Many people have heard that Medicaid has a 5 year look back period. But what does this mean? Clients often bring it up, but they rarely understand it.
The 5-year look back applies to long-term care Medicaid services
Medicaid is a large umbrella that includes many different programs. The 5-year look back applies to Medicaid’s long term care programs. This includes coverage for nursing home care and nursing-home-level care that is offered in the home.
Medicaid penalizes gifting
Long term care Medicaid benefits are intended only for financially needy applicants. You must meet certain income and resource requirements before you can obtain benefits. Because of this, some people try to intentionally impoverish themselves in order to achieve benefits. They might give all of their money to their children and then expect Medicaid (tax-payer dollars) to pay for their medical care. In an effort to prevent this “intentional impoverishment,” Medicaid penalizes gifting.
What is a gift?
A gift is an uncompensated transfer. If you pay a roofer to put a new roof on your house, this is not a gift. You were compensated for your money with a new roof. However, if you pay a roofer to put a new roof on your daughter’s house, this is a gift. You gave the money to the roofer but did not personally receive compensation.
Though most gifts are penalized, Medicaid permits gifting in certain circumstances. For example, gifting between spouses, gifting to a minor child, and gifting to a disabled child are all permitted transfers.
How does the penalty work?
When you apply for Medicaid, you must report all of your gifting within the last five years. Medicaid totals this gifting and then divides it by 5,933 (if you live in Alexandria, Arlington, Fairfax, Fairfax County, Falls Church, Manassas, Manassas Park, or Prince William County, the divisor is 7,734). The resulting number is the number of months for which you will be disqualified from receiving Medicaid benefits. This is called the penalty period. The penalty period begins to run at the time you would otherwise be qualified to receive benefits.
Example: Let’s say that on January 1, 2017, you were categorically, medically, and financially qualified for Medicaid. You also submitted your application. However, in August 2016, you gave your granddaughter $25,000 for her college expenses. In February 2015, you gave your son $30,000 to help with the down payment on his new house. And in May 2012, you gave your brother-in-law $8,000 to help with your sister’s funeral. Your total gifting for the last 5 years is $63,000. Divide this by 5,933 and you get 10.62. This means that you will not be eligible to receive Medicaid benefits until the end of October 2017.
What does this mean for me?
With this in mind, what is the best Medicaid strategy? Should you give your house to your daughter today, and hope that you can last 5 years before you need Medicaid? The answer is complex and it will depend on your specific situation. If you think that you may need Medicaid in the future, seek advice from an elder law attorney who is experienced with Medicaid. Your attorney can help you craft a plan that is specially fitted for your needs.