Medicaid and the Five-Year Look-Back: Planning Ahead for Care

Sixty months. That is how far back Medicaid looks when you apply for help paying for long-term care. A gift to a grandchild four years ago, a house moved into a child’s name three years ago, cash handed over last spring: all of it can come back into the application, and each one can delay the coverage you are applying for.

The look-back and the penalty period

Medicaid pays for long-term care once your income and countable assets are low enough under your state’s rules. Giving everything away the week before applying would defeat that test. So Medicaid reviews every transfer made in the 60 months before the application, and any transfer for less than fair value, a gift or a sale at a discount alike, sets off a penalty period, a stretch of months in which Medicaid won’t pay for your care even though you otherwise qualify.

The length comes from a division. Your state sets a penalty divisor. It’s the state’s figure for the average monthly cost of care.

Timing makes it worse. The penalty period doesn’t start on the date of the gift. It starts when you are otherwise eligible: in care, with assets spent down, application filed. So the months fall right when you have the least money to cover them.

What is usually exempt

Countable assets are what Medicaid counts against the limit. Several things usually sit outside that count:

• your primary home, up to an equity limit set by the state, and without a limit while a spouse lives there
• one car
• personal belongings and household goods

Exact rules differ by state, including how burial funds, retirement accounts and life insurance cash values are treated. Your state Medicaid agency publishes its own list.

Protections for a spouse at home

Couples get extra room. When one spouse needs nursing home care and the other stays home, the spouse at home keeps a share of the couple’s assets under a resource allowance. They may also keep part of the ill spouse’s income under an income allowance. Both figures are reset every year within federal limits. States apply them differently. Look up the current ones first.

Partnership policies

Some states run Long-Term Care Partnership programs with approved private policies. Buy one and later need Medicaid, and the program protects assets equal to the benefits the policy paid. A policy that paid $200,000 of care lets you keep $200,000 above the usual limit.

That makes a modest policy more useful than it looks. It pays for the first stretch of care. Then it shields a matching slice of savings. Before buying, check that your state takes part and that the policy is certified.

Estate recovery

Medicaid can also reach back after death. States must seek to recover long-term care costs paid for someone who received that care from age 55, by claiming against the estate. The home is often the target. Recovery is usually put off while a spouse, a minor child or a disabled child survives, and states differ on what counts as the estate. Partnership protection also carries into estate recovery for the protected amount.

Getting advice

These rules vary by state. They change. A mistake, such as a gift made in the wrong year, can cost months of care costs, and the fix is usually timing: transfers made more than 60 months before any application fall outside the review altogether. An elder law attorney in your state is the right person to plan them. Situations differ, and the stakes are too high for a general example to settle.

By now you have priced care using local costs, seen how insurance and hybrids spread the risk, weighed a self-funded reserve, and learned what Medicaid expects if savings run out. The course on building a withdrawal plan and the guide to how much you need to retire fold that care figure into the larger plan, and the lesson on hybrid policies and self-funding is there if you want to revisit the reserve sum.