Are you subject to penalties if you transfer assets in order to qualify for Medicaid?
It is important to realize that giving away your cash and other resources in the hope of qualifying for Medicaid can often create serious drawbacks, including the postponement of your ability to collect Medicaid benefits.
The Omnibus Reconciliation Act of 1993 (OBRA ’93) mandates that transferring certain assets for less than fair market value to someone other than your spouse (or minor, disabled, or blind child) during a certain look-back period will result in a benefit ineligibility period.
In general, for transfers made on or after February 8, 2006 (the date of enactment of the Deficit Reduction Act of 2005), there exists a 60-month look-back period for all transfers of countable assets. Thus, if you’re a nursing-home resident, your look-back period will normally begin 60 months before the day you became institutionalized and applied for Medicaid.
Essentially, this means that you will not qualify to collect Medicaid benefits until a period of time has passed from the date you become eligible for Medicaid (were it not for the asset transfer). The formula for determining the waiting period may be explained as the fair market value of transferred assets divided by the average monthly cost of nursing homes in your locale (as determined by state Medicaid regulations), the quotient being the number of months for which you will be ineligible to apply for Medicaid.
Assume Alice gave $150,000 cash to her daughter. Two months later, she enters a nursing home (which charges a competitive rate of $6,000 per month) and applies for Medicaid. Alice will be ineligible to collect Medicaid benefits until 25 months have passed ($150,000 divided by $6,000 equals 25).
Do hardship exceptions to these penalties exist?
Denial of Medicaid eligibility due to a transfer of countable assets can cause an undue hardship for some people. Federal law (OBRA ’93 and the Deficit Reduction Act of 2005) requires states to develop procedures for determining undue hardship in accordance with certain guidelines so that, in some cases, the state must grant Medicaid benefits to an applicant despite a disqualifying transfer.
Undue hardship exists when a denial of benefits would deprive a person of medical care to such an extent that his or her life or health would be endangered. Undue hardship also exists when application of the transfer of assets rules would deprive the person of food, clothing, shelter, or other necessities of life. Although states have a great deal of flexibility in determining whether a particular situation constitutes undue hardship, they are obligated to provide the following information:
- A notice to recipients that an undue hardship exception exists
- A timely process to determine whether an undue hardship exception will be granted
- A process under which a denial of the exception can be appealed
Further, a facility may apply for a hardship exception on behalf of its residents with their consent, and a state may make payments to nursing facilities to hold beds for up to 30 days while a hardship exception is pending. Your state’s Medicaid office will have more information. If you have questions or need assistance, contact the experts at Henssler Financial:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
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