What is the Medicaid Lookback Period?

If someone you love is in need of senior care or long-term care, and you’re helping them apply for Medicaid eligibility, then you’ll likely come across the term “lookback period”. The lookback period is an extremely important term that can help you understand how to avoid steep financial penalties.

What is the Medicaid Lookback Period?

The Medicaid lookback period is the previous five years before someone applies to Medicaid. Medicaid will look back on this time period to see if the applicant has given away or sold assets for less than fair market value.

When an aging adult applies for Medicaid, all non-exempt assets will need to be counted to make sure the applicant does not have more assets than allowed. If they do, they will need to either spend down their assets or start paying for their care up until they are within the asset limits for Medicaid.

Example of the Lookback Period

If someone applied for Medicaid benefits on January 1, 2021, Medicaid would then look back all the way to December 31, 2015. Any and all financial transactions that occurred over these five years will be reviewed by Medicaid to see if any assets were given away for less than fair market price.

What is the Medicaid Penalty Period?

The penalty period is the amount of time a Medicaid applicant will have to pay for their own care and be ineligible for Medicaid benefits. The penalty period is calculated based on the assets that were given away for less than the fair market value during the lookback period.

If the penalty period was calculated to be one year and this person started receiving care on May 1, 2021, they would have to pay for their own care up until May 1, 2022. This is where the lookback period becomes extremely important when planning for Medicaid so your aging loved one doesn’t deplete their nest egg paying for care.

Varies by State

The lookback period in almost every state is 5 years. California, however, only has a lookback period of 2.5 years. Additionally, how the penalty period is calculated will vary based on which state you apply in because the figure used to calculate the penalty period is related to the average cost of nursing home costs in that state.

Common Violations of the Lookback Period

Any violation in the lookback period can be bad, there are a few common ones to watch out for or bring up when you start talking to a Medicaid planner. These include:

• IRS Gift Tax Exemption: Even though the IRS lets you gift thousands of dollars to others without paying taxes on that gift, for Medicaid purposes, the entirety of the gift is still included as a countable asset.
• Certain Trusts: Some trusts referred to as Medicaid Qualifying Trusts may not be created in such a way that they are exempt from Medicaid and may still be a countable asset so make sure you go to a professional when creating any trusts.
• Paying Family for Care: If you don’t document and create legal contracts and caregiver agreements about how much you will pay for care, you can receive a Medicaid penalty.

How to Spend Down Without Penalty

Fortunately, you can spend down countable assets without incurring a penalty period of ineligibility. That’s where Medicaid planning comes in.