How Medicaid Calculates the Penalty Period for Look-Back Violations

Last updated: July 10, 2024

 

Medicaid Look Back and the Penalty Divisor

  If you are already familiar with the Look-Back Rule, skip ahead.

To properly explain the Medicaid Penalty Period, it is important to understand Medicaid’s Look-Back Rule. When one submits a Medicaid long-term care application for benefits, a “look back” period of 60-months (in most states) begins in which the Medicaid agency checks to ensure no assets were gifted or sold for under fair market value. Generally, the Look-Back Rule applies to both Nursing Home Medicaid and Home and Community Based Services (HCBS) Medicaid Waivers. There is no “look back” for the Regular Medicaid Program. Specific to seniors, it is often called Aged, Blind and Disabled. See state-specific Look-Back Rules.

For Medicaid eligibility, there is an asset (resource) limit. In the majority of states, it is $2,000 for an applicant. (See state-by-state asset limits). If one has assets over Medicaid’s limit, they must “spend down” the “excess” assets 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. Doing so is known as a “disqualifying transfer”. If an applicant, or their 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.

Spousal transfers, in which assets are transferred from an applicant spouse to a non-applicant spouse, do not violate Medicaid’s Look-Back Rule. There are also other exceptions, such as the Caregiver Child Exemption and Sibling Exception.

 

What is the Medicaid Penalty Period?

The Medicaid Penalty Period, also called a Divestment Penalty Period, is a period 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, they would otherwise be eligible for long-term care Medicaid. The Penalty Period generally begins on the date one 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 might 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 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 their 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 Penalty Divisor, and some states use both. Penalty Divisors generally change annually, and the month in which they change vary based on the state. For example, Arkansas and New Jersey change their Penalty Divisors in April, Connecticut and Indiana change in July, and Massachusetts changes in November.

Medicaid Penalty Divisors by State (in 2024)
Medicaid Penalty Divisors by State (in 2024)
Alabama $7,300 per month
Alaska Varies by facility
Arizona $7,867.16 per month in Maricopa, Pima, & Pinal Counties / $7,319.03 per month in all other counties (eff. 1/1/24 – 9/30/24)
Arkansas $8,502 per month (eff. 4/1/24 – 3/31/25)
California $12,608 per month
Colorado $9,479.95 per month
Connecticut $14,060 per month (eff. 7/1/24 – 6/30/25)
Delaware $390.93 per day / $11,890.77 per month
District of Columbia $14,563.96 per month
Florida $10,438 per month
Georgia $10,025 per month (4/1/24 – 3/31/25)
Hawaii $8,850 per month
Idaho $324.20 per day / $9,726 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 $7,635 per month (7/1/24 – 6/30/25)
Iowa $290.88 per day / $8,842.75 per month (7/1/24 – 6/30/25)
Kansas $264.41 per day (eff. 7/1/24 – 6/30/25)
Kentucky $305.28 per day
Louisiana $213.70 per day / $6,500 per month
Maine $10,739 per month
Maryland $340 per day / $10,342 per month
Massachusetts $433 per day (eff. 11/1/23 – 10/31/24)
Michigan $10,870 per month
Minnesota $10,620 per month (eff. 7/1/24 – 6/30/25)
Mississippi $272 per day / $8,300 per month
Missouri $7,536 per month (4/1/24 – 3/31/25)
Montana $286.71 per day / $8,720.76 per month (eff. 7/1/23 – 6/30/24)
Nebraska Monthly private pay rate
Nevada $9,949.26 per month (eff. 4/1/24 – 3/31/25)
New Hampshire $388.21 per day / $11,809.35 per month
New Jersey $440.10 per day (eff. 4/1/24 – 3/31/25)
New Mexico $8,919 per month
New York Varies based on geographic location. Central $12,196 per month, Long Island $14,668 per month, NYC $14,273 per month, North East $13,235 per month, North Metro $14,165 per month, Rochester $14,419 per month, and Western $12,241 per month
North Carolina $237 per day / $7,110 per month
North Dakota $404.19 per day / $12,263.70 per month
Ohio $7,453 per month
Oklahoma $224.64 per day
Oregon $10,342 per month
Pennsylvania $379.65 per day / $11,547.69 per month
Rhode Island $335 per day / $10,190 per month
South Carolina $303.89 per day / $9,243.32 per month
South Dakota $286.36 per day / $8,709.81 per month
Tennessee $274 per day / $8,220 per month
Texas $242.13 per day / $7,339 per month
Utah $6,357 per month
Vermont $377.04 per day / $11,311.12 per month
Virginia Varies by geographic location. $9,268 per month in Alexandria, Fairfax, Falls Church, Loudoun, Manassas, Manassas Park, and Prince William. $7,023 per month in all other counties.
Washington $391 per day / $11,899 per month (eff. 10/1/23 – 9/30/24)
West Virginia $375.87 per day / $11,276 per month
Wisconsin $315.61 per day / $9,599.80 per month
Wyoming $8,671 per month

 

How to Calculate the Penalty Period

The length of penalization is personalized based on the amount a Medicaid applicant (or their spouse) gifted / sold under fair market value and the average cost of privately paid nursing home care in the state in which they reside. 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 gifted 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. 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.

  Example: Calculating Medicaid Penalty Period
Jim is a Florida resident and applies for long-term care Medicaid on January 2, 2024. 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. Jim has disqualifying transfers in the amount of $115,000 ($100,000 for the house + $15,000 gifted). In 2024, Florida’s Penalty Divisor is $10,438 / month; for every $10,438 gifted or sold under fair market value, Jim will be penalized with a month of Medicaid ineligibility. Therefore, Jim will be penalized with 11.01 months of ineligibility ($115,000 ÷ $10,438 = 11.01 months).

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 care Medicaid until the Look-Back Period is over. To be clear, anything gifted or sold under fair market value prior to the “look back” is not relevant. Stated differently, it won’t impact one’s Medicaid eligibility.

Medicaid Planning Professionals can assist one in 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, they have to pay for long-term care during the Medicaid ineligibility period. This, unfortunately, puts the applicant in an extremely difficult situation. Remember, for one to be eligible for Medicaid long-term care, they must have limited income and assets. If the applicant did not have limited financial means, they would not have otherwise qualified for Medicaid, and hence, be penalized with a Penalty Period for violating Medicaid’s Look-Back Rule. Commonly, it is the applicant’s family that covers 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 plus any state supplement (if applicable). This reduction in payment leaves one with even fewer funds to help assist with the cost of their long-term care.

 

What Options are There to Fight a Penalty Period?

If an applicant has violated the Look-Back Period, they 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. Not all states allow a partial return of funds. If a state does allow a full or partial return of assets, the Medicaid applicant will 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 they have violated the Look-Back Rule and has been denied eligibility for this reason, it is possible to file an appeal.

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. Of course, with this option, there are many considerations to be taken into account. Learn more about applying for Medicaid out of state .

 CAUTION: Prior to taking any course of action, it is strongly recommended that one contact a Medicaid Expert for assistance. These professionals are very knowledgeable about Medicaid’s Look Back rule and penalization, including state-specific rules, and can help one plan and carry through the best course of action for one’s specific situation. Find a Professional Medicaid Planner.

Determine Your Medicaid Eligibility

Get Help Qualifying for Medicaid