What is a Medicaid Penalty Period?

everal categories of Medicaid, such as the category which covers most of the cost of nursing home care and the cost of at-home care, have an asset limit to qualify for coverage. This leads many clients to ask, “Can I just give everything away and then apply for Medicaid to help pay the cost of the nursing home?” All gifts, or transfers of resources at less than fair market value, which have taken place within 5 years of the Medicaid application must be disclosed to the caseworker. Some gifts are allowed; check out my blog titled “Gifting Impact on Medicaid Eligibility” to learn more.

What is a “penalty period”? If gifting has taken place within 5 years of an application for certain categories of Medicaid, those “unallowed” gifts will cause the applicant to serve a Medicaid penalty period. The penalty period is simply a period of time that Medicaid will not cover certain costs, including nursing home or at-home care costs, due to the gifting that took place. In 2022, the “penalty divisor” is $6,873; this amount is usually adjusted on July 1 of each year. The penalty period is calculated by dividing the total gift by the penalty divisor; the result is the number of months which must be served under the penalty.

Example: Three years prior to the Medicaid application, a vehicle with a fair market value of $10,000 was gifted to the applicant’s child. As required, this gift is disclosed to the caseworker during the application process. Assuming there are no other gifts, the caseworker calculates the penalty period by dividing the amount of the gift ($10,000) by the current penalty divisor ($6,873); the result is a 1.5‑month penalty period that Medicaid will not pay for nursing home or at-home care costs.

It is important to get professional guidance due to the complexity of the Medicaid laws and the facts of your situation. I have an asset protection team that works full-time to protect the assets of my clients. The team utilizes several gifting strategies to qualify clients for Medicaid benefits. Even if gifting has occurred with the previous 5 years, my team and I can work with you to develop a customized plan to your, or your loved ones, assets. Call or text 812–423-1500 to schedule a free consultation to discuss your situation.