Are You Walking into the Medicaid Office Blindfolded?
Here’s the scenario. Mary calls because Dad’s money is going to run out in a few months. She is anticipating the need for Medicaid but wants to get the jump on things by applying now because she heard it can take several months to qualify. My answer is that you generally don’t want to rush to apply. It’s like walking into the Medicaid office wearing a blindfold.
It all goes back to the Medicaid 5 year look back, the penalty and how it is calculated. When Mary applies for Medicaid she will have to provide 5 years of financial statements for every account that Dad had in existence during that time period. The State will look for any transfers for less than fair value, meaning transfers for which Dad did not receive anything of equal monetary value back. Those transfers are totaled up and then divided by the average monthly cost of nursing home care. That third number is the Medicaid penalty, the number of months Dad will be ineligible for Medicaid benefits from the date he has applied going forward.
And this is the reason why you don’t want to rush to apply. Surprisingly, what is considered a transfer triggering a penalty is not always easy to define. It could be because there isn’t a clear paper trail to establish where money went. Cash transactions aren’t easily explainable so the State may say they are subject to a penalty and Mary may not have the documentation at hand to prove otherwise. There are many other examples, too numerous to list here.
If a Medicaid penalty is set, the only way to eliminate it is to return all the money. Now, you might think, “OK, what’s the big deal”? Well, if the Medicaid caseworker tells you to explain a particular transaction and you have 10 days to do it, will you be able to get all the necessary documentation together? Probably not, especially since, in Mary’s case, she wasn’t in charge of Dad’s finances until he entered the nursing home and he was a very poor record keeper. She may be stuck with a penalty simply because she didn’t have enough time to get the answers.
There is however, a greater risk. Let’s say Dad made a transfer of $100,000 to Mary, for her to hold, 4 ½ years ago. If she applies for Medicaid now, Dad will be stuck with a penalty of 13.7 months. Mary would need to figure out how to pay for his care for over a year. On the other hand, if, as I recommend, we do a Medicaid review first, and find that transfer before we apply, then the better course of action is to wait until the 5 year Medicaid look back expires.
Why? Because if we wait another 6 months then that transfer won’t fall within the 5 years so there won’t be a penalty. We will, in other words, qualify Dad for Medicaid 7.7 months sooner, saving Mary approximately $80,000 in long term care costs. Keep in mind that each case is different and the Medicaid laws are quite complex but it does illustrate, again, why you must have a trusted guide throughout the Medicaid process.