What You Should Know About the Medicaid Look-Back Period
- During the Medicaid look-back period, administrators review applicants' prior financial transactions. Learn how to avoid penalties when applying for benefits.
Because Medicaid was designed to provide health care benefits for low-income Americans, its eligibility criteria include strict income and asset limits. Applicants who need Medicaid coverage to pay for assisted living, skilled nursing or long-term care services may be tempted to give away their money or property in an attempt to qualify for the program. To prevent this, the federal government maintains a look-back period, during which Medicaid administrators may review prior financial transactions made by the applicant. Let’s take a closer look at the Medicaid look-back period and what it means for you if you’re applying for benefits.
The Medicaid Look-Back Period Defined
If you’re applying for Medicaid, you may not gift, transfer or sell off assets for less than the fair market value prior to submitting an application. To prevent violations of this rule, the federal government instituted a formal look-back period.
The Medicaid look-back period is the span of time during which Medicaid administrators may examine any financial transactions made by an applicant. It was designed to prevent applicants from giving away money and other assets so they could meet Medicaid’s income requirements. The look-back period is primarily aimed at older applicants who need Medicaid to pay for long-term residential or in-home care. It doesn’t affect programs designed for pregnant women and newborn children.
The Medicaid look-back period begins on the day you apply for benefits. With the exception of California, the look-back period duration is typically 5 years. As of 2020, California maintains a 2.5-year look-back period. That means if you completed your Medicaid application on September 1, 2021, program administrators may look at your financial records as far back as September 1, 2016. If you live in California, the look-back period would go back to March 1, 2018.
If a transaction violates Medicaid rules, an applicant may be penalized. These penalties can render an applicant ineligible for program benefits for a designated period of time, which can last up to several years.
Medicaid Look-Back Penalties
A Medicaid applicant can be penalized if they’ve gifted, transferred or sold assets for less than current fair market value within the timeframe specified in the look-back period. The penalty was essentially created because the money or assets in question could have been used to help pay for long-term care services.
Violating Medicaid look-back rules typically results in a period of ineligibility known as the penalty period. The duration of this period is calculated by dividing the amount of the transferred or gifted assets by the rate for daily or monthly private residential care, depending on your state of residence. Medicaid does not have a maximum penalty period.
Examples of transactions that may incur penalties include:
- The transfer of a house or property to a relative
- The sale of a house or property for less than its market value
- The donation of a car, truck or boat to a charity
- The sale of artwork, collectibles or other material possessions for less than fair market value
- The sale of assets without proper documentation of the transaction
- The gift of money or material assets to relatives or friends
- Payments to personal assistants that are made without a formal agreement, particularly to family members or friends
- The creation of an irrevocable trust to hold assets such as cash, stocks, annuities and property for a trustee
- The sale of items at less than fair market value by a non-applicant spouse
Look-Back Exceptions and Exemptions
Although Medicaid rules vary by state, there are some exceptions and exemptions to the look-back period.
Joint Assets With a Spouse
When determining Medicaid eligibility for a married applicant, a portion of the couple’s jointly owned assets are allocated to the non-applicant spouse to prevent spousal impoverishment. This Community Spouse Resource Allowance (CSRA) may be as much as $130,380, but some states set lower amounts.
Essentially, most states follow a 50% or 100% guideline. In 50% states, a non-applicant spouse may keep up to half of all jointly owned assets up to the state-defined limit. In a 100% state, the non-applicant spouse may keep all jointly owned assets up to the state-allowed limit.
Any remaining assets must be spent down on Medicaid-approved expenses until the applicant meets Medicaid’s asset limits. This may include making home improvements, paying off debts or funding long-term care.
Assets That Benefit Minor or Disabled Children
Assets that benefit minor dependents and adult children who are disabled or legally blind may be transferred without incurring a penalty. This includes trusts established for the benefit of these dependents.
Home Transfers to Siblings
If a sibling is a partial owner of your home and has resided there for at least a year before the Medicaid applicant relocates to a residential nursing facility, ownership of the house may be transferred without penalty.
Home Transfers to Adult Children
Through the Caregiver Child Exemption, a home may be transferred without penalty to an adult child who’s been a caregiver for their parent(s). The adult child must have served as the primary caregiver and have lived in the house for at least two years prior to the parent(s) relocating to a skilled nursing facility.
Money spent paying off debts such as a mortgage or personal line of credit won’t incur a penalty during the look-back period.
Variations by State
Because Medicaid is a state-administered program, rules governing the look-back period may vary depending on where you live. For example, states such as New York don’t enforce a look-back period for applicants who require community or in-home services. Some states, including Pennsylvania, may permit applicants to make small gifts to loved ones, which can typically range up to $500 a month, without incurring a penalty. Consult your local Medicaid office to learn more about state-specific guidelines.
Consulting a Medicaid Planner
Medicaid eligibility rules, including those governing the look-back period, may be complex and challenging to navigate. A Medicaid planner can help you apply for benefits and avoid penalties by using the following techniques:
- Setting up caregiver agreements so seniors may compensate relatives or friends for caregiver services without incurring look-back penalties
- Funding Medicaid-exempt annuities, which are paid in a lump sum and provide monthly payments to a spouse
- Creating an irrevocable funeral trust to set aside money for funeral and burial expenses
If you've violated the Medicaid look-back period rules, a Medicaid planner can also help you recuperate your assets to shorten the penalty period. They can also help you file for an Undue Hardship Waiver if assets can’t be recuperated and the penalty period will leave you without food, shelter and other basic needs.