In order to be eligible for Medicaid, you cannot have recently transferred assets. Congress does not want you to find out you need nursing home care on Monday, give all your money to your children (or anyone else) on Tuesday, and qualify for to have the government pay for your nursing home long term care by qualifying for Medicaid on Wednesday. So it has imposed a penalty on people who give away assets without receiving fair value in return.
This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The period is determined by dividing the amount transferred by what your state Medicaid program determines to be the average private pay cost of a nursing home in your state.
Example: For example, if you live in a state where the average monthly cost of care has been determined to be $5,000, and you give away property worth $100,000, you will be ineligible for benefits for 20 months ($100,000 / $5,000 = 20).
In 2015 the State of Rhode Island has determined that the average private pay cost of nursing home care is $9,113 per month. Massachusetts, which determines the cost on a daily basis, has determined that the number is $300 per day.
Another way to look at the above example is that for every $5,000 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month. In theory, there is no limit on the number of months a person can be ineligible.
Example: The period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 / $5,000 = 80).
A person applying for Medicaid must disclose all financial transactions he or she was involved in during a set period of time -- frequently called the "look-back period." The state Medicaid agency then determines whether the Medicaid applicant transferred any assets for less than fair market value during this period. The look-back period for all transfers is 60 months.
Under the current law, the Medicaid eligibility penalty period will not begin until (1) the person making the transfer has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer.
Returning to the example above, if an individual transferred $100,000 on April 1, 2014, moves to a nursing home on April 1, 2015, and spends down to Medicaid eligibility on April 1, 2016, that is when the 20-month penalty period will begin, and it will not end until December 1, 2017.
In other words, the penalty period would not begin until the nursing home resident was out of money, meaning there would be no money to pay the nursing home for however long the penalty period lasts. In order to make sure your parent is able to receive the nursing home care they need, it is critical to make sure they make adequate arrangements with an elder law lawyer before gifting away their money or property.