When a person applies for Medicaid, they are subjected to the lookback period. Because this is a needs-based program, the participants can’t try to give things away in order to meet the eligibility requirements. The caseworker who reviews the application goes back five years to see what the person’s done with their assets.
If a person has given away or sold considerable assets, they can face a penalty for doing so. Medicaid will look at the value of the assets given away or sold. This is then divided by the penalty divisor to determine how long the person will be disqualified.
The penalty divisor is based on the average cost of long-term care in New Jersey. As of April 1, 2019, the daily penalty divisor is $351.84. This means that one day of coverage is removed from the start date of Medicaid for every $351.84 the person gave away or sold during the five-year lookback period. Once the number of penalty days passes, the coverage for Medicaid can start.
There are some limits to what counts against the person for Medicaid coverage. There are also some asset planning tools that might be beneficial to individuals who are going to need to receive Medicaid coverage. It’s best to try to get things in order well in advance of your need to apply for Medicaid.
The issue that comes up is when there isn’t time to do this. Working with someone who is familiar with making estate plans work for these situations may help you ensure your loved ones are cared for while still receiving the coverage you need.