To discourage the practice of transferring assets to obtain Medicaid eligibility, Congress enacted legislation to impose periods of ineligibility, or “penalty periods,” in cases in which a Medicaid applicant transfers assets for less than fair market value (makes a gift) in an attempt become financially eligible for Medicaid. Medicaid officials will “look back” five years (60 months) from the application date to analyze asset transfers made by the applicant. If a Medicaid applicant has transferred assets for less than fair market value within the 60-month “look-back” period, the applicant is subject to a period of Medicaid ineligibility (a “penalty period”), based upon the value of the uncompensated transfer or gift.
The length of the penalty period is determined by dividing the total assets transferred by what Medicaid calculates as the statewide average cost of nursing home care. Last year, that amount was $440.10 per day, or $13,386.38 per month.
However, Medicaid has announced a decrease in the penalty divisor for 2025. Effective April 1, 2025, the penalty divisor is $402.74 per day, or $12,250.01 per month. By decreasing the penalty divisor, Medicaid is in fact increasing the penalty period resulting from transfers made during the look-back period. For example, in 2024, a $100,000 gift would result in a penalty period of 7.47 months; in 2025, that same transfer will result in a penalty period of 8.16 months. In sum, with a decrease in the penalty divisor, the period of ineligibility may become longer, meaning that individuals may face a more extended wait time before Medicaid eligibility.
Medicaid laws are complex; it is important to fully understand the impact of your actions when considering applying for Medicaid benefits.
A copy of Medicaid Communication No. 25-04, is attached here.