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How to Calculate the Penalty Period
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How to Calculate the Penalty Period
Presented by Thomas Krause, J.D.

The Lookback Period and the Penalty Period

Hi, I’m Alex Thompson, Benefits Planner for Krause Financial Services. Today, we’re going to talk about the penalty period and the lookback period.

Understanding the penalty period and the lookback period is extremely important if your client wants to become eligible for Medicaid benefits. If your client gives away too many uncompensated assets, they might have to wait years before finally being eligible. And, depending on the age of your client, waiting years is not an option.

The lookback period identifies how the applicant has used their money over the past five years. When your client applies for Medicaid, the caseworker will calculate how many uncompensated transfers of assets have occurred. These resources could have otherwise been used to privately pay for the applicant’s necessary care rather than using Medicaid. Therefore, if any transfers were made within the lookback period, the applicant will be ineligible for a certain period based upon the amount transferred.

Uncompensated transfers would be simply giving away assets or selling their house or car for less than fair market value. The caseworker will look at the fair market value for these items and calculate the uncompensated value from there.

If your client would like to give gifts to family, make sure they pre-plan and gift their assets knowing that they will need to wait out the five-year lookback period before applying for Medicaid benefits.

The penalty period refers to how long the applicant will have to wait until they’re eligible for Medicaid. It’s calculated based upon the total amount an applicant has transferred. The other factor in finding the penalty period is the divestment penalty divisor. This divisor represents the average cost of a facility’s private pay rate at a skilled nursing facility. Some states may do a daily rate where others may do a monthly rate.

The penalty period can only begin once an applicant is deemed “otherwise eligible” for Medicaid benefits aside from the transfer. During the penalty period, the applicant will have to privately pay for care.

To keep the lookback period and the penalty period straight, consider the following: the lookback period refers to the past and the penalty period refers to the future. The lookback period will help in determining if someone is eligible for Medicaid. And if they are not because of an uncompensated transfer, that will lead to a penalty period.

For example, let’s say your client has been gifting his children with a total of $10,000 a year for the past eight years, and now they want to apply for Medicaid. Everything else is approved on your client’s application except his uncompensated transfer to his children. The lookback period only looks back at the past five years, so your client will only be penalized for $50,000 worth of transfers.

For this example, the divestment penalty divisor is $5,000. You would then divide the $50,000 worth of uncompensated transfers by the divestment penalty divisor of $5,000. Your client would then be ineligible for Medicaid for ten months. On the first day of the 11th month, his benefits will begin.

Make sure to fully understand these terms when working towards Medicaid eligibility for your client. This can help them avoid unnecessarily privately paying for care.

If you’d like to learn more about your client’s options when working towards Medicaid eligibility, contact our office at 855-552-5893 to speak with a Benefits Planner.

My name is Alex Thomson. Thanks for watching.

Watch Next:

How to Calculate the Penalty Period
5:00
How to Calculate the Penalty Period
Presented by Thomas Krause, J.D.
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