As a program designed to help low-income seniors pay for medical expenses and long-term care, qualifying for Medicaid is not easy. In fact, even if you have limited financial resources, you may find that your income and/or countable assets exceed the Medicaid income limits.
Fortunately, Medicaid does allow seniors to “spend down” their excess funds to qualify for benefits. Unfortunately, the spending must occur within a certain time period, which the Centers for Medicare and Medicaid Services refer to as the lookback period.
Understanding the Medicaid lookback period
According to AgingCare, the Medicaid lookback period is a period that becomes subject to scrutiny as soon as you submit your Medicaid application. The length of the period varies from state to state. However, most states — including Colorado — maintain a five-year period.
Once you submit your application, CMS will examine all your financial transactions dating back five years from the date of your application. If any money or assets exchanged hands for less than fair market value during this time period, you will incur a Medicaid penalty period, which is a period in which you cannot receive benefits.
It does not matter how many gifts you make or assets you give away during this period — you will incur a penalty in the amount of the fair market value for each. Though the rule may seem harsh, it is in place to keep money in the system for people who actually need it by preventing otherwise well-off seniors from giving away their assets to friends and loved ones when it comes time to pay for long-term care. Examples of legitimate ways you can spend down your assets include paying for home improvements, paying for medical care and prepaying funeral expenses.
The Medicaid penalty period
If you gifted assets during the five-year lookback period, CMS will disqualify you from receiving benefits for a certain number of months. For how many months depends on the value of the assets you gave away.
For example, say you gave your art collection to your children during the lookback period. The total value of said collection was $30,000. CMS will use the penalty divisor figure — which, in Colorado, is currently $8,776 — to determine for how many months you are ineligible for benefits. To calculate this, it would divide $30,000 by $8,776, which is 3.41. Therefore, you must wait three and a half months to qualify for benefits, assuming your art collection is the only asset you gave away.
Qualifying for Medicaid is not easy, and even the most minor mistakes can set you back months or years and tens of thousands of dollars. To prevent costly errors, work with a Medicaid planning professional from day one.