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The Lookback Period vs. The Penalty Period

Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.

Those who have been around Medicaid planning for a while know that a transfer of assets could have a negative effect on a client’s eligibility.  When determining if a transfer of assets has occurred, and what the eligibility impact that transfer will have on the client, two important figures one must consider are the lookback period and the penalty period.

 

Medicaid rules say that if a person has transferred assets within the last 5 years, known as the lookback period, that person, when otherwise eligible for Medicaid, will be subject to a period of ineligibility, known as the penalty period, based upon the total amount transferred within the 5-year lookback period.  These concepts can easily be confused, so, what exactly is the difference between the lookback period and the penalty period?

 

The lookback period refers to the past:

What transfers have already occurred within the last 5 years when an applicant is ready to apply for Medicaid?

 

The penalty period refers to the future:

If there have been transfers within the 5-year lookback period, how long will an applicant be ineligible for benefits after applying for Medicaid?

 

To understand these concepts a little more, consider the following:

 

The Lookback Period

The lookback period is the 5-year period before one applies for Medicaid.  Caseworkers will “look back” over the last 60 months to determine if any uncompensated transfers of assets or gifts have occurred.  These assets could have otherwise been used to continue privately paying for an applicant’s care, therefore, if any transfers have been made within the lookback period, the applicant will be ineligible for a certain period of time, based upon the amount transferred.  This is significant in that clients who may not be aware of this rule could be transferring assets to others without realizing the consequences that could occur should they need long-term care in the near future.

 

Consider Carl.  Carl is an 80-year old widower in a Mississippi nursing home and wants to apply for Medicaid.  Unaware of Medicaid’s policy on the uncompensated transfer of assets, Carl has been making gifts to his children in the amount of $20,000 each year since 2010:

DATE AMOUNT
January 1, 2010 $20,000
January 1, 2011 $20,000
January 1, 2012 $20,000
January 1, 2013 $20,000
January 1, 2014 $20,000
January 1, 2015 $20,000
January 1, 2016 $20,000

 

Carl has transferred a total amount of $140,000.  When the caseworker reviews Carl’s Medicaid application, what is the total amount that will be considered an uncompensated transfer of assets?

DATE AMOUNT WITHIN THE LAST 5 YEARS?
January 1, 2010 $20,000 No
January 1, 2011 $20,000 No
January 1, 2012 $20,000 Yes
January 1, 2013 $20,000 Yes
January 1, 2014 $20,000 Yes
January 1, 2015 $20,000 Yes
January 1, 2016 $20,000 Yes

 

Though Carl has transferred a total of $140,000, for Medicaid purposes, he will only be determined to have transferred a total of $100,000 because that is the total amount transferred within the 5-year lookback period, and this is the total amount Carl will be penalized for.

 

The Penalty Period

The penalty period is the period of ineligibility an applicant is subject to when he or she has transferred assets within the lookback period.  The penalty period is calculated based upon the total amount an applicant has transferred, and can only begin once an applicant is deemed “otherwise eligible” for Medicaid benefits aside from the transfer.  Each state has a different Divestment Penalty Divisor, and this is the other figure needed to calculate the penalty period.  The Divestment Penalty Divisor is the average cost of a facility’s monthly private pay rate in that state.  Technically, there is no cap on how long one’s penalty period can be.  It is solely based upon the amount transferred, no matter how small or large, and the state’s Divestment Penalty Divisor.

 

Consider Carl again.  As we determined above, Carl has transferred a total of $100,000 within the lookback period.  He transferred an additional $40,000 in 2010 and 2011, however, because these transfers occurred over five years ago, Carl will not be penalized for this amount.  As we also learned above, Carl is a resident of a Mississippi nursing home.  Mississippi’s Divestment Penalty Divisor is $6,250.  To determine Carl’s penalty period, we will divide the total amount transferred within the lookback period ($100,000) by Mississippi’s Divestment Penalty Divisor ($6,250).  Carl will have a penalty period of 16 months.  This means Carl will have to continue to privately pay for his care for the next 16 months before he is eligible to receive Mississippi Medicaid benefits.

 

What does this mean for your clients?

Many clients are unaware of Medicaid’s rules regarding transferring or gifting assets, or many may have misconceptions regarding the rules.  For example, some clients may think that any transfer of assets creates a 5-year penalty period, or some may not be aware of the lookback period and think all previous transfers will result in a penalty.  It is especially crucial that you, as the client’s Medicaid planning expert, understand the difference between the lookback period and penalty period, and understand how each affects your client’s Medicaid eligibility.  Your clients may also have questions on what to do during the penalty period and how to pay – after all, the penalty period cannot begin until the client is otherwise eligible for Medicaid.  This is where we come in.  Call us today to learn more and see how we can help!

 

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  1. Avatar Gene Osofsky says:

    Excellent article which clearly points out the difference between the two concepts.

  2. Avatar Linda How says:

    Excellent article! I find that visual aids also help clients. In my Workshops, I use a toy locomotive (the Medicaid Train). The look-back period is represented by five pieces of track behind the Medicaid Train. I then put miniature gift bags on the tracks and beyond the tracks. The penalty period is a toy slinky blocking the path of the Medicaid Train. The slinky stretches to a length of time determined by how much was given away, but only for the gift bags ON the tracks.

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