Look-Back Period Dilutes Chances for "Free" Long-Term Care

Written by
July 2nd, 2010

Many people still believe they will be successful at divesting their estates to their heirs so they can receive “free” skilled care. It’s still possible, with a few tricky maneuvers. Advance planning can be key if it is expected that a person might need Medicaid assistance to pay for long-term care.

If you divested any financial resources within 60 months of applying for Medicaid, you may face penalties thanks to the Deficit Reduction Act. Every $100,000 divested equals nearly 16 months of ineligibility ~~ OUCH!

Deficit Reduction Act

The Deficit Reduction Act (DRA) made several important changes to the Medicaid asset-transfer rules. The look-back period for asset transfers was extended from 3 years to 5 years (60 months) and the start of the penalty period or ineligibility period for transferred assets was changed from the date of the transfer of assets to the date when the elderly person applies for Medicaid and is otherwise qualified for Medicaid, generally at the time he or she enters a nursing home. Simply put, one of the key requirements for Medicaid eligibility is that the elderly person lacks assets, meaning he or she cannot afford to pay for nursing home care. However, Medicaid will look back 5 years to see if the elderly person transferred any assets for less than fair market value, and if so, will deny Medicaid benefits for a period of time (the ineligibility period) based on the amount of assets transferred.

The DRA took effect on February 8, 2006, but, because Medicaid is a joint federal and state program, the states are required to apply the DRA to their state programs. Some states will have to change their Medicaid rules, and many of those states are not yet operating under the DRA. Therefore, be sure to find out the law in your state before making any decisions.

Look-Back Period

The look-back period is a balancing act between the government’s need to be able to afford providing Medicaid and a person’s desire to be able to leave their property to their heirs when they die. An elderly person cannot simply give their property away and begin receiving Medicaid. The look-back period is the time preceding the person’s application for Medicaid during which asset transfers will be scrutinized. The look-back period simply means that after a certain amount of time has passed, Medicaid does not inquire whether the elderly person gave away property. However, a transfer within the look-back period will be questioned and, if something of equal value was not received in return, a penalty will be applied, which will prevent the person from receiving Medicaid long-term care benefits until that penalty period expires. The look-back period is 60 months (5 years) for transfers under the DRA. In states that have not yet implemented the DRA, it may be only 36 months for transfers (except if funds are transferred to a trust).

Ineligibility Period

The ineligibility period is a period of time during which Medicaid looks forward. The ineligibility period is triggered by transfers of assets during the look-back period and looks forward to determine a date when the person may become eligible for Medicaid. The ineligibility period begins after the elderly person applies for Medicaid and is seeking long-term care benefits. The length of the ineligibility period is calculated by dividing the total, cumulative, uncompensated value of the transferred assets by the average monthly cost to a private pay patient of nursing home care in the applicant’s geographic area as of the date of the application for Medicaid. The best-case scenario is for the elderly person to transfer assets and remain healthy and out of a nursing home until the look-back period has been exceeded. That way, in the eyes of Medicaid, the person has the minimal amount assets that will allow him or her to qualify for Medicaid.

For questions on Medicaid eligibility, long-term care, look0back periods or anything regarding your plans to include some type of long-tern care within your retirement plan, please contact our Long-Term Care Specialists.

For more questions on long term care insurance, contact our Certified Long Term Care Specialist Jane Shevey at jane.shevey@rrins.com or call her  – 262-953-7123.


One comment

  1. My brother & I have POA for our ageing parents. We began cashing out their CD’s as they matured and tranferring them into accts in our name in early 2006 thru late 2007. Total amount was approx $100,000.00 We’re hoping on keeping them OUT of a nursing home for another year or so with home health care providers. My question is, can I cash out the more recent CD’s to pay for this care and could this be a problem for us IF they go into a nursing home and these CD’s do not pass the “look back” period and they have been spent?

    Comment by Kathy Holmes on December 11, 2010 at 12:10 pm
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