Occasionally, we talk with individuals who have accidentally violated the rules of the look-back period and are denied Medicaid long-term care benefits, even when they were acting in good faith.
Being denied Medicaid benefits can be frustrating, as those benefits could be essential for receiving long-term medical care. With the right understanding of Medicaid’s rules, however, you and your loved ones can take steps to avoid Medicaid penalties and denials.
8 Mistakes to Avoid for Medicaid Look-Back Rules
Medicaid looks not only for what we might normally consider “gifts” but also for “transfers for less than fair market value.” Here are some of the common “Medicaid mistakes” we see:
1. Paying bills in cash.
Many seniors are accustomed to paying bills in cash. This can result in the spending of a great deal of money without a paper trail, as most people do not save receipts when they spend cash. In fact, in more than 25 years of helping families apply for Medicaid long-term care benefits, only one of our clients who spent cash had meticulous records and could document where all the cash had been spent.
An applicant for Medicaid has the burden of proving eligibility, and without copies of checks or receipts, the caseworker at the County Assistance Office of the PA Department of Human Services may “presume” that the cash was gifted away, and force the applicant to “rebut the presumption.” Without receipts, this can be very difficult to overturn.
2. Loaning funds to a family member.
Loaning funds to a family member within Medicaid’s 5-year look-back can be considered a transfer that can give rise to a transfer penalty. Even if the transfer was a loan, and not a gift, the transaction can give rise to a period of Medicaid ineligibility. A return of the loaned funds can normally avoid a transfer penalty, but proper documentation is critical.
3. Paying caregivers without a written agreement.
One of the most common accidental violations is paying for in-home care without proper documentation or a written caregiver agreement. For example, an individual may pay his daughter or son to provide daily medical care.
If there is no written agreement in place, these payments could be viewed by the PA Department of Human Services as gifts—not compensation—and the applicant can run into trouble with the Medicaid look-back period.
Having a formal, written agreement drafted by an elder law attorney about caregiving and the resulting payments is critical when compensating a family member for daily care without violating Medicaid rules. The PA Department of Human Services tends to presume that in the absence of a written caregiving agreement, the daily care was provided out of love and affection, and that the transfers to the caregiver family member were gifts.
4. Paying contractors for work and not having an invoice or receipt.
This is similar to the problem that arises when paying a caregiver without an agreement. When the County Assistance Office reviews the bank statements during the application process, they may see a large check that you know was paid to a contractor for work, such as work at the house.
But if the check has an individual’s name on it, not the name of a company, the caseworker does not know if the check was a gift. The caseworker will normally request some documentation to verify what the expenditure was for, and without that the caseworker may presume the payment was a gift and impose a transfer penalty.
Before and after pictures can also be helpful in order to help document that work was in fact performed. Completing the memo line of the check with a description of the expense is also helpful, but more and more people are making payments electronically. Always pay from an invoice and save copies of checks. Documentation is critical.
5. Being overly optimistic about staying home for five years.
Sometimes people transfer assets because they encounter health issues and are afraid of losing the real estate or funds to nursing home expenses. Even though they are aware of the 5-year look-back, they believe that they will be able to stay at home for 5 years or more with the help of family members and, in that way, avoid the 5-year lookback.
Unfortunately, they may encounter a further medical setback that requires nursing facility care. Sometimes there is a stroke, fall, or other major incident that makes homecare impossible or not economically feasible. Or, perhaps the caregiver spouse or caregiver child suffers a physical setback such as an accident of their own, a job change, divorce, or other life situation—sometimes even their own death—that results in an unexpected discontinuance of home care followed by nursing home placement.
6. Using a credit card to get points or cash back for a parent’s expenses.
Checks to children look like gifts, so reimbursements to children can also look like gifts, even when they are not. It becomes more of a problem when the repayments are in round numbers and when they do not match up to the receipts—or worse, there are no receipts!
Children will sometimes use their own credit cards in order to get cash back or points from the credit card company, but this can greatly confuse the financial picture when applying for Medicaid benefits. We think it is best to never do this, if possible. If a parent does not have liquid funds, it can be permissible for a child to loan a parent money and be repaid, but the arrangement should be documented in writing with a reimbursement agreement or loan agreement.
7. Commingling bank accounts.
Joint bank accounts can be considered to be a parent’s or co-owner’s money, and withdrawals from the account can be considered gifts, even if you are listed on the account as a joint owner. Those withdrawals (gifts) can give rise to a transfer penalty.
The best practice is normally to keep a parent’s money completely separate from a child’s money. Commingling assets with others can cause transfer penalty issues in the Medicaid application process.
8. Not preparing earlier for a future Medicaid application.
Another mistake that often occurs is that the preparation for a Medicaid application starts too late. The earlier you begin to assemble financial records, the sooner you can identify past gifts inside the 5-year look-back and stop future gifts from occurring. If funds remain, there are often ways to address the transfer penalties and prevent a situation from getting worse.
Seek Additional Help With Medicaid
If you have additional questions, contact Gerhard & Gerhard, PC to discuss your options.
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.