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When a person applies for Florida’s Medicaid‘s Institutional Care Program (skilled nursing home care, Home and Community Based Waiver, and the PACE) he or she must report any amounts transferred within 60 months. Non-exempt transfers are subjected to an ineligibility period. The ineligibility period is calculated by dividing the amount transferred by the penalty divisor. Currently the penalty divisor is $7,995.00. As of September 1, 2015, the penalty divisor will increase to $8,346.00. It is important that the penalty divisor continue to be adjusted for inflation and that it approximate the cost of care in a nursing home.

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Here is how it works:

A married couple decides to transfer $14,000 to each of their four children and three grandchildren. The couple heard that transferring this amount is “legal” and they want to protect their savings from the cost of nursing home care. So on January 1, 2014 they transfer a total of $98,000 of their total countable assets of $200,000. On October 1, 2015, the husband falls and breaks his hip. Despite surgery and rehabilitation, he is unable to perform his activities of daily living and requires nursing home care. At this point the total countable resources are below the community spouse resource allowance of $119,220; however, because of the transfer of $98,000, there will be an ineligibility period of 11.7 months. A Medicaid application will have to be filed at this point in order to start the ineligibility period. Two of the children are able to pay back the $14,000 given but the rest of the children and grandchildren have already spent the money. $28,000 of the $98,000 transfer can be “cured” by these children paying back the gifts. Therefore a $70,000 transfer will cause a 8.3 month ineligibility period. On average the private pay rate for a nursing home in Naples is $9,000. Therefore, the family will have to privately pay for care for those 8.3 months for a total cost of $75,485. By the time the applicant is eligible for Medicaid benefits, his wife will have only $54,515 left.

While having a higher penalty divisor improves the scenario described, this couple could have preserved all of their assets and could have obtained immediate Medicaid eligibility with appropriate planning that did not involve annual exclusion gifting ($14,000 per year, per beneficiary). Annual exclusion gifting is really meant for people concerned about paying estate taxes and have assets in excess of $5,400,000.