In addition to financial and health requirements, Medicaid also stipulates a lookback period. The purpose of the lookback period is to prevent applicants from simply giving away their assets in order to meet the financial qualifications for Medicaid. If an applicant has given a gift during the lookback period, they may be subject to a penalty period, during which they will be ineligible for Medicaid benefits. Being aware of the lookback and penalty periods is crucial for anyone planning for long-term care or looking to apply for Medicaid.
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The Medicaid lookback period is five years from the Medicaid application date. Upon application, the caseworker reviews all transactions from the last five years and makes note of any divestments, or ineligible asset transfers. Divestments are also referred to as “gifts” and include sales for less than fair market value. If the applicant is found to have gifted some of their assets during the lookback period, they will incur a penalty period.
The Medicaid penalty period is a span of time in which the applicant is otherwise eligible for Medicaid but unable to receive benefits due to a divestment. This period is determined using the gifted amount and the Divestment Penalty Divisor, which varies by state. Following the penalty period, which is measured in months (or days, in some cases), the applicant can receive Medicaid benefits.
Take a Medicaid applicant residing in Louisiana, for example. The individual gifted a total of $25,000 during the lookback period. If you take the $25,000 and divide Louisiana’s penalty divisor of $5,000, you get a penalty period of 5 months. After the 5-month period has ended, the applicant will begin receiving Medicaid benefits.
The first step to avoiding a penalty period is awareness. So, now that you have a better understanding of the Medicaid lookback and penalty periods, you can take steps to prevent a penalty period. Here are your options:
· The best way to avoid a Medicaid penalty period is to plan far enough in advance and make any gifts or divestments longer than five years before you’ll apply for Medicaid. Obviously, you don’t know your timeline for certain, so this strategy is not foolproof.
· Another option is to simply take the penalty and continue paying full price for care until your penalty period ends and Medicaid benefits kick in.
· If you have already made divestments during your lookback period and you’d rather get qualified for Medicaid as quickly as possible, we have another option for you: a Medicaid Compliant Annuity.
In short, an MCA is a Medicaid-compliant product that allows you to turn your excess countable assets into an income stream. Although some MCA strategies involve using a penalty period to the applicant’s advantage, all strategies allow for the preservation of assets and the acceleration of Medicaid eligibility.
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