Medicaid Look Back Periods and Penalty Periods: What you need to know about how they work

Many people are interested in Medicaid Planning and have heard of the term “look back period.”  They often are unsure what it means and how long the period lasts.  Below is a series of questions and answers to help demystify the operation of the Medicaid look back period.

What is the Medicaid look back period?
The Medicaid look back period is the period of time for which you have to provide financial records if you apply for Medicaid to pay for nursing home care.

How long is the look back period?
The look back period is five years from the date of a Medicaid application.  If you apply for Medicaid to pay for nursing home care on April 1, 2020, you would need to provide the Department of Social Services (DSS) with financial records going back to April 1, 2015.

What type of records would I need to provide?
It depends, but generally all your financial statements, i.e. bank statements, annuity statements, retirement account statements, and any other statements you receive that show the details of your financial history for the prior five years.  Additional required records may include items like copies of checks, statements of sale for real property, or cash value statements for insurance policies.

Why do I need to provide all this information?
DSS is looking to see if you gifted away any of your assets during the five year look back period.  For example, if they see a check for $10,000 from you to your child one year ago, they will want to know if that represents a gift from you to your child.

What happens if I did make a gift to my child in the last five years?
Generally speaking, gifts to your child during the look back period will result in a penalty period.

What is a penalty period?
A penalty period is an amount of time which will delay the onset of your Medicaid coverage.

How are penalty periods calculated?
The amount of the gift you made is divided by the transfer rate for our region, which is set by the state.  In our region, the transfer rate is $11,295.  In order to calculate a penalty period, you take the amount of the gift and divide it by the transfer rate.  The resulting figure is the penalty period, in months.  For example, if you made a gift of $22,590 to your child in the last five years, then your Medicaid coverage will be delayed for two months ($22,590/$11,295 = 2 months).

Are all gifts considered when calculating a penalty period?
No.In our area, gifts less than $2,000 are generally not considered when DSS calculates the penalty period.  The $2,000 level is not a legal limit, but rather a general guideline customarily used.  As a result, smaller gifts – the type of which most people might make in the course of their life, are not counted.  An example would be regular gifts to friends and family of $50 or $100 for birthdays, holidays, and other special events.

Do all gifts in excess of $2,000 result in a penalty period?
No.Gifts made to a spouse are exempt transfers and are not subject to a penalty period.  However, you cannot simply make gifts to a spouse in order to reduce your assets and become eligible for Medicaid.  If you are applying for Medicaid, your spouse will only be able to have a certain amount of assets in his or her name.  If you gift your spouse an amount over that limit, those funds will generally need to be spent down on your nursing home care before Medicaid coverage will start.

Are there any other people that can receive exempt transfers?
Yes.Any transfers you make to your disabled child are exempt.  You must take care, however, not to transfer an amount of assets to a disabled child that would make them ineligible for benefits they are receiving in their own name.

Are there any other types of exempt transfers?
Yes.It is an exempt transfer if you transfer your interest in your home to your spouse, your minor child, your disabled or blind child, your caregiver child, or your adult sibling who has an equity interest in your home. 

What is a caregiver child?
A caregiver child is a child who has lived in your home with you for at least two years and has provided care to you that has allowed you to stay at home and not move to a facility, such as a nursing home.

When does an adult sibling have an equity interest in my home?
When he or she has lived there for a year and is on the deed or has made other certain significant contributions to the property.

Understanding and navigating the Medicaid rules on gifting can be very challenging.  If you or a loved one is considering applying for Medicaid for nursing home care or engaging in Medicaid planning, it is advisable to contact an experienced professional to discuss how the Medicaid rules apply in your situation.

Matthew J. Dorsey, Esq. is a Partner with O’Connell and Aronowitz, 1 Court St., Saratoga Springs.  Over his twenty-three years of practice, he has focused in the areas of elder law, estate planning, and estate administration. Mr. Dorsey can be reached at 518-584-5205, mdorsey@oalaw.com and www.oalaw.com.