What is the Medicaid Penalty Period?

The Deficit Reduction Act (DRA), signed by then President George Bush significantly changed the rules regarding transfers, for non-services, or gifts of assets (Gifts). Any Gifts made prior to enactment of the DRA on February 8, 2006, Maryland Medicaid officials review all documentation, bank statements, mutual funds, CD’s etc. for any Gifts made within the 36 months of the Medicaid application (or 60 months if the Gift was made to an irrevocable trust). However, for Gifts made after the enactment of the DRA the so-called "look back" period for all Gifts is 60 months.

The “look back” period determines what Gifts will be penalized, if any.  The penalty period is dependent on the amount Gifted. The penalty period is determined by dividing the amount Gifted by the average monthly cost of nursing home care in the Maryland. For instance, if the Medicaid applicant Gifted $68,000, the Maryland average monthly cost of care is $6,800, the penalty period would be 10 months ($68,000/$6,800 = 10).

Additionally, the DRA changed when the penalty period created by the transfer starts. Prior DRA, the 10-month penalty period created would begin either on the first day of the month during which the Gift transpired. However, post DRA, the 10 month penalty period does not begin until (1) the Medicaid applicant resides in a nursing home, (2) has “spent down” assets under $2,500 for Medicaid eligibility, (3) has applied an application for Medicaid, and (4) has been approved for Medicaid, “but for” the Gift.

For example, an individual transfers $68,000 on January 1, 2010, moves to a nursing home on January 1, 2011, files an application for Medicaid, has assets below $2,500 the 10 month penalty period begins on January 1 2011, and the penalty period begins, and the Medicaid applicant will start to receive Medicaid on November 1, 2011.