If you are planning to apply for Medicaid, whether for yourself or a loved one, it can be important to be aware of and, if possible, prepare for a Medicaid transfer penalty. If a Medicaid applicant has given away assets, inclusive of cash, bank account transfers, properties and/or vehicles, without receiving fair market compensation within the last five years, the Medicaid caseworker processing the application will impose a Medicaid penalty.
What is a Medicaid Transfer Penalty?
A Medicaid transfer penalty is a period of time during which Medicaid will not reimburse your long-term care provider for services, including home and community-based services or room and board at an assisted living or nursing facility. The penalty begins running on the date the applicant becomes otherwise eligible for Medicaid and does not stop until the full penalty has been served. For 2022, applicants will receive an approximate one-month penalty for every $11,000 gifted in New Jersey and every $14,000 gifted in Pennsylvania (please see our Rothkoff Elder Law Quick Facts card for more specific figures updated annually). It is presumed that any assets “given away” without fair compensation within the five-year lookback were in contemplation of Medicaid eligibility, so the burden to prove otherwise falls on the applicant.
What Are Your Options?
1. Return the funds: If you are able to return the transferred funds or property, your Medicaid caseworker will consider the penalty “cured” and will remove it from the Medicaid file. However, the return should be completed as soon as possible and prior to the final determination from the Medicaid caseworker. It does not necessarily matter where the return comes from, but it must be for the exact amount of the gift; New Jersey Medicaid does not accept partial cures. In Pennsylvania, your Medicaid caseworker may lessen the penalty if only a portion of the gift is available for return.
2. Undue hardship waiver: If the funds are not available for return because the Medicaid applicant was a victim of fraud or theft and the imposition of the penalty period would deprive the applicant of medical care and endanger the applicant’s life, a hardship waiver may be possible. The applicant must prove that they have made a good-faith effort to recover the assets, including legal action if appropriate and that the loss of funds and the inability to recover is beyond their control.
3. Verify the transfer: Medicaid caseworkers presume that any transfer of assets within the five-year lookback were undertaken solely to qualify for Medicaid benefits. If the funds were transferred for some other purpose, providing the necessary documentation as proof could eliminate the penalty altogether.
Verification documents may include copies of checks, receipts, or bills for services rendered, or reimbursement agreements that were established prior to the transfer.
Medicaid penalties can be costly, especially if they are unexpected. With the proper financial planning and preparation and with the assistance of an experienced elder law attorney that you trust, a Medicaid transfer penalty can be managed without detrimental financial consequences.