Medicaid Transfer Penalty
This edition of the Koldin Law Center E-Newsletter begins a series about the Medicaid Transfer Penalty rules and the trap set for people who apply for Medicaid for nursing home care.
All prior newsletters are saved on our website. You can read them by clicking here.
If you are over age 65 and need long term care in a nursing home, there are two main requirements to qualify for Medicaid coverage:
1. Life Savings Limit
Your life savings must be down to the Medicaid eligibility level. You cannot have more than $15,900 in assets. If you have a spouse, he/she cannot have more than one-half (½) of your total life savings as of the date you entered a nursing home, but no less than $74,820 and no more than $130,380. (2021 figures) (Note: There are special rules regarding the family home which was discussed in prior newsletters)
If your life savings are above these figures, you must pay for the cost of your nursing home care (and for exempt items such as burials) until your life savings are down to these levels.
2. Transfer Penalty
Under the Medicaid law, any gifts you make within 5 years prior to applying for Medicaid coverage for Nursing Home costs, are presumed to be for the purpose of depleting your life savings in order to qualify for Medicaid.
When you apply for Medicaid, the caseworker will first determine if you have met the “Life Savings Limit.” If you have not met this limit, then you will be denied Medicaid coverage and the caseworker will not make a transfer penalty determination.
When you apply for Medicaid, if you have met the “Life Savings Limit,” the Medicaid Agency will then review your finances for the 5 years immediately prior to the date of application. You will be required to provide 5 years of all your financial statements and 5 years of any real estate transactions.
When the Medicaid Agency reviews these 5 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.
The transfer penalty is calculated by dividing the total transfer by a regional rate from the Medicaid tables. For 2021, the regional rate for the Central New York region, including Onondaga County, is $10,857.
The following example illustrates the “Medicaid Transfer Penalty Trap”:
Example: Husband entered a nursing home on August 1, 2021. The cost of nursing home care is $13,000 per month. He and his wife had combined life savings of $140,000 on the date he entered the nursing home. In May 2017, May 2018, and May 2019, they gifted $10,000 each to their son and daughter. The total gifts were $60,000 over this 3 year period.
Under this example, Husband can keep $15,900. Wife can keep one-half (½) of $140,000 which is $70,000 but since this is under the minimum, she will be allowed to keep $74,820.
This means that they have too much in savings to apply for Medicaid. $140,000-$15,900-$74,820 leaves them with $49,280 of excess life savings that must be spent towards the cost of nursing home care (or towards exempt items such as a burial fund) before he will be eligible for Medicaid coverage under the “Life Savings Limit” test.
Let’s now assume that Husband paid for the next 4 months of nursing home bills and used up all of the $49,280. Now he has passed the “Life Savings Limit” test and can apply for Medicaid on December 1, 2021.
Once the Medicaid caseworker has determined that Husband passed the “Life Savings Limit” he/he will now review 5 years of financial institution statements back to December, 2016. The caseworker will see the 6 gifts of $10,000 totaling $60,000.
A transfer penalty will be imposed by dividing $60,000 by the regional rate of $10,857 which equals a transfer penalty of 5.5 months of ineligibility running from December 2021 through mid May 2022.
Once the transfer penalty expires, Medicaid will begin paying the nursing home bills beginning around mid May 2022.
The Medicaid Transfer Penalty Trap is the question of how Husband is going to pay his nursing home bills from December 2021 through mid May 2022. Husband and Wife are now in a situation where they will have to pay for the nursing home bills from their $15,900 and $74,820 savings that they were allowed to keep as exempt funds.
Since the nursing home costs $13,000 per month, they will need to spend for 5.5 months totaling approximately $71,500 from their savings.
Notice that the $60,000 gifts resulted in $71,500 of nursing home payments due to this “Medicaid Transfer Penalty Trap.”
The message here is that this “Medicaid Transfer Penalty Trap” is very harsh and can cause your remaining life savings to be wiped out.
Steps must be taken to prevent this “Medicaid Transfer Penalty Trap” before you spend your life savings down to the Medicaid eligibility levels.
The next newsletters in this series will discuss your options for how to avoid this “Medicaid Transfer Penalty Trap” if you are already in a nursing home or if you are already ill and nursing home care is becoming imminent.
The Koldin Law Center, P.C. is available to help. We assist families in protecting their life savings even when someone is already in a nursing home.
For more information about Medicaid, please see our website by clicking here.
At the Koldin Law Center, P.C., located in East Syracuse, New York, we have over 50 years of experience helping individuals plan for immediate crisis and long term care. When the Koldin Law Center, P.C. handles a Medicaid case, we not only handle the entire application process, but we also review asset protection options with our clients. We review with our clients who are already in a Nursing Home options to protect some or all of their assets beyond merely establishing Medicaid eligibility. We do not charge a fee for the initial consultation. We welcome your children, family attorney, accountant, and/or financial planner to be present at the initial consultation.
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