Table of Contents
Medicaid Look Back and the Penalty Divisor
In order to properly explain the Medicaid penalty period, it is important to begin with a brief discussion of Medicaid’s look back rule. Essentially, when a Medicaid long term care applicant submits an application for benefits, a “look back” period of 60-months begins in which the Medicaid agency checks to ensure no assets were given away or sold for under fair market value. (California and New York have shorter look-back periods.)
For Medicaid eligibility purposes, there is an asset (resource) limit, which in the majority of states, is $2,000 for an applicant (see state-by-state asset limits). If an applicant has assets over Medicaid’s limit, he / she must “spend down” the “excess” assets in order to meet the limit, and hence, become asset eligible. When “spending down” assets, it is vital that one does not violate Medicaid’s look back rule by giving away countable assets or selling them under fair market value (this is known as a “disqualifying transfer”). If an applicant, or his / her spouse, has made a disqualifying transfer, Medicaid will assume the assets were transferred with the intention of meeting the asset limit. The penalty for violating Medicaid’s look back rule is a period of time in which one is denied Medicaid long term care benefits.
Please note that spousal transfers, or put differently, transferring assets from an applicant spouse to a non-applicant spouse, does not violate Medicaid’s look back rule. There are also other exceptions, such as the caregiver child exemption.
What is the Medicaid Penalty Period?
The Medicaid penalty period, also called a divestment penalty period, is the timeframe of Medicaid ineligibility that results from violating Medicaid’s look back rule. To be clear, this penalty is due to a Medicaid applicant gifting assets / selling them under fair market value during the look back period, and if not for this violation, he / she would otherwise be eligible for long term care Medicaid. The penalty period generally begins on the date an applicant applies for Medicaid and is denied for the sole reason of violating the look back rule; it does not start the date a disqualifying transfer was made. In some states, the penalty period could begin on the 1st day of the month in which one submits a Medicaid application and is denied. Once the penalty period is over, one can reapply for long term care Medicaid.
To avoid any confusion, it is important to mention the “marriage penalty”. While this penalty is relevant to persons receiving assistance via a government assistance program, such as Medicaid and SSI, it is not relevant to Medicaid’s look back rule and penalty period. Instead, the marriage penalty is referring to a beneficiary losing his / her benefits because the combined income and / or assets of the newly married couple cause the beneficiary to be ineligible.
What is the Penalty Divisor?
A penalty divisor, also called a divestment penalty divisor or a transfer penalty, is the average cost of private pay nursing home care in the state in which one resides. While perhaps obvious, the penalty divisor is not consistent from state to state, and sometimes even varies based on the geographic region within a state or is nursing home specific. Some states use a daily penalty divisor, some states use a monthly divisor, and some states have both a daily and monthly divisor. Furthermore, penalty divisors generally change annually.
Medicaid Penalty Divisors by State (in 2020)
|Medicaid Penalty Divisors by State (as of Sep.2020)|
|Alabama||$6,400 per month|
|Alaska||Varies by facility|
|Arizona||$7,533.59 per month in Maricopa, Pima, & Pinal Counties / $6,684.82 per month in all other counties|
|Arkansas||$5,871 per month|
|California||$10,298 per month|
|Colorado||$8,758 per month|
|Connecticut||$13,512 per month|
|Delaware||$335.72 per day / $10,213 per month|
|District of Columbia||$12,883.74 per month|
|Florida||$9,485 per month|
|Georgia||$8,517 per month|
|Hawaii||$8,850 per month|
|Idaho||$278 per day / $8,458 per month|
|Illinois||Varies based on the monthly private pay rate of the specific nursing home. Specific to the Supportive Living Program, the penalty divisor is $181 per day / $5,430 per month|
|Indiana||$6,681 per month|
|Iowa||$237.02 per day / $7,205.40 per month|
|Kansas||$220.50 per day|
|Kentucky||$199.46 per day|
|Louisiana||$164.38 per day / $5,000 per month|
|Maine||$8,476 per month|
|Maryland||$318 per day / $9,673 per month|
|Massachusetts||$367.21 per day|
|Michigan||$8,618 per month|
|Minnesota||$8,412 per month|
|Mississippi||$224 per day / $6,832 per month|
|Missouri||$6,425 per month|
|Montana||$252.18 per day|
|Nebraska||Monthly private pay rate|
|Nevada||$8,839.41 per month|
|New Hampshire||$343.79 per day / $10,458.09 per month|
|New Jersey||$357.67 per day|
|New Mexico||$7,480 per month|
|New York||Varies based on geographic location. Central $10,451 per month, Long Island $13,407 per month, NYC $12,844 per month, North East $11,295 per month, North Metro $12,805 per month, Rochester $12,460 per month, and Western $10,720 per month|
|North Carolina||$227 per day / $6,810 per month|
|North Dakota||$302.95 per day / $9,214.73 per month|
|Ohio||$6,905 per month|
|Oklahoma||$179.57 per day|
|Oregon||$8,784 per month|
|Pennsylvania||$352.86 per day / $10,732.83 per month|
|Rhode Island||$328 per day / $9,961 per month|
|South Carolina||$242.80 per day / $7,405.40 per month|
|South Dakota||$246.19 per day / $7,508.84 per month|
|Tennessee||$182.42 per day / $5,472 per month|
|Texas||$213.71 per day / $6,478 per month|
|Utah||$4,526 per month|
|Vermont||$319.85 per day / $9,595.61 per month|
|Virginia||Varies by geographic location. $9,032 per month in Alexandria, Arlington, Fairfax, Falls Church, Loudoun, Manassas, and Prince William. $6,422 per month in all other counties.|
|Washington||$341 per day / $10,374 per month|
|West Virginia||$331 per day / $9,930 per month|
|Wisconsin||$287.29 per day / $8,738.40 per month|
|Wyoming||$7,803 per month|
How to Calculate the Penalty Period
The length of penalization is personalized based on the amount a Medicaid applicant (or his / her spouse) has gifted / sold under fair market value and the average cost of privately paid nursing home care in the state in which one resides. Essentially, the penalty is equivalent to the length of time one would have been able to pay for long term care had money not been gifted or assets sold under fair market value.
To calculate the length of a Medicaid applicant’s penalty period, the value of all countable assets given away or sold under fair market value during Medicaid’s look back period (60-months in the majority of states) are added together. This amount is then divided by the penalty divisor to come up with the number of days / months / years for which one is penalized. (Remember, the penalty divisor is the average cost of private pay nursing home care in the state in which one resides). To be clear, the penalty divisor that is used is the current penalty divisor at the time of application; the penalty divisor at the time of the violation is irrelevant.
Jim, who lives in Florida, applied for long term care Medicaid on August 15th of 2020. Within the “look back” period of 60-months, Jim sold his home to his son for $20,000, much lower than the fair market value of $120,000, and gifted his granddaughter $15,000 for college. This means that Jim has disqualifying transfers in the amount of $115,000 ($100,000 for the house + $15,000 gifted). As of 2020, the penalty divisor in Florida is $9,485 / month, which means that for every $9,485 gifted or sold under fair market value, Jim will be penalized with a month of Medicaid ineligibility. Therefore, Jim will be penalized with 12.12 months of ineligibility ($115,000 ÷ $9,485 = 12.12 months).
Unfortunately, there is no limit to the length of penalty (ineligibility) an applicant can receive. If the penalty period would be significant (greater than the remaining look back period), it would be in one’s best interest to wait to apply for long term Medicaid until the look back period is over. To be clear, anything gifted or sold under fair market value prior to the look back period is not relevant. Stated differently, it won’t impact one’s Medicaid eligibility.
Medicaid planning professionals can assist one discovering and adding up the value of any disqualifying transfers, calculating how long a penalty period will likely be, and determining the best course of action. Find a Medicaid expert here.
Who Pays for Care During the Penalty Period?
When a Medicaid applicant is penalized with a penalty period for making disqualifying transfers, he / she has to come up with the money to pay for long term care during the Medicaid ineligibility period. This, unfortunately, puts the applicant in an extremely difficult situation. Remember, in order for one to be eligible for Medicaid long term care, he / she must have limited income and assets. If the applicant did not have limited financial means, he / she would not have otherwise qualified for Medicaid, and hence, be penalized with a penalty period for violating Medicaid’s look back rule. Therefore, if possible, it is common for the applicant’s family to cover the cost of long term care during the penalty period.
For applicants who receive SSI (Supplemental Security Income), reside in a nursing home, and have violated Medicaid’s look back rule, their monthly SSI payments are reduced to $30 per month. This reduction in payment leaves one with even fewer funds to help assist with the cost of his / her long term care.
What Options are There to Fight a Penalty Period?
If an applicant has violated the look back period, he / she might be able “cure” the penalty, or in other words, get funds back and eliminate or reduce the penalty period. If all of the money is returned, the state may eliminate the penalty period in its entirety, and if funds are partially returned, the length of the penalty period might be recalculated and reduced. Unfortunately, not all states allow a partial return of funds. Please note that if a state does allow a full or partial return of assets, the Medicaid applicant will then likely be over Medicaid’s asset limit and will not qualify for long term care benefits until the assets are “spent down” in a way that does not violate the look back rule.
Some states may allow an undue hardship waiver in the event that the money cannot be returned to the Medicaid applicant, although in reality, this happens very infrequently. This is because most states require that all possible legal courses of action be taken when attempting to recover the funds.
If an applicant does not feel he / she has violated the look back rule and has been denied eligibility for this reason, it is possible to file an appeal. Learn more here.
Another course of action that can be taken, although it is not fighting the penalty period, is to relocate to a different state with a shorter look back period or a lower penalty divisor. Of course, with this option, there are many considerations to be taken into account. Learn more about applying for Medicaid out of state here.