If you’ve transferred assets within the lookback period, the state is going to assess an eligibility penalty period based on the value of all the transfers you made within that 60-month window. The penalty period can be calculated by dividing the value of that gift by the penalty divisor.

The penalty divisor is equal to the average cost of nursing home care in your state.  For example, the state of Iowa uses two amounts, a monthly average and a daily average. In 2019, the monthly average is $6,479 and the daily average is $215.97.

Let’s look at an example to better explain how this works.

Linda is retired and looking to move into a nursing home soon.  Her daughter’s family is moving to the area but there are no houses that fit her growing family on the market.  Linda owns a second property that she has been renting out as an extra source of income, but that will become too much work for her when she moves into the nursing home.  So, she deeds her $250,000 house to her daughter.  Two years later, Linda wants to apply for Medicaid but there’s a problem.  The lookback period.  Two years ago, Linda gave away $250,000 to her daughter in the form of a home.  That $250,000 will be subject to the lookback period which we can calculate using the penalty divisor.

Step one: number of months of penalty

-Uncompensated Transfer Amount: $250,000

-Divided by Iowa’s Monthly Penalty Divisor: $6,479

-Number of Months Penalty: 38 months with $3,798 left over

Step two: number of days of penalty.

-Uncompensated Transfer Amount: $,3798

-Divided by Iowa’s Daily Penalty Divisor: $215.97

-Number of Days Penalty: 17 days with $126.51 left over

Medicaid only counts the number of days and months of penalty period.  So, Linda would be ineligible for Medicaid(based on lookback period alone) for 38 months and 17 days.

Sounds crazy, right?  Luckily, your elder law attorney will be able to come up with solutions to figure out how to get you eligible for Medicaid using various tools and strategies.  Plan early.  Plan ahead.  And plan for your retirement.