New Jersey’s Medicaid rules are complicated, and always changing. One such change in the rules occurring on a regular basis is the State Medicaid agency’s amendment to the Medicaid program’s “penalty divisor.”  On May 12, 2017, a Medicaid Communication, or notice from the agency, was released by New Jersey’s Division of Medical Assistance and Health Services, the State Medicaid agency, announcing an increase in the penalty divisor from $332.50 to $423.95 per day, or $12,895.15 per month, effective April 1, 2017. This is a very big increase in the penalty divisor compared with prior increases.

What is the Medicaid “penalty divisor?” When a resident of New Jersey applies for Medicaid benefits, the State Medicaid agency “looks back” to determine whether the applicant (or the applicant’s spouse) transferred assets for less than fair market value (in other words, made a gift) at any time within the five (5) year period prior to the date of the Medicaid application. This is often referred to as Medicaid’s “5-year look-back period.”

If the Medicaid applicant (or his/her spouse) makes a gift within the 5-year look-back period, a penalty is imposed. The penalty resulting from a gift made within the look-back period is the time period during which the applicant is ineligible for Medicaid benefits. If the value of the gift is large enough, the penalty period may actually exceed the length of the 5-year look-back period.

New Jersey’s state Medicaid agency calculates the period of ineligibility for Medicaid benefits resulting from a gift by calculating the number of months of care in a nursing home that the gifted assets could have paid for had the applicant retained the assets rather than gifting them. To determine the length of the penalty period, the agency divides the value of the gift by the average monthly cost of nursing home care in New Jersey. The average monthly cost of care in a New Jersey nursing home is calculated by Medicaid every few years by surveying all the nursing homes in the State, and is referred to as the “penalty divisor.” The penalty divisor is designed to mimic what a family would pay privately for a semi-private room in a nursing home in New Jersey. For example, if the amount gifted by a Medicaid applicant within the look-back period was $100,000, the penalty period would be equal to $100,000 divided by $12,895.15, or 7.75 months, approximately 7 months and 23 days, of ineligibility for Medicaid benefits. The penalty period begins on the first day of the month in which the applicant filed for Medicaid.

Getting competent legal advice from an experienced elder law attorney about the impact of gifting assets before making any transfers could reduce or eliminate the penalty resulting from a gift made within the look-back period.

Medicaid Communication 17-09, Subject: Increase in the Penalty Divisor is embedded below:

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