If you are a senior and faced with the need to qualify for Medicaid, and you failed to plan ahead for that possibility, you could run afoul of the Medicaid transfer penalty rules. This, in turn, could result in the loss of hard-earned assets. In an effort to prevent the loss of your assets, Oklahoma City Medicaid planning attorneys at Parman & Easterday explain how the Medicaid transfer penalty works and how Medicaid planning can help you avoid the penalty.
I Don’t Need Medicaid Now – Why Will I Later?
People often fail to include Medicaid planning in their estate plan because they have never before needed Medicaid benefits. As a senior, however, that could change rather quickly if you (or a spouse) now require long-term care (LTC). What you may not realize is that Medicaid may be your best option for covering the high cost of that care. In 2018, the average cost of LTC nationwide was more than $8,000 per month or about $100,000 per year and it is higher in 2019. As a resident of Oklahoma, you are fortunate to pay LTC costs that are less than the national average. In Oklahoma, the average cost of LTC is about $85,000 a year. Nevertheless, the cost adds up quickly if you are responsible for paying the bills.
Like most seniors, you probably rely on Medicare to cover the majority of your healthcare expenses. Unfortunately, Medicare only covers LTC expenses under very limited circumstances and for a very short period of time. Most basic health insurance plans also exclude LTC expenses. So unless you purchased a standalone long-term care insurance policy prior to the need for coverage, you will be faced with the prospect of covering your LTC expenses out of pocket. For the average person, an entire retirement nest egg could be lost to LTC costs. This is why the need to qualify for Medicaid is important because Medicaid will help cover these LTC costs.
Medicaid Eligibility and the Five-Year Look-Back Rule
If you failed to plan ahead for the need to qualify for Medicaid, you will likely find you cannot qualify because of the Medicaid eligibility requirements. Because Medicaid is a “need based” program, eligibility guidelines require an applicant to have low income and few assets. Like many seniors, however, you may have spent a lifetime building your assets and you aren’t keen on losing them. Transferring them out of your name by gifting them to adult children or other beneficiaries may seem like the obvious solution to the Medicaid eligibility problem, but the Medicaid transfer rules impose a penalty for doing just that.
The Medicaid Transfer Penalty Explained
Prior to the imposition of the transfer penalty by Medicaid, applicants simply transferred assets at the last-minute to qualify under Medicaid’s countable resources limit. Today, however, if you apply for Medicaid, your finances will be subject to scrutiny for the 60 month period prior to the date of your application. Any transfers during that time for less than fair market value will trigger a penalty in the form of a waiting period. The length of the waiting period is calculated by dividing the value of these “gifted” assets by the “Divestment Penalty Divisor.” By way of illustration, the Divestment Penalty Divisor for the State of Oklahoma is $150.74 per day. If you apply for Medicaid today and a review of your finances shows you transferred assets valued at $100,000 to your adult children two years ago, it will trigger a waiting period penalty. The length of the penalty is calculated by dividing $100,000 by $150.74 which results in a penalty of 664 days before Medicaid would start paying for your LTC expenses. During this waiting period, you would be responsible for paying for your own LTC costs. Sadly, your retirement nest egg could be significantly depleted as a result of asset transfers that triggered the waiting period. The good news is that incorporating Medicaid planning into your estate plan now could protect your assets and ensure your eligibility for Medicaid in the future.
Contact Oklahoma City Medicaid Planning Attorneys
For additional information, please join us for an upcoming FREE seminar. If you have additional questions about the Medicaid transfer penalty or about Medicaid planning in general, contact the experienced Oklahoma City Medicaid planning attorneys at Parman & Easterday by calling 405-843-6100 to schedule your appointment today.