Last month, we wrote about the Medicaid “look-back” period.  The look-back period is the five year period that starts on the date the Medicaid applicant files an application for long term care assistance and covers the five years immediately prior to that application date.  Transfers of assets for less than fair market value, (called “gifts” in this article), made during the “look-back” period can result in a “penalty period.”

What is the “penalty period?”  The “penalty period” is the period of time that a Medicaid applicant would otherwise be eligible to receive Medicaid services but, instead, is ineligible because of a gift made during the “look back” period. 

How long is the “penalty period?”  The length of the penalty period is calculated by dividing the amount of the gift by what is called the “average monthly cost of care” for penalty calculations.  As of July 1, 2013, the “average monthly cost of care” for penalty calculations in Connecticut was $11,581.00.  This figure changes every July 1. 

Example 1: John transferred his home, valued at $115,810.00, to his daughter on December 15, 2011. John enters a nursing home on April 1, 2014 and applies for Medicaid on April 4, 2014.  The gift of the home, $115,810.00, must be reported on the Medicaid application and will result in a penalty period of 10 months ($115,810.00 divided by $11,581.00 = 10 months).  Medicaid will not pay for John’s nursing home care for 10 months.     

When does the penalty period start?  The penalty period starts on the date that (1) you have applied for Medicaid; (2) you are receiving services that would be covered by Medicaid; and (3) you otherwise would be eligible for Medicaid but for the fact that you made a gift during the look back period.

Who pays for your care during the penalty period? In most circumstances you and your family will need to put together resources to cover the cost of care during the penalty period. The nursing home may be willing to work with you, but you should not assume that will happen.  Also, Connecticut statutes give nursing homes and the Attorney General the right to attempt to recover the gifted assets from the recipient in particular circumstances.

The moral of the story? As we said last month, timing is everything and strategizing is crucial. Smart planning often will allow a family to work around a gift that otherwise might create a penalty period.

If you are interested in learning more about how the penalty period could affect you and your family please contact the office.  We would be glad to meet with you for a no hassle, no charge initial consultation, no matter how long it lasts.