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New Jersey Finally Updates Medicaid Divisor

As most people know, in order to qualify for Medicaid, one must have no more than $2000 in countable assets.  But to get under that limit you cannot simply transfer assets out of your name, or gift them.  That’s because Medicaid imposes a penalty – a waiting period actually – before one can qualify.  The more money transferred, the longer the penalty period.

But, how is that penalty calculated?  By taking the amount transferred and dividing it by the average monthly cost of nursing home care, what is known as the “Medicaid divisor”.  Each state has its own divisor because, when you think about it, the cost of nursing home care varies from state to state and region to region.

The Medicaid divisor is a key piece of information in the Medicaid eligibility picture.  The lower that number is, the higher the Medicaid penalty is and the longer the waiting period for Medicaid.  For states looking to avoid paying benefits that’s a good thing since many people with penalties may pass away before those penalties expire.  The State will never have to pay any benefits in that case.

As with many government laws and regulations, much is left unspoken.  As the cost of care increases, shouldn’t the Medicaid divisor increase?  And how often should it be adjusted?  Medicaid laws and regulations don’t address that.  While some states are good about adjusting the divisor to keep up with rising costs, others are not.

New Jersey has never been one to be accurate about it.  Whether that is intentional or not, the fact remains it works to the government’s advantage.  And to the huge disadvantage of many families.  It has been several years since New Jersey last raised its’ divisor to 7787.  In some nursing homes, however, the cost of care is as much as $13,000 per month.  With a Medicaid divisor that is 60% of that number, the unfairness is clear with the following example.

If I transferred $100,000 and applied for Medicaid, the penalty would be 12.84 months, meaning I would have to pay an additional 12.84 months of care at the facility’s private pay rate.  Transferring that $100,000 would cost me as much as $167,000 in actual care costs.

Recently, however, thru the prodding of a number of elder law attorneys, New Jersey has grudgingly increased its’ Medicaid divisor.  On a 30 day month, effective for all applications filed after April 1, 2014, the divisor is now 9405.   For people living in the northern part of the state, the number is still too low, but it does help.  The state has not, however, committed to updating this number on an annual basis so more prodding will likely be necessary in the future.

So, what does it mean for those filing for Medicaid?  If there are potential penalties for gifts and other undocumented transfers – or if you are unsure what is in the 5 years of records you will be handing over to Medicaid – it is still not a good idea to automatically file the application.  In some cases it may make sense to file and let the state calculate the penalty and in some cases it will make sense to bring back the money and spend down – in ways most beneficial to the applicant and his/her family – before applying.  And that’s where a good elder law attorney can make all the difference.