Medicaid 5-Year Look-Back Penalty: Can You Avoid It?

When you apply for Medicaid, the agency will launch a 5-year look-back, in which they review your finances for the 60 months preceding your application date to determine whether you have attempted to qualify for Medicaid and avoid paying for care out of pocket by gifting or transferring financial assets. If the agency uncovers a gift or asset transfer that violates Medicaid rules, you could incur significant and costly Medicaid transfer penalties.

You can’t avoid the Medicaid 5-year look-back, but can you avoid Medicaid’s 5-year look-back penalties? Not always, but it is possible in some cases. If you are facing a transfer penalty due to the 5-year look-back, we strongly recommend retaining legal counsel for advice.

Addressing Medicaid’s 5-Year Look-Back Penalties

The following examples are not advice for your specific situation, but they illustrate several approaches that we explore in our office to address transfer penalties for our clients:

1. Determine whether the exclusive purpose of the gift was other than to qualify for Medicaid.

Gifts that were for a purpose exclusively other than to qualify for Medicaid long-term care benefits are not supposed to be penalized under applicable Medicaid law.As a practical matter, however, benefits are routinely denied due to asset transfers and the burden of proof is on the applicant to prove that this exception applies. Sometimes this proof can be provided during the Medicaid application process, and sometimes it must be presented to an administrative law judge before the Pennsylvania Department of Human Services Bureau of Hearings and Appeals.If the applicant was healthy, for example, and helped a child with an expense such as a downpayment on a home, help with legal fees in a divorce, or offered, say, a large gift for a 20-year wedding anniversary, these are potentially not the kinds of gifts that should be penalized, even though they fall within the look-back.If the person suffered a sudden stroke, fall, or other sudden illness that unexpectedly requires nursing home long-term care, it may be possible to avoid the transfer penalty even if gifts, including large gifts, occurred within the 5-year lookback.In our office, we work with you to gather facts about the transfers, assemble what we hope will be compelling documentation, and present the best case during the application process in order to document that a gift or series of gifts was “exclusively for a purpose other than to qualify for Medicaid long-term care benefits.”

2. Wait to file the Medicaid application (Form PA-600L).

If there is a large asset transfer that has occurred just inside of the 60-month (5-year) look-back, it can sometimes make sense to privately pay the nursing home bill and wait for time to pass so that the large gift will be outside of the 5-year look-back. Applying too soon can be a huge mistake.For example, if a valuable house was transferred 55 months ago, it may cost less to pay the nursing home privately for 5 more months and wait until the house transfer is beyond the look-back (i.e., in month 61 or later) than to suffer the transfer penalty by applying too soon and then being faced with the prospect of an enormous transfer penalty or having to potentially return the home to the applicant even though the gift was just about beyond the look-back and almost protected from nursing home costs.

3. Return the gifted asset and re-deploy it.

Sometimes there are gifts within the look-back that are just plain trouble and a transfer penalty cannot be avoided. There may still be good options, depending on the circumstances, particularly if the money has not been spent.One option can be to return the gifted asset, and a return of a gifted asset will normally reverse the transfer penalty. But if the applicant then has the asset again, and if it is cash or stock, the applicant may then be over-resource and ineligible for Medicaid long-term care benefits due to possessing the returned asset, i.e., having too much money.Sometimes the gift can be re-deployed and protected in a different manner, perhaps by using the funds to prepay for funeral expenses, or to pay down debt. However, great care must be given to make sure that the spend-down on non-medical items does not cause a problem with retroactive coverage. If your lawyer can not review the situation soon enough, it can be too late to re-deploy the returned funds on non-medical items, such as paying down a car loan, mortgage, credit card bill, or home equity line of credit.None of this planning should occur without first retaining the ongoing services of an elder law attorney because if they are handled improperly, Medicaid benefits can be denied and there can be a very large unpaid nursing home bill. In that case, the nursing home may give that unpaid bill to their lawyers to pursue, and this collection effort can take the form of lawsuits against the spouse (if married), the children (under Pennsylvania’s filial support laws), the person who signed the nursing home admissions agreement as responsible person or guarantor, or agent under power of attorney, or some combination of these individuals.It is much better to discover and fix gifting problems before the filing of a Medicaid application than to have to piece things together after benefits have been denied.

4. Submit an undue hardship waiver request.

If you are denied benefits due to a transfer within the look-back, there is a process to file an undue hardship waiver request to seek relief from the transfer penalty that has been imposed.Although this is theoretically a way to avoid the problems caused by gifts within the look-back, it is not easy to succeed with this approach, as the Undue Hardship Waiver Request may have limited chances of success. That said, it is possible in some cases to prevail. When a case gets to the point of having to request an undue hardship waiver request, benefits have already been denied, prior efforts to address the gifting issue have either not been made or have been unsuccessful, and the caseworker with the Pennsylvania Department of Human Services already believes that the imposition of a transfer penalty is appropriate. It can be an uphill battle, but one that may need to be fought regardless of chances of success. It is possible to both appeal and file an undue hardship waiver request.

5. Purchase a Medicaid annuity.

It can be possible to use remaining assets to purchase a Medicaid qualifying annuity to provide an income stream that, when combined with the Medicaid applicant’s monthly income (such as Social Security and pension income), can pay most of the nursing home bill that would otherwise be paid by Medicaid but for the transfer penalty.It is only possible to pursue this approach if assets exist to purchase the annuity, and the timing of events is tricky, so it is important to consult a lawyer for ongoing advice so you are aware of the legal requirements of these annuities and how the PA Department of Human Services treats these annuities during the Medicaid application process.

6. Apply for Medicaid before entry to a nursing home.

In some cases, children find themselves caring for a parent without resources, and these parents would be eligible for Medicaid if there were not large gifts in the 5-year look-back. This situation presents a special opportunity to avoid the Medicaid transfer penalties.It can be possible to apply for Medicaid benefits for in-home care before entry to a nursing home. The period of ineligibility for gifts in the look-back can be imposed during this process, and expire month-by-month while the family cares for the parent at home, without racking up a large unpaid nursing home bill. Although there is certainly a cost to the family providing care themselves, it is sometimes a way to avoid an unpaid nursing home bill if the sense is that nursing home care might be needed in the future and gifts exist in the 5-year look-back.


7. Return home.

Sometimes a gifting problem is such a surprise and so large that the financial consequences can be catastrophic. If the nursing home resident can safely return home, perhaps with family members providing caregiving, that can sometimes be a way to “wait out” a Medicaid transfer penalty and avoid a financial disaster.

Caution May Prevent Medicaid 5 year look back penalty

If you think you, a spouse, parent, or other loved one may potentially need long-term care in the future, great caution should be exercised before any gifts are made. Even if gifts are made within the 5-year look-back, there may be things we can do to help avoid or mitigate the transfer penalties. Contact Gerhard & Gerhard to learn more about proper asset protection strategies.

Disclaimer: We recommend that you have ongoing legal advice from an elder law attorney before attempting to navigate the Medicaid application process. If you have questions or wish to secure our services, please contact Gerhard & Gerhard, P.C.

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