New Jersey Announces Increase in Medicaid Penalty Divisor

Increase in Medicaid’s penalty divisor announced.

The agency governing the Medicaid program in New Jersey is the New Jersey Department of Human Services, Division of Medical Assistance and Health Services (DMAHS). On March 28, 2023, DMAHS announced an increase in the Medicaid penalty divisor from $374.39 to $384.57 per day, amounting to $11,697.34 per month, effective April 1, 2023. For all cases received on or after April 1, 2023, the new daily penalty divisor of $384.57 per day will be used in the calculation.

What is the Medicaid “penalty divisor?”

When a resident of New Jersey applies for Medicaid benefits, DMAHS “looks back” to determine if the applicant (or the applicant’s spouse, if the applicant is married) 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 often referred to as Medicaid’s “5 year look-back period.”

If the Medicaid applicant (or his/her spouse) made a gift within the look-back period, a penalty is imposed. The penalty resulting from a gift made within the look-back period is a period of time 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.

How is the penalty divisor used by Medicaid?

DMAHS calculates the “penalty period,” or the period of ineligibility for Medicaid benefits resulting from a gift, by determining 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 gifted 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.”

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 $11,697.34, amounting to 8.55 months, or approximately 8 months and 17 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 applying for Medicaid benefits could reduce or eliminate the resulting penalty period.

The notice from DMAHS, called a Medicaid Communication, announcing the increased penalty divisor, is attached here  – [gview file=””]

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