Understanding Medicaid's Five-Year Look-Back

By Ronald A. Fatoullah, Esq. and Debby Rosenfeld, Esq.

{3:40 minutes to read} Medicaid, unlike Medicare, is a means-based program, so an individual is only eligible for benefits if the assets he owns are minimal. Furthermore, the government does not want someone to be able to gift all of his assets so that he can be eligible for Medicaid the next day. Accordingly, in the context of Medicaid, a penalty is imposed on any applicant who has made certain uncompensated transfers (gifts) within a specified period of time.

When a person applies for nursing home Medicaid coverage, one of the pivotal questions on the Medicaid application is whether any gifts were made in the last five years. Medicaid requires applicants to disclose all financial transactions during the five years prior to the submission of the Medicaid application. This five-year period is known as 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.

Any transfer may be questioned, no matter how small. If the payment is for rent, clothing, or for anything that benefited the applicant, it will not be treated as a gift. Gifts to a charity, child, grandchild, or any other transfer for which the applicant did not receive something of fair value in return will be treated as uncompensated transfers, i.e. gifts, by Medicaid.

Many people erroneously feel that they can make gifts as long as they do not exceed the annual federal gift tax exclusion amount. Currently, people can make a gift of $14,000 to an unlimited amount of recipients in a given taxable year. Such gifts are not taxable and do not require the filing of a gift tax return. This is a provision that is relevant for federal estate and gift taxes and has nothing to do with Medicaid planning. A person who gifts $14,000 to each of his ten grandchildren will not have to file any gift tax return but will still be treated as having made gifts amounting to $140,000 for Medicaid purposes and will be penalized accordingly.

If the state Medicaid agency determines that a Medicaid applicant has made a gift, it will impose a penalty period. The penalty period is a period of time during which the person transferring the assets will be ineligible for Medicaid services. The penalty is based on what Medicaid deems to be the average monthly cost of a nursing home in the county where the applicant resides. These rates are referred to as regional rates and are typically updated by Medicaid on an annual basis. For example, in 2016, according to Medicaid, the average monthly cost of a nursing home in any of the five boroughs of New York is $12,029. As such, if a NYC applicant made a gift of $120,290, he will be ineligible for Medicaid for 10 months ($120,290 divided by $12,029).

This is significant, because the above-described gift results in a five-year penalty. The penalty is calculated based on any gifts made in the past five years, and the length of the penalty period will be based on the amount that was gifted.

It is important to note that certain transfers, such as a transfer to a spouse or a blind or disabled child, are exempt and, therefore, not penalized by Medicaid. Furthermore, in New York State, the five-year look-back is only imposed with respect to institutional Medicaid applications. There is currently no look-back for a community Medicaid application (home care). Any person who needs Medicaid or is contemplating gifting assets to others in order to become eligible for Medicaid in the future should seek the advice of an elder law attorney.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Debby Rosenfeld, Esq. is a senior staff attorney at the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The wealth management firm can be reached at 516-466-3300 or 800-353-3775.