Medicaid is a needs-based program that takes into account income and assets. When applying for Medicaid, if an individual exceeds the income, asset or resource limit, he is ineligible. Especially when anticipating the need for long-term care, which Medicare does not pay for, some choose to reduce assets in order to quality for Medicaid. When transferring assets, it is essential to have an understanding of the look-back period.
Look-Back Period
The time period during which Medicaid can investigate assets transferred is termed the look-back period. During this time, Medicaid will examine any transferred assets to ensure that services or assets of equal value were received in return. If not, a penalty will be applied in the form of denial of benefits for a certain length of time. As of 2010, the look-back period is five years prior to the date of application.
Ineligibility Period
The ineligibility period is the penalty given for assets transferred without reciprocation during the look-back period. It is the length of time an applicant must wait in order to become eligible for Medicaid. The length of the ineligibility period is based on value of assets transferred. The monetary amount of the transfer is divided by the average monthly cost of nursing home care in the individual's state, resulting in the number of months the ineligibility period will last.
Deficit Reduction Act
The Deficit Reduction Act (DRA), which took effect February 8, 2006, was designed to cut the federal budget deficit and made several changes to the Medicaid asset-transfer rules. Most important, the look-back period was extended from three to five years. In addition, the start of the ineligibility period for transferred assets was changed from date of transfer of assets to date of the applicant entered the nursing home and would have otherwise been eligible for Medicaid.
Effective Date
The DRA effects asset transfers made after February 8, 2006. However, some states must have changes made to Medicaid programs approved by the Centers for Medicare & Medicaid Services before receiving federal reimbursement for Medicaid service coverage. For these states, a grace period was granted. The date the state legislature authorizes the modifications will become the effective date of the new transfer rules.
Planning Strategies
Long-term planning strategies are essential to ensure the ability to pay for nursing home care. Several options exist for either transfer of assets or payment of services. Money could be gifted to children over time, money can be set aside by the children in the event that their parents need financial assistance, assets can be held in a trust for the benefit of the entire family, or the individual could purchase long-term care insurance. Premiums for the insurance could be paid either by the individual until funds run out, or by the family to ensure inheritance of preserved assets.
Tags: ineligibility period, assets transferred, look-back period, nursing home, date transfer