New Jersey Issues Updated Medicaid Penalty Divisor
The last time New Jersey updated it’s Medicaid penalty divisor was two years ago. The divisor is the State’s determination of what the average daily cost of nursing home care is across the State of New Jersey. Although it is supposed to be updated annually the last adjustment occurred 2 years ago.
What is noteworthy here is the jump in the divisor by almost $90 from $332.50 to $423.95, effective for applications seeking benefits from April 1, 2017 forward. On a monthly basis that computes to $12,895, which is more in Iine with the actual cost of care in Northern New Jersey. For many years the divisor was below the actual cost of care in a nursing facility.
Why is this correction so important? Because the divisor is used to calculate a Medicaid penalty, the waiting period for Medicaid benefits that New Jersey imposes for transfers for less than fair value that occur within the 5 year lookback period – that period of time for which an applicant must provide detailed records of assets so Medicaid can scrutinize whether those assets have been spent down correctly.
Let’s say I have gifted $50,000 to my children a year before I apply for Medicaid. New Jersey will assess a penalty or waiting period for benefits. It will divide the amount of my gift by the divisor. Using the old divisor results in a 5 month penalty period. Using the new divisor lowers the penalty to 4 months. That means that I must pay privately for my care an additional 4 months before Medicaid will begin to pay for my care (assuming I have met all the other Medicaid requirements first).
Using a lower divisor not only results in a longer penalty but actually costs me more than the amount of my original gift. Because the private pay rate in our area is now between $400 and $450 a day, paying 5 more months under the old penalty would cost me between $60,000 and $67,500, much more than the original gift I made. Provided my children had the money, it would have been better for them to transfer back the original $50,000 to me before I apply to avoid the penalty. We could then spend that money down more efficiently and avoid the added cost.
Now, with a more accurate divisor – which may be more than the private pay rate of some facilities because after all it is an average – there are other ways to minimize the sting of penalties that many families are completely unaware of until they apply for benefits. I would, however, caution readers that the Medicaid regulations can be quite complexe and confusing. I would encourage prospective Medicaid applicants to seek out the advice of a knowledgeable elder law attorney before deciding the best course of action.