If you have transferred assets within the lookback period for less than market value and then move into a nursing home, you will be “penalized” via a period of Medicaid ineligibility. This is to prevent people from in essence divesting themselves of assets as soon as they know they need nursing home care. But just because there’s a penalty period does not mean the person will be ineligible for Medicaid forever. However, the changes in policy have meant that it’s best to plan well in advance for prospective scenarios in your twilight years.
The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average cost of a nursing home in Michigan.
Example: For example, if you give away property worth $100,000, you will be ineligible for benefits for 12.7 months using the Medicaid formula called the “average long-term care cost” which would be $7,867.00
($100,000 / $7867 = 12.71).
Another way to look at the above example is that for every $7,867 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month. In theory, there is no limit on the number of months a person can be ineligible.
Recent changes have also been made to when penalty period created by the transfer begins. Under the prior law, in the example described above the 12+-month penalty period created by a transfer of $100,000 would begin either on the first day of the month during which the transfer occurred, or on the first day of the following month, depending on the state. Under the new rules, the period will not begin until (1) the person making the transfer has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer.
In other words, the penalty period would not begin until the nursing home resident was out of funds, meaning there would be no money to pay the nursing home for however long the penalty period lasts.