Medicaid Transfer Penalty Rules

This entry was posted on January 15, 2016

A common misconception is that the Medicaid transfer penalty is five years. In reality, the five year rule is a "Look Back" rule. When you apply for Medicaid, the Medicaid Agency will review your finances for the five years immediately prior to the date of application. You will be required to provide five years of all your financial statements and five years of any real estate transactions.

When the Medicaid Agency reviews these five years worth of statements, if the caseworker discovers any questionable deposits and/or withdrawals from your accounts, he/she will provide you with a letter asking for an explanation to prove that no disqualifying transfers or gifts were made. If the caseworker does not accept your explanation, then he/she will impose a transfer penalty period of ineligibility based on the amount of the transfer.

How Medicaid Transfer Penalty Rules Impact Medicaid Eligibility in NY

Each county has its own standard for how large a deposit or withdrawal must be before the caseworker will question whether an improper transfer or gift has been made. Some counties, for example, only question withdrawals of $2,000 or more. Other counties question withdrawals of $1,000 or more. Most counties will question patterns of ongoing withdrawals regardless of the amount.

The transfer penalty is computed using an annual table provided by New York state using the average monthly rate of nursing home costs in each region. For example, in the region where Onondaga County is located, the average monthly rate in 2015 for nursing home costs was $8,768. For Monroe County, the average monthly rate for 2015 was $10,660.

Example: John is in a nursing home and applies for Medicaid in Onondaga County on November 1, 2015. The caseworker discovers during the five-year look-back period that he made a gift of $10,000 to each of his three grandchildren on March 15, 2011 for a total of $30,000. The transfer penalty would be $30,000 divided by $8,768 which would equal 3.4 months of ineligibility running from the November 1, 2015 date of application. This means he would have to pay privately at the nursing home until around the middle of February, 2016.

To make matters even more complicated, the Medicaid Agency won't start the transfer penalty running unless you are otherwise eligible for Medicaid which means, among other things, that your life savings, if you are a single person, must be $14,850 or less. This rule prevents people from applying for Medicaid just for the purpose of getting the transfer penalty started. You have to wait to apply for Medicaid until you are otherwise eligible but for the transfers.

Now, the question is: if John only has $14,850, how can he pay the nursing home bill from November 1, 2015 until mid February 2016? The cost of a nursing home in upstate New York is generally over $10,000 per month. $14,850 will not cover over three months of nursing home bills during the transfer penalty period. Most likely the nursing home will be looking to John's grandchildren to pay for the cost of care from the transferred funds. Since the transfer occurred almost four years ago in March, 2011, they may have spent the funds and be unable to return them.

As can be seen, the transfer rules can be very harsh and leave families in a difficult situation of being unable to pay the nursing home during the penalty period.

The five-year look-back rule is important because any transfers made more than five years prior to the date of the Medicaid application cannot be reviewed by the Medicaid caseworker and therefore cannot be penalized. Therefore, a serious mistake that people sometimes make is applying for Medicaid too soon before the five year look back period has expired. The following examples illustrate this problem of applying too soon.

An Example of Medicaid Transfer Penalty Rules Impacting Medicaid Eligibility

Example 1: Mary lives in Onondaga County and transferred $100,000 to her children on March 15, 2010. She entered a nursing home in November, 2014. Her life savings was depleted down to $10,000 on January, 2015. She applied for Medicaid on January 5, 2015. The Medicaid caseworker, looking back 5 years to January 1, 2010, saw the $100,000 transfer and penalized Mary based on the average regional rate formula discussed above: $100,000 / $8,768 = 11.5 months. Mary is not eligible for Medicaid coverage until 11.5 months from the January 5, 2015 date of application. The family will need to pay the nursing home bill for the next 11.5 months or risk being sued by the nursing home for non-payment.

Example 2: Using the same facts as Example 1, assume that Mary did not apply for Medicaid until April 1, 2015. During the period from January 1, 2015 to March 31, 2015, the children used their own funds to pay Mary's nursing home bills. They made sure the nursing home was paid and delayed applying for Medicaid until April 1, 2015. When the caseworker looks back 5 years to April 1, 2010, she will not see the $100,000 transfer that occurred in March, 2010 and therefore no transfer penalty will be imposed.

As can be seen from these two examples, the same $100,000 transfer will be treated much differently by the Medicaid Agency merely be delaying the date Mary applied for Medicaid.

Very severe transfer penalty results can occur if Medicaid is applied for too soon. Therefore, the best practice is carefully review five years of all financial statements and prepare explanations for all withdrawals and deposits that the Medicaid caseworker would be likely to question.

Get help navigating Medicaid transfer penalty rules to protect your Medicaid eligibility in New York. Contact us for a free consultation here.