Understanding the Medicaid Look-back Period

Medicaid uses a "look-back" period in determining Medicaid eligibility.  Medicaid, unlike Medicare, is a means-tested program, which means that you are only eligible for it if you do not have sufficient means, or have very few assets. The government does not permit the transfer all of a person's assets in order to qualify for Medicaid, so it has imposed a penalty on people who transfer assets without receiving fair value in return, often called a transfer penalty.  Transfers of assets for less than fair market value are considered "improper transfers."

In order to identify who has transferred assets, states require a person applying for Medicaid to disclose all financial transactions he or she was involved in during the five (5) years immediately prior to submitting the Medicaid application. This five-year period is known as the "look-back period." The Department of Medicaid or other appropriate state agency determines whether the Medicaid applicant transferred any assets for less than fair market value during this period.

Any transfer can be scrutinized, no matter how small. There is no exception for charitable giving or gifts to grandchildren. Informal payments to a caregiver may be considered a transfer for less than fair market value if there is no written private care agreement, and even these are scrutinized carefully. Similarly, loans to family members can trigger a penalty period if there is no written documentation establishing the existence and reasonableness of the loan. The burden of proof is on the Medicaid applicant to prove that the transfer was not made in order to qualify for Medicaid.

Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility even if the transfers occurred during the look-back period. These exempt recipients include the following:

• A spouse (or a transfer to anyone else as long as it is for the spouse's benefit);
• A blind or disabled child;
• A trust for the benefit of a blind or disabled child;
• A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances).  

In addition, special exceptions apply to the transfer of a home. The Medicaid applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:

• The applicant's spouse;
• A child who is under age 21 or who is blind or disabled;
• Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances);
• A sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home;
• A "caretaker child," who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

If the state Medicaid agency determines that a Medicaid applicant made a transfer for less than fair market value, it will impose a penalty period. This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state.

Transfers to a person's revocable trust are not considered improper transfers, because they do not affect "ownership" for purposes of Medicaid.  In other words, a revocable trust is not a Medicaid planning trust and does not shield assets from Medicaid spend down.  In Ohio, a couple may apply for and receive Medicaid if the home is in their revocable trust, due to changes to the law in 2016.  An attorney should be consulted nonetheless because leaving a home in a trust after Medicaid eligibility can be disadvantageous and inadvisable, of course depending upon the trust terms.  Consult an attorney when applying for Medicaid, and after eligibility to ensure proper management of the assets.  

If you have transferred assets within the past five years and are planning on applying for Medicaid, consult with your attorney to find out if there are any steps you can take to prevent incurring a penalty.

Revised 12/1/16