What is the 5 Year Lookback Rule for Medicaid?

If you or a loved one anticipates the need to apply for Medicaid in the near future, you need to be aware of the eligibility requirements.  The requirement that generally causes people the most anxiety is referred to as the “5 year Lookback rule” for Medicaid.  This is actually a penalty period that can be applied to any applicant for long-term care through Medicaid.  If the penalty applies to you, it could result in a substantial delay of benefits.

Why is there a penalty period?

In order to be eligible to receive Medicaid benefits for long-term care, all of an applicant’s other payment sources must be exhausted.  That is because Medicaid is considered a “payer of last resort.”  In other words, Medicaid will not start paying for long-term care expenses until other payment sources have been used.

As such, an applicant for Medicaid is not allowed to give away property or assets just before filing an application. Any transfers of property that you made will be scrutinized by your state’s Medicaid agency for the last five years.  These transfers may result in the penalty referred to as the 5 year Lookback rule being applied, and your benefits delayed.  This penalty period does not apply for acute health care, including hospital treatment or physician services.

Why does Medicaid examine my property transfers?

Unfortunately, some individuals attempt to give away all of their assets to relatives, for example, in anticipation of applying for Medicaid.  The purpose is to reduce the value of their estate, so they are not required to use the majority of their assets in order to pay for long-term care.

Understandably, Medicaid frowns upon this behavior because, as they see it, those assets could have been used to pay for the individual’s own care.   So, laws have been passed to discourage such actions by creating substantial penalties for giving away assets within five years of filing a Medicaid application.  The Deficit Reduction Act, passed in 2005, is a federal law that requires each state’s Medicaid agency to impose this period of ineligibility. 

Are all transfers subject to the penalty?

Medicaid generally defines the term “asset transfer” very broadly, so that it includes transactions such as the sale of any assets for less than fair market value, charitable donations and forgiving a debt someone owes you.

How does the 5 year Lookback rule work?

The “look back” period begins when you apply for Medicaid.  The length of time you are considered ineligible is called the “penalty period.”  The length of the penalty period depends on the value of property you transferred.  Your state’s Medicaid agency determines the amount of time by dividing the amount or value of the assets you transferred, by the average monthly cost of nursing home care in your area.  So, for instance, if you transferred a house to your granddaughter that was worth $100,000, and the average cost of nursing home care in your area is $10,000 a month, then your penalty period would be 10 months.

If you have questions regarding Medicaid planning in Fayetteville, or any other estate planning needs, please contact Wilcox Attorneys, PA online or by calling us at (479) 443-0062.