The Medicaid five-year look-back, explained

What the look-back is

Medicaid's long-term care coverage is for people with limited means. To stop people from giving their money away in order to qualify, federal law tells each state to look back over a period before the application.

For transfers made on or after February 8, 2006, that period is 60 months. The law is concerned with assets disposed of "for less than fair market value", meaning something given away, or sold for less than it was worth.

Each state runs its own Medicaid program within this federal rule. The outline here is the same everywhere. The details, and the way they are applied, are not.

What counts as a transfer

The plain cases are these:

• Giving money to a child or grandchild.
• Selling a house or a car to a relative for less than it is worth.
• Signing property over to someone else.

Paying a fair price for something you actually receive is not a gift. Paying the facility's bill, buying groceries, or repairing the roof is ordinary spending. The difficult cases are the ones in between, and those are the ones to bring to an attorney.

What happens if there was one

A transfer inside the window does not make someone ineligible for good. It creates a period of ineligibility for long-term care coverage, often called the penalty period. The law sets the length with a division:

• The total value of everything transferred for less than it was worth, divided by
• "the average monthly cost to a private patient of nursing facility services" in the state.

The result is a number of months. The law adds that a state "shall not round down, or otherwise disregard any fractional period of ineligibility", so part of a month counts.

When the clock starts

This is the part that surprises families. For transfers made on or after February 8, 2006, the penalty period begins on the later of two dates:

• the first day of a month in which the transfer was made, or
• the date the person "is eligible for medical assistance under the State plan and would otherwise be receiving institutional level care" on an approved application, but for the penalty.

For a gift made before a person needs Medicaid, the second date is the later one. So the penalty does not quietly run out in the background after a gift is made. It waits, and starts counting when your parent has applied and would otherwise qualify, which is typically when the money has run out.

The exceptions

The same law lists transfers that do not cause a penalty. Among them:

• Assets transferred to the person's spouse.
• Assets transferred to a child who is blind or permanently and totally disabled, or to a trust solely for that child's benefit.
• The home, when it is transferred to certain relatives: a spouse, a child under 21, a child who is blind or disabled, a sibling who already owns a share and has been living there, or a son or daughter who lived there and provided care that let the parent stay at home.

Every one of these has conditions, and several turn on facts the state has to accept. Treat this list as a reason to ask an attorney, not as permission to act.

Two common misunderstandings

"A gift under the gift-tax limit is safe."

The yearly gift-tax exclusion is a tax rule. The Medicaid transfer rule is a separate law, and its test is whether something was given away for less than it was worth. A gift that raises no tax question can still be a transfer for Medicaid.

"The five years started when Mom moved in."

The window is counted back from the application, not forward from the move. A gift made three years before moving in may be outside the window by the time your parent applies, or still inside it. It depends on the dates.

It is not the only rule

The look-back is one of several rules an attorney will weigh together. Two others are worth knowing by name:

• Estate recovery. For people aged 55 or older, states are required to seek repayment from the person's estate for nursing facility services, home and community-based services, and related hospital and prescription drug services. Medicaid.gov also says a state may not recover from the estate of someone survived by a spouse, a child under 21, or a blind or disabled child.
• Protections for a spouse at home. When one spouse needs care and the other still lives at home, the spousal impoverishment rules protect a certain amount of the couple's combined resources for the spouse in the community.

What to do with this

1. Do not move money to get ahead of the rule. A transfer made in a hurry can create the very penalty you were trying to avoid. Get advice first.
2. Write down every gift and transfer in the last five years: the date, the amount, who received it, and why. Bank statements will help you find them.
3. Work out your date. Know the month your parent's money stops covering the bill, so you know how much time there is. This guide shows how.
4. See an elder-law attorney in your parent's state. The National Academy of Elder Law Attorneys keeps a public directory. Here is what to bring.