A Medicaid penalty is the amount of time Medicaid won’t pay for your care when you are otherwise eligible for Medicaid benefits.
Why would Medicaid penalize someone? Medicaid penalizes people who make gifts or transfers for less than fair market value during the five year lookback period. Any gifts during the five year lookback period result in the Medicaid applicant having less money to pay for care. Since the Medicaid applicant has less money it means they need Medicaid sooner than they would have if they hadn’t made the gift. The goal of the Medicaid penalty period is to try to force Medicaid applicants to get the money back that they gave away.
Medicaid penalties are stated in days. The length of the period is calculated by dividing the total amount of the money given away during the five year lookback period by the Medicaid penalty divisor amount. In early 2018 the Medicaid penalty divisor is $423.95 (that figure is supposed to represent the average daily rate of nursing home care in the state of New Jersey). When you divide the total amount of gifts made during the five year lookback period by the Medicaid penalty divisor give you the number of days Medicaid won’t pay for care after the Medicaid applicant is otherwise found eligible for Medicaid benefits (the answer is rounded down to the nearest whole number). For example, if someone gives $30,000 away during the five year lookback period that amount is divided by $423.95. When you divide $30,000 by $423.95 it equals 70.76 which is rounded down to 70 and that is number of days the Medicaid application will have to wait before Medicaid will begin paying Medicaid benefits.
The Medicaid beneficiary will be responsible to pay for care during the Medicaid penalty period. If they don’t have the money – and they won’t if they are eligible for Medicaid benefits – then the people who received the gifts might have to return the money to pay for long term care. If your loved one has been penalized by Medicaid you should seek the advice of an elder care attorney. That attorney can advise you as to your options regarding the situation and the effect of the penalties on the Medicaid beneficiary and his or her loved ones.