“The Holiday Season”. “The Season of Giving”. “‘Tis better to give than receive”. This time of year, we are inundated with reminders of the nature of the season. However, for some people, those who may need to turn to Medicaid benefits in the future to assist with the cost of nursing home care, the season of giving can turn into a lingering problem – a problem that can linger 5 years.

Why might I be worried?

Medicaid is a program that many people turn to for help with the high cost of nursing home care. With the average cost of nursing homes being approximately $8,000 a month, many people’s life savings are depleted in a short amount of time. For couples, this can be even more financially devastating as the spouse at home needs protection for themselves against total impoverishment. Medicaid can provide assistance to those who qualify with these expenses. But, Medicaid eligibility is tricky, outlined in a confusing web of rules and regulations, many of which are not intuitive to an uninformed person.

Medicaid eligibility is based on medical need, assets and income. In addition to stringent asset and income tests, to ensure that the program is not taken advantage of, over the years Medicaid policy has developed to prohibit people from giving away their money to qualify. A series of policies have been developed to address this issue, which is called divestment in Medicaid terminology. A divestment occurs when a person who is applying for Medicaid transfers (gives away) assets within 5 years of applying for Medicaid and does not receive fair market value in return for those assets. This type of transaction is prohibited and would result in a divestment penalty: i.e an amount of time that Medicaid would not cover the cost of care, after the individual is financial eligibility. The divestment polices are very punishing for a person applying.

How does this work?

For a person to become eligible for Medicaid the person needs to apply for the benefits. The application asks if the person has transferred, sold or given away any assets in the past 60 months. The individual, who is signing the application under the penalty of perjury, must fully report any gifts made. All gifts made during the 60-month look back period are added together to determine a total divestment amount. That amount is divided by the average monthly cost of care ($8,018 in 2017). The resulting figure is the amount of time, in months and days, that the person would not receive Medicaid benefits.

For example: if a person gave away $30,000 in 2016 and later applies for Medicaid for nursing home care in 2017, the penalty would be calculated as follows: $30,000 / $8018=3.74 months or 3 months, 23 days. Medicaid would not pay for the first 3 months and 23 days after the person has qualified.

Here are some other things to be aware of:

  • You can only fix a divestment by fully returning all the divested funds. This means there is no partial credit for partial returns.
  • There are no exceptions for the size of the gift. Medicaid policies on divestment apply to all gifts, whether $1 or $100,000. Limits established by the IRS for annual tax exclusions are irrelevant when it comes to Medicaid. A gift is a gift.
  • A divestment doesn’t have to involve money. It can mean adding a child’s name to an asset, such as a house or car.
  • It is a divestment to “sell” an asset to someone for $1, when the asset is really worth more.
  • Paying a family member or another person for care without a written, signed, notarized, and doctor approved contract in place before the payment is a divestment.

Are there any exceptions?

Yes. Some transfers are NOT divestment: Assets transferred between spouses are not penalized. Medicaid policy also states that transfers made from an individual to his or her blind or disabled child (as determined by Social Security) does not constitute a divestment. Selling assets to a family member for fair value (what it is worth on the open market) is also not a divestment.

So…if you find yourself in the situation of possibly needing Medicaid to help pay for nursing home costs in the next five years, you may want to pause before writing that check this holiday season. Please don’t shoot the messenger — you can just call me the Grinch.