What You Need to Know about the Medicaid Look-Back Rule

As a senior, the likelihood that you (or a spouse) will need to qualify for Medicaid increases exponentially because the likelihood that you will need long-term care increases as well. Moreover, the cost of that care will be high. Planning for the possibility that you will need to rely on Medicaid requires learning more about the Medicaid eligibility requirements. The Huntersville Medicaid planning attorney at Potter Law Firm explains what you need to know about the Medicaid look-back rule.

Why Might I Need to Qualify for Medicaid as a Senior?

If you have never needed to rely on Medicaid, why would you as a senior? The answer can be found in the very real possibility that you will need long-term care (LTC) at some point during your retirement years. When you reach retirement age, around age 65, you will already stand more than a 50 percent chance of needing some type of LTC services before the end of your life. Those odds increase yearly, and your spouse shares the same odds if you are married. If either of you ends up in LTC, the cost of that care will be steep. The nationwide average for a year in LTC for 2021 was over $100,000 with North Carolina residents (on average) paying just over the national average. Having to cover the cost of LTC using your savings can deplete your retirement savings in record time.

Won’t Medicare or My Insurance Cover LTC Expenses?

As a senior, you will likely rely on Medicare for most of your healthcare expenses. Medicare, however, will not cover LTC expenses nor will most private health insurance plans. In fact, unless you purchased a separate long-term care insurance policy at an additional cost, you will probably be faced with covering your LTC expenses out of pocket. Not surprisingly, over half of all seniors in LTC turn to Medicaid, because Medicaid does cover LTC expenses. First, however, you will need to qualify for Medicaid.

Understanding the Medicaid Look-Back Rule

Because Medicaid is a “needs-based” program, Medicaid uses both an income and a “countable resources” limit when determining eligibility. Although some assets, such as a primary residence and a vehicle, are exempt from consideration, it is still easy for a retiree to have non-exempt assets that exceed the countable resources limit.  If that is the case, your application will be denied. To prevent applicants from transferring assets out of their name in anticipation of applying for benefits, Medicaid imposed the “look-back” period. The look-back period in almost all states, including North Carolina, is 60 months. The look-back rule allows Medicaid to review your finances for the 60-month period preceding your application for asset transfers made for less than fair market value.  If any transfers are flagged, it may trigger a penalty period during which you will be responsible for covering your LTC expenses.  

The length of the penalty period is calculated using the value of the assets you transferred and the average monthly cost of LTC in your area. By way of illustration, imagine that you gifted assets valued at $100,000 to an adult child during the look-back period. The length of the penalty period imposed by Medicaid is determined by dividing the amount of the gift by a penalty divisor set by the state. Based on the North Carolina penalty divisor for January 2023, you would incur a penalty period of 14 months ($100,000/$7,110 = 14.06). You would be responsible for paying your LTC expenses during the waiting period, after which Medicaid would start helping to pay for your care.  One way to avoid this delay is to include Medicaid planning in your overall estate plan well ahead of the need to qualify for Medicaid.

Contact a Huntersville Medicaid Planning Attorney

For more information, please download our FREE estate planning worksheet. If you have questions or concerns about Medicaid planning, contact an experienced Huntersville Medicaid planning attorney at the Potter Law Firm by calling 704-944-3245 (Huntersville, NC or Charlotte, NC) to schedule your appointment. For those in Kentucky, the phone numbers are (606) 324-5516 (Ashland, KY) or (859) 372-6655 (Florence, KY).