What is the “penalty divisor” for gifts in 2019 for Alabama Medicaid for long term care in a nursing home?
We previously discussed in our 2019 Alabama Medicaid series that there is a 60 month (5 year) look back period where Medicaid is looking for gifts. But what happens if there are gifts in the last 60 months?
Let’s talk about this and run through some examples.
“What is the penalty divisor for gifts?”
The number is $6,200.
So what we do is take the total amount of gifts and divide that number by $6,200. The answer is the number of penalty months that you have to privately pay for the nursing home. And this number is determined after you apply for and are approved for Alabama Medicaid.
Here’s a few examples to make sure we have this concept down as it is mission critical to understand this before giving anything away and before applying for Alabama Medicaid.
Example One — Gave away $620,000
$620,000 divided by $6,200 is 100.
So 100 months going forward from the date you applied for and were approved for Medicaid, you must privately pay.
Example Two — Gave away $62,000
$62,000 divided by $6,200 is 10.
Here, the penalty is 10 months going forward.
“What is the maximum penalty period that can be imposed?”
Despite a lot of folks, even well-meaning professionals giving out (bad) advice, thinking there is a “cap” or “maximum” there is not.
To be extreme, what about a gift of $6,200,000? That would be 1000 months of penalty. I think that’s 80+ years!
The take home message is we must be absolutely sure of when we apply as a miscalculation or a desire to “stop privately paying” can make families apply too soon.
Let’s be blunt. If you gave away over $380,000, then your penalty period is over 60 months. So you should not apply until the 60 month look back period has passed. Certainly, you need to check with a lawyer to make sure the rules haven’t changed but think of it this way.
If you gave away $400,000 yesterday, and you qualify for Medicaid today for nursing home care, when do you apply?
Today? Well, let’s see. $400,000 divided by $6,200 equals what?
About 64 months of penalty.
But what if you simply did not apply for the next 60+ months?
You would have to pay slightly more than 5 years but when you do apply, there are no gifts. Because 61 months from now, Medicaid won’t “see” the $400,000 gift as it is outside the 60 month look-back period.
We routinely see gifts in the $500,000 or $750,000 range and then families want to immediately apply.
The “no maximum” on penalty is a killer.
So think long and accurately before you give away assets or apply for Medicaid.
“This doesn’t seem fair to be penalized for giving away my own assets!”
That’s true except we are asking Medicaid to step in and pay for our nursing home care. Remember basically we use all of our income to pay, minus a $30 personal needs allowance. (Exception is when our spouse living at home makes too little).
Then Alabama Medicaid pays the rest.
So since we are asking Medicaid to take on this burden, it has the right to make the rules on look back periods and the penalties.
“What if I didn’t give away assets because of Medicaid — can I avoid the penalty?”
As a practical matter, we see families that are very healthy. Making international travel plans. Picture of health.
Give away a lake house.
Then have a stroke and need a nursing home two months later.
Medicaid basically assumes anything you gave away counts as this type of gift and then is penalized as we have discussed in this article.
“How do you pay for the nursing home if Medicaid is penalizing you?”
You still have your income.
And hopefully you gave away assets with a plan.
Even if not with a plan, hopefully you still have some assets so that you can have enough money to pay through the penalty.
Or family members who can help.
Read this article on elder law annuities to give you some examples. Many options but this will get you started.
“Who do I talk with about past gifts or gifts I’m thinking of making now?”
Talk to an elder law attorney who knows the rules and who can explain them to you in plain English. I’ve seen some smart lawyers who either intentionally (or unintentionally) talk in such a high browed manner — and confusing way — that clients have no idea what the lawyer is talking about.
That does you no good.
Make sure and get your questions answered so you can make good decisions for you and your family.
I’m glad to help — give us a call at 205-879-2447 or contact us through this website.
We’ll help you figure out your options so you can make the best decision.
Thanks for reading this article….