People are often surprised to learn that Medicaid imposes a penalty period for assets transferred in the five years immediately preceding the date of the Medicaid application.
A penalty period is defined as a period of time that a person will be ineligible for Medicaid benefits. The penalty period is calculated by taking the value of the transferred assets and dividing that number by the average cost of care per day, which New Jersey has estimated to be $357.67 (as of April 1, 2020). For example, a person who gifted $50,000 to his or her children during the last five years would receive a penalty period of approximately 140 days (50,000/357.67=139.793). The penalty period begins on the date you apply and are otherwise eligible for Medicaid benefits both financially and medically. During that time, full Medicaid benefits will not be provided. Some people may qualify for ancillary services during the penalty period, but the large out of pocket costs, such as room and board at a facility, will not be covered.
There are certain types of transfers of assets that are permitted by Medicaid, such as gifts or transfers made to your spouse or a dependent child; however, there are specific rules and regulations that need to be followed or these types of transfers could still affect a person’s eligibility or create a penalty period if not done correctly.
Examples of types of transfers of assets that will trigger a penalty are transferring personal property, monetary gifts, or giving a car away to a family member or selling it for less than market value. These types of transfers will always result in a penalty period unless the applicant can prove that the transfer was made for a purpose other than to qualify for Medicaid.
An example of a transfer for a purpose other than to qualify for Medicaid is as follows: you do your mother’s grocery shopping, pick up and pay for her prescriptions, and pay other bills for her using your own money and she repays you monthly for the monies you have paid out on her behalf. Your mother writes you a $2,000 check to reimburse you; however Medicaid does not know what this check was written for. To avoid a penalty, you would need to provide receipts and proof that you paid these funds on your mother’s behalf so that you could prove that the transfer of funds was a reimbursement rather than a gift.
It is important to remember that everything an applicant does in the five years immediately preceding the application will be heavily scrutinized. Knowing the financial story and keeping accurate records is key to ensuring that penalties will not be unnecessarily applied to your application.