The Medicaid Look Back Period Can Delay Nursing Home Care

More than 1.7 million Americans live in nursing homes, but how do they pay for it? The majority of people rely on Medicaid to foot the bill. Getting approved for Medicaid, however, can be tricky, especially when it comes to the Medicaid Look Back Period. Here's what you need to know so that you can get nursing home care when you need it.

High Cost of Nursing Home Care

As of 2021, the average cost of a semi-private room in a nursing home in the U.S. is $7,908 per month. The monthly price goes up even higher if you want a private room, averaging $9.034 per month nationwide. How is someone on a fixed budget, often on Social Security, going to afford that?

The truth is nursing home care costs on average three times more than a senior citizen earns. Few people can afford to pay out of pocket so they turn to insurance.

Unfortunately, few people can afford private long-term care insurance. These types of plans are purchased to help pay for home health care and/or nursing home care. The premiums can be expensive and it can be hard to get a policy if you have pre-existing conditions.

Medicare does not help much either. Although the federal program covers a stay in a skilled nursing facility after a hospitalization, that time is limited. Without a qualifying hospitalization, it does not cover long-term stays in a nursing home at all.

Ultimately, 62% of long-term nursing home stays are covered by Medicaid.

Eligibility for Medicaid

Medicaid is a federal and state-funded program aimed to provide health care for people on low incomes. Traditionally, you became eligible for Medicaid based on how much money you earned and how many assets you owned. That changed with the passage of the Affordable Care Act, aka Obamacare, in 2010.

The majority of people now qualify for Medicaid based on the modified adjusted gross income (MAGI). MAGI looks at different sources of income but does not take your assets into consideration. Other people, particularly those who rely on certain federal programs, will still need to qualify for Medicaid the old-fashioned way, referred to as non-MAGI Medicaid.

The problem is that MAGI Medicaid does not cover nursing home care. In order to get Long-Term Services and Supports (LTSS), the part of Medicaid that pays for long-term care in a nursing home, you will need to be eligible for the program based on your assets. In many cases, seniors try to spend down their assets or give them away so that they can qualify for care. Some place their funds in an irrevocable trust in an attempt to shield them from Medicaid, turning countable assets into non-countable assets.

The Medicaid Look Back Period

To prevent people from giving away all their goods to family and friends, resources that could have been otherwise used to help pay for nursing home care, the Centers for Medicare and Medicaid Services has established the Medicaid Look Back Period. This is a period of time when all financial transactions made by the applicant are reviewed. Specifically, the government looks to see if any assets (e.g., money, homes, cars) were gifted, transferred, given away, or sold for less than their fair market value.

The Medicaid Look Back Period begins the day someone applies for Medicaid and goes back 60 months (5 years) in all states but California. At this time, California only requires a 30-month Look Back Period.

Although there are gift and estate tax laws in place that allow certain transfers to remain tax-free, that does not mean they do not count toward the Medicaid Look Back Period. For example, there is an annual exclusion gift limit of $15,000 per recipient as of 2021. That means you could give $15,000 to two different people and not be taxed on that money. However, that would be $30,000 that would be in violation of the Look Back Period if it was gifted within the designated time frame.

There are resources, however, that can be protected for the spouse of the applicant if they still live in the community. These do not count towards the Medicaid Look Back Period. The Spousal Impoverishment Standard changes every year. In 2023, the Minimum Monthly Maintenance Needs Allowance (MMMNA) for the community spouse is set for $2,465 ($3,080 in Alaska and $2,835 in Hawaii). Depending on the state, the spouse may retain assets ranging from $29,724 to $148,620. Home equity limits fall between $688,000 to $1,033,000.

How the Look Back Period Works

The Look Back Period reviews all financial transactions made by the applicant.

The penalty is calculated based on the amount of money that violated the Look Back Period divided by the average monthly rate for a private nursing home room in that state. The latter is referred to as the penalty divisor. The penalty is the period of the time that you will have to wait from the time of your application before you will be considered eligible for Medicaid.

Example 1: The penalty divisor in your state is $6,000 per month. You give away $60,000 during the Look Back Period. That means that you will be ineligible for Medicaid for 10 months ($60,000 in violations divided by the $6,000 penalty divisor) from the time of your application.

Example 2: The penalty divisor is $6,000. You give $12,000 away to your niece each year over 10 years. Because only the last five years count towards the Medicaid Look Back Period, you are in violation of $60,000, not the full $120,000 amount. You will be ineligible for Medicaid for 10 months ($60,000 in violations divided by the $6,000 penalty divisor) from the time you apply.

Example 3: The penalty divisor is $6,000. You sell your house to your daughter for $120,000 less than fair market value the year before you apply for Medicaid. You will be ineligible for Medicaid for 20 months ($120,000 in violations divided by the $6,000 penalty divisor) after applying.

Summary

Giving gifts, transferring assets, and selling goods for less than fair market value could delay your eligibility for Medicaid. You cannot always predict when you will need nursing home care. That is why it is so important to understand the Medicaid look Back Period. You will want to have a financial strategy in place so that you can get the care you need when you need it. It may be in your best interest to reach out to an elder care attorney for advice.