When you apply for Medicaid, the agency will launch a 5-year look-back, in which they review your finances for the 60 months preceding your application date. This process is in place to prevent fraudulent use of Medicaid funds by individuals who can otherwise afford to pay out-of-pocket expenses for long-term care. If the agency uncovers a gift or asset transfer that occurred within the look-back period, you could incur a significant Medicaid transfer penalty.
You can’t avoid the Medicaid 5-year look-back, but what about Medicaid’s 5-year look-back penalties? Not always, but it is possible in some cases. If you are facing a transfer penalty due to the 5-year look-back, we strongly recommend retaining legal counsel for advice.
Addressing Medicaid’s 5-Year Look-Back Penalties
The following examples are not advice for your specific situation, but they illustrate several approaches that we explore in our office to address transfer penalties for our clients.
1. Determine whether the exclusive purpose of the gift was other than to qualify for Medicaid.
Gifts for a purpose exclusively other than qualifying for Medicaid long-term care benefits should not be penalized under applicable Medicaid law. However, Medicaid routinely denies benefits due to asset transfers, and the burden of proof is on the applicant to prove that this exception applies. Sometimes, you can provide this proof during the Medicaid application process. Other times, it must be presented to an administrative law judge before the Pennsylvania Department of Human Services Bureau of Hearings and Appeals.
For example, a healthy applicant who gifts large payments to their children and then suffers an unexpected medical event requiring long-term care may be able to avoid the Medicaid transfer penalty, even if those transfers were made within the 5-year look-back period.
In our office, we work with you to gather facts about the transfers, assemble compelling documentation, and present the best case during the application process in order to document that a gift or series of gifts was “exclusively for a purpose other than to qualify for Medicaid long-term care benefits.”
2. Wait to file the Medicaid application (Form PA-600L).
The timing of your Medicaid application can make a substantial difference in any look-back penalties you may incur. If there is a large asset transfer that has occurred just inside of the 60-month look-back, it might make sense to privately pay the nursing home bill and wait for time to pass so that the large gift will be outside of the 5-year look-back.
Applying too soon can be a huge mistake. For instance, if a Medicaid applicant transferred the ownership of a valuable house to a family member 55 months ago, paying the nursing home out-of-pocket for 5 additional months will likely cost less than the potential transfer penalty. In these cases, waiting to pass the 5-year look-back period (i.e., in month 61 or later), paying massive penalties, or returning the home to the applicant might be the only options available.
3. Return the gifted asset and re-deploy it.
Sometimes, there are gifts within the look-back that are just plain trouble, and a Medicaid transfer penalty cannot be avoided. However, there may still be good options, depending on the circumstances, particularly if the money has not been spent.
One solution can be for the gift recipient to return the gifted asset, and a complete return of a gifted asset will normally reverse the transfer penalty. But if the applicant then has the asset again–and if it is cash or stock–the applicant may then be over-resourced and ineligible for Medicaid long-term care benefits due to possessing the returned asset and, in turn, having too much money.
Sometimes, the gift can be re-deployed and protected in a different manner, perhaps by using the funds to prepay for funeral expenses or to pay down debt. However, great care must be given to make sure that the spend-down on non-medical items does not cause a problem with retroactive coverage.
If you do not contact a lawyer soon enough, it may be too late to secure the advice you need to properly re-deploy the returned funds on non-medical items, such as paying down a car loan, mortgage, credit card bill, or home equity line of credit.
None of this planning should occur without first retaining the ongoing services of an experienced elder law attorney. If matters are handled improperly, Medicaid can deny benefits, leaving your family with a large unpaid nursing home bill. If this happens, the nursing home may give that unpaid bill to their lawyers to pursue, and this collection effort can take the form of lawsuits against the spouse, the children (under Pennsylvania’s filial support laws), the person who signed the nursing home admissions agreement as responsible person or guarantor, the agent under power of attorney, or some combination of these individuals.
Although some gifting problems can be fixed after the fact, it is much better to discover and address gifting problems before filing a Medicaid application than to try to piece things together after benefits have been denied.
4. Submit an undue hardship waiver request.
If you are denied Medicaid benefits due to a transfer within the 5-year look-back period, you may be able to file an undue hardship waiver request to seek relief from the transfer penalty. Although this is theoretically a way to avoid the problems caused by gifts within the look-back period, the undue hardship waiver is difficult to have approved. The Undue Hardship Waiver Request may have limited chances of success. That said, it is possible to prevail in some cases.
When a case reaches the point of requesting an undue hardship waiver, benefits have already been denied, prior efforts to address the gifting issue have either not been made or have been unsuccessful, and the caseworker with the Pennsylvania Department of Human Services already believes that the imposition of a transfer penalty is appropriate.
It can be an uphill battle, but one that may need to be fought regardless of chances of success. It is possible to both appeal the penalty and file an undue hardship waiver request.
5. Purchase a Medicaid annuity.
In some cases, applicants can use remaining “excess resources” to purchase a Medicaid qualifying annuity to provide an income stream that, when combined with his or her monthly income (such as Social Security and pension payments), can cover most of the nursing home bill that would otherwise be unpaid by Medicaid due to the gifting transfer penalty.
It is only possible to pursue this approach if assets exist to purchase the annuity. Additionally, the timing of events can be tricky. As such, it is essential to consult a lawyer for ongoing advice so you are aware of how the PA Department of Human Services treats these annuities during the Medicaid application process.
6. Apply for Medicaid before entry to a nursing home.
Sometimes applying for Medicaid long-term benefits for in-home care before nursing home placement can be a strategic way to address an expected or possible Medicaid transfer penalty. If the eligibility criteria for Medicaid funded long-term care are otherwise met, aside from the gifting that occurred, it is possible to apply and intentionally have benefits denied due to the gifting. This way the transfer penalty (period of Medicaid ineligibility) begins to elapse while the parent who made gifts is still residing at home. This approach can help avoid the large unpaid nursing home bill that would have been incurred had the parent waited until nursing home admission to apply for Medicaid long-term care benefits. This approach works well, for example, if the parent is able to remain at home safely with the assistance of adult caregiving children. The period of ineligibility for gifts in the look-back expires month-by-month while the family cares for the parent at home – without incurring the large unpaid nursing home bill that would have existed if the parent applied for Medicaid benefits after nursing home admission.
Although it is quite challenging to provide in-home care to someone who would otherwise need nursing home care, in the right case this approach can be a way to avoid getting stuck with a huge unpaid nursing home bill where gifting occurred in the 5-year look-back period.
7. Return home.
Sometimes, a gifting problem is such a surprise and so large that the financial consequences can be catastrophic. If the nursing home resident can safely return home–perhaps with family members providing caregiving, that can sometimes be a way to wait out a Medicaid transfer penalty and avoid the financial disaster of an unpaid nursing home bill.
Caution May Prevent Medicaid 5-year Look-Back Penalty
If you, a spouse, parent, or other loved one may need long-term care in the future, great caution should be exercised before making any gifts. However, even if gifts are made within the Medicaid 5-year look-back period, the experienced attorneys at Gerhard & Gerhard P.C. may be able to help you avoid or mitigate a potential transfer penalty.
Contact Gerhard & Gerhard P.C. to learn more about proper asset protection strategies.
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Disclaimer: We recommend that you have ongoing legal advice from an elder law attorney before attempting to navigate the Medicaid application process. If you wish to secure our services, please contact Gerhard & Gerhard, P.C.
