As a result of the advocacy efforts by several New Jersey elder law attorneys following a class action lawsuit filed against the State of New Jersey, New Jersey Medicaid’s penalty divisor will be increased to $9,535.62 per month, or $313.50 per day, effective April 1, 2014.

The newly increased divisor shall be used for all new or pending Medicaid applications.  The previous Medicaid penalty divisor was an artificially low $7,787.00 per month.

What is the Medicaid “penalty divisor?” During the Medicaid application process, the Medicaid agency “looks back” to determine if 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 application. This is Medicaid’s “5 year look-back period.”

If a gift was made in the 5 year look-back period, a penalty is imposed. The penalty is a period of ineligibility for Medicaid. The penalty is equal to the number of months of care that the applicant could have paid for a semi-private room in a nursing home with the gifted assets had the assets been retained by the applicant. To determine the length of the penalty period, the agency divides the value of the gifted assets by the average monthly cost of nursing home care in New Jersey. The average monthly coast of nursing home care in New Jersey is referred to as the “penalty divisor.” The penalty period begins on the first day of the month in which the applicant filed for Medicaid.

What is the impact of an increase in the Medicaid “penalty divisor?” The increase in the Medicaid penalty divisor will result in a reduction in the length of any period of ineligibility for Medicaid resulting from a transfer of assets for less than fair market value within the 5 year look-back period.

You can read more about the increase in Medicaid’s penalty divisor in the New Jersey Medicaid Communication No. 14-06, annexed here – Medicaid Communication 14-06 March 26, 2014 Penalty Divisor

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