If long-term care is in your future, you’ll probably consider at some point whether or not to apply for Medicaid. But before Medicaid officials will agree to pay for your future care, the first thing they’ll probably do is to take a look at your past – specifically, the last five years.
It’s commonly called the Medicaid look-back period, and it’s essential that anyone hoping to have Medicaid pay for their long-term care understand how it works. Simply speaking, Medicaid is the means-tested program funded by federal and state dollars that (among a range of other services) pays for what Uncle Sam calls long-term services and supports (LTSS) for those who qualify. The look-back period is designed to weed out fraud and to make sure those receiving care truly need it.
Look-back Period Prevents “Transfers of Assets for Less Than Fair Market Value”
According to the Medicaid website, those qualifying for benefits aren’t allowed to have transferred assets – cash and real estate, for example – for “less than their fair market value” during the look-back period. The rules are clear. “Medicaid beneficiaries who need LTSS will be denied LTSS coverage if they have transferred assets for less than fair market value during the five-year period preceding their Medicaid application,” says the website.
In other words, selling your home to your daughter for a fraction of its worth or giving your kids six-figure cash gifts to allow you to qualify for Medicaid will set off alarm bells at your state Medicaid office if those transactions took place less than five years from your application date. (But there are exceptions, as noted below.)
Avoid Penalties and Disqualification by Knowing the Rules
We wanted to take a deeper look at this issue. Our guide is this article from SeniorLiving.org in which editor Taylor Shuman and Social Security analyst Jason Milz have collaborated to shed light on the five-year lookback.
This article is intended purely as an overview. For information specific to your situation, you need to contact a qualified elder care attorney who knows Medicaid, someone like Aaron Paker at Life Point Law.
In their article, Shuman and Milz write, “The majority of nursing home residents receive some Medicaid assistance. When considering nursing home care or other senior living decisions, knowing about the Medicaid look-back period may help reduce the possibility of penalties or disqualification from Medicaid for a period of time.”
What Is the Medicaid Look-Back Period?
Shuman and Milz explain that anyone applying for Medicaid in order to have nursing care costs covered will undergo a period of financial scrutiny. As we noted above, Medicaid look-back period covers five years of financial transactions.
“In order to be eligible for Medicaid coverage of your nursing home costs, you must meet their requirements for limited income and assets,” say the authors. Medicaid is described as a “last-resort” means of paying for nursing home costs. The agency “requires that a nursing home resident first use other means of paying for care, before Medicaid begins providing coverage.”
Medicaid, they add, “looks back” over the previous five years to see if any assets were sold, given away, or transferred for less than their true asset value.”
Scrutiny Begins When You Apply, but Some Programs Are Exempt
As Shuman and Milz tell us, “The look-back period begins on the day that you apply for Medicaid. Financial transactions that occurred within the last five years, starting on this date, are subject to scrutiny and analysis by Medicaid.” Large transfers of assets may flag your application, restricting or delaying eligibility.
Milz adds that not all Medicaid programs are subject to this look-back period.
“The look-back period only applies to Nursing Home Medicaid and Home and Community Based Services (HCBS) Medicaid Waiver, but not to the Regular Medicaid program,” he writes. He notes that many low-income beneficiaries who might have qualified for regular Medicaid have elected not to apply due to misunderstanding about the look-back requirement.
The Medicaid Look-Back Period Can Trigger a Penalty Period
The mechanics of the look-back period are straightforward. During the application process, “the Medicaid eligibility worker asks if the individual recently gave away any assets, such as vehicles or money,” Shuman and Milz write. “The representative also asks if the person sold property for less than its fair market value at the time of the sale, within the past five years.”
Any transactions which took place before the five-year period are not reviewed or considered.
“If a transaction is found that Medicaid classifies as a violation,” the authors write, “a Medicaid Penalty Period will begin. During this period of time, you will be ineligible to receive Medicaid payment towards nursing home care. This period typically lasts for as long as the value of the asset could have been used to pay for nursing home care.” In other words, you’ll have to self-pay until the penalty period ends.
Penalty Period Can Stretch for Years Under Some Circumstances
Sometimes the penalty period can be relatively brief. For example, if qualifying care costs $5,000 per month and you were found to have given away $10,000 during the five-year lookback, you’ll be ineligible for Medicaid for two months. (“The penalty begins the month of the Medicaid application, not the month the individual transferred the property,” the article notes.)
But if you had transferred significantly more – say, $500,000 – you could potentially be required to self-pay for 100 months of care at $5,000 per month.
In any event, benefits can start when the penalty period is over. “The individual then potentially qualifies for Medicaid benefits after the Medicaid look-back penalty ends,” say the authors. “That qualification is contingent upon the person not transferring any assets in any months while serving the initial look-back period penalty.”
The Medicaid Look-Back Period Has Changed Through the Years
In their article, Shuman and Milz note that the Medicaid look-back period was initially three years in most states. But when the Deficit Reduction Act (DRA) of 2005 became law, the look-back period was extended to five years.
“California, which still abides by its 30-month look-back period, became the only state not to extend the look-back period from three years to five years,” they add..
Another rule change, however, had the effect of making the look-back period shorter for many applicants. The Senior Living article notes that the Medicaid look-back period previously started on the day the applicant transferred their assets. Now it begins 60 months prior to the date the person actually applies for Medicaid.
Medicaid Look-Back Exemptions Require Sound Legal Advice
Shuman and Milz conclude their article by noting some circumstances in which transferred assets within the look-back period don’t trigger a penalty.
For example, they note, “If your transferred asset is a home and you transferred title to your spouse, there is no penalty.” Similarly, the transfer of your home to your sibling can be penalty-free if your sibling has an equity interest in the home AND if he or she lived there for at least a year before you entered a nursing home.” (See how tricky these situations can become?)
If you have an adult child who lived with you for at least two years before you entered the nursing home, providing care so you could age in place for a time, you can typically transfer the home to that child without penalty. Some states also allow penalty-free transfer of a home if yoju have a child under age 21 who is blind or totally and permanently disabled.
The legal website NOLO points out that other exempt assets include household goods, personal effects, one automobile, and some pre-paid funeral plans.
None of Us Can Predict If or When We’ll Need Long-Term Care
“Five years is a long time,” Shuman and Milz write, “and none of us has a crystal ball. Of course, you hope that you or your loved one won’t need nursing home care in the future. But if it is even a slight possibility, make sure you avoid the kinds of transactions that Medicaid might deem to be violations of their regulations.”
Once again, we urge you to consult a professional Medicaid planner who is an elder law attorney. At Life Point Law, we stand ready to assist with your Medicaid-related questions.
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