.
The key provision addressing gifting in the Medicaid Act is commonly known as the “lookback period.” The lookback period is the period of time that begins five years before a Medicaid applicant files an application for benefits. In other words, if you file an application on September 1, 2015, the lookback period for that application will look back to October 1, 2010.
Assume that Mr. Smith files an application for Medicaid on September 1, 2015. The Medicaid office will ask for statements from all of his financial accounts for the time period beginning October 1, 2010, and continuing through the date when he is eventually determined to be eligible for Medicaid benefits.
Assume that Mr. Smith gave away $50,000 of assets during his lookback period. Assume that he gave $10,000 to each of his five grandchildren.
The Medicaid office will assess a penalty period against Mr. Smith for his having given away $50,000. A penalty period is a period of ineligibility for Medicaid benefits. If Mr. Smith is ineligible for Medicaid, then the Medicaid program will not pay for Mr. Smith’s long-term care expenses, and Mr. Smith will have to find another means of paying for his care in the nursing home, or face eviction from the nursing home.
The way the Medicaid program calculates a penalty period is by taking the gross value of the assets transferred ($50,000) and dividing that figure by a divisor number. The divisor number is supposed to equal the average cost of a nursing home room in the state of New Jersey. The current divisor figure is roughly $10,000. Taking the value of the gifts ($50,000) and dividing that by the divisor figure ($10,000) yields a result of 5, which is the number of months that Mr. Smith is ineligible for Medicaid, five months.
A penalty period can actually be unlimited in duration, so if Mr. Smith transferred $1,000,000 during the lookback period, he would be ineligible for 100 months, which is $1,000,000 divided by $10,000.
What the recent Appellate Division case tells us is that once a penalty period is assessed by the Medicaid office, that penalty period cannot be undone unless all of the assets are returned to the applicant. So, in other words, if Mr. Smith transfers $1,000,000 and applies for benefits within five years of that transfer, a 100 month period of ineligibility will be assessed against him.
Unless the entire $1,000,000 is returned to Mr. Smith, Mr. Smith cannot simply wait five years after the transfer and re-apply for benefits, hoping that Medicaid will forget about the 100 month penalty; they won’t forget about it. Once assessed, Mr. Smith now has to wait out the 100 month penalty period.
There are so many potential hazards to filing an application for Medicaid benefits that I believe most every person could benefit from legal advice before undertaking this task.
A Medicaid penalty period is not something that simply disappears with time. Once imposed, it can create lasting financial consequences that must be addressed before benefits begin. Careful planning and a clear understanding of the rules can help you avoid costly mistakes and protect your ability to access needed care.