How does the Medicaid look-back penalty work?

by | Mar 24, 2021 | Long-Term Care Planning |

Many older Americans don’t think that they will need Medicaid. They may already have Medicare and possibly supplemental insurance through their former employer. Unfortunately, Medicare is a more limited program than some people realize.

The more intensive your care requirements become, the more likely it is that Medicare won’t cover all of your costs. In particular, Medicare coverage limits affect those who require extensive inpatient care, particularly in rehabilitation facilities or nursing homes.

To have expenses related to residential care and other, similar services covered, older adults will need Medicaid benefits. When applying for Medicaid, the government goes back over 60 months or five years of your financial records to look for gifts and transfers. If they find them, they apply a look-back penalty. How does this penalty work?

You have to pay for care based on the amount you transferred

If a review of your finances reveals resources that could have paid for care, you will face a penalty based on the value of those assets. Applicants who made transfers or gifts during their look-back period will need to pay out of pocket or have family help them pay.

Rather than requiring a specific financial amount, the penalty system for Medicaid converts financial figures for gifts and transfers into a specific number of months of care. The number of months that money would have covered will become your penalty period. You will have to cover those costs for those months yourself. Even if you currently have few resources or no income, you won’t receive Medicaid benefits until the end of the penalty period.

How can you avoid a Medicaid look-back penalty?

There is no sure way to make a transfer of substantial assets during the look-back period without incurring a penalty. The best planning option for those hoping to avoid a Medicaid penalty is to begin planning for Medicaid benefits well before their coverage becomes a necessity.

Many people integrate Medicaid planning into their estate planning or a retirement plan review in the years before they end their careers. Others start the process once they realize how their current health insurance limits their coverage. Looking over your finances carefully can help you decide how to plan to qualify for Medicaid in case you ever need it.