The Medicaid Transfer Penalty

The second major rule of Medicaid eligibility is the penalty for transferring assets. Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a penalty on people who transfer assets without receiving fair value in return.

This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state. The period of ineligibility starts on the first day of the month of the transfer. Example: If a Medicaid applicant made gifts totaling $90,000 in a state where the average nursing home bill is $5,000 a month, he or she would be ineligible for Medicaid for 18 months ($90,000 ÷ $5,000 = 18). Another way to look at the above example is that for every $5,000 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month. In theory, there is no limit on the number of months a person can be ineligible. Example: The period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 ÷ $5,000 = 80).

However, the state Medicaid agency may look only at transfers made during the 36 months preceding an application for Medicaid (or 60 months if the transfer was made to certain trusts). This is called the “look-back period.” Effectively, then, there is now a 36-month limit on periods of ineligi-bility resulting from transfers. This means that people who make large transfers must be careful not to apply for Medicaid before the 36-month look-back period passes.

Example: To use the above example of the $400,000 transfer, if the individual made the transfer on January 1, 1999, and waited until February 1, 2002, to apply for Medicaid — 37 months later — the transfer would not affect his or her Medicaid eligibility. However, if the individual applied for benefits in December 2001, only 35 months after transferring the property, he or she would have to wait the full 80 months before becoming eligible for benefits.

In Florida, there is a one-month penalty for every $3,300 transferred. However, with proper legal advice, the penalties can be minimized and a large portion of your assets can be protected, even if you or your loved one is already in a nursing home.