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Understanding the Look-back Period for Medicaid and MediCal

Understanding the Look-back Period for Medicaid and MediCal

Medicaid, MediCal, Medicare, Part A, Part B, Part C, D, E, F, G... all these terms can be overwhelming.

Medicare, Medicaid, and MediCal are complex subjects. Here we provide you with some general information regarding look-back periods. The Law Offices of James C. Shields can help you navigate through all the requirements and intricacies of these programs so that you can make informed decisions.

The Look-back Period: How it affects asset transfers & long-term healthcare

The look-back period is one of the most misunderstood terms in the Medicaid/MediCal vernacular. Although many people mistakenly refer to the Medicare and Medicaid programs interchangeably, they are quite different. Here, we will take a moment to explain each one as well as what the Look-back Period means to you.

1. Medicare

  • While you were earning a paycheck, Social Security taxes were being deducted. Medicare was one of those deductions that fell under the Social Security umbrella, therefore, it is an entitlement program you paid for through payroll withholding.
  • Medicare enrollment begins three months before your 65th birthday and continues for 7 months.
  • People with group health policies through their employer generally do not have to sign up for Medicare when they turn 65. You can keep your employer coverage until you retire. You will then have eight months within which to sign up for Medicare without facing any penalties for late enrollment.
  • If your employer has fewer than 20 employees and you are 65 or older, Medicare usually becomes the "first payer." You would need to sign up for Medicare it becomes your primary insurance and your employer plan would provide secondary coverage, picking up where Medicare left off.

2. Medicaid

  • Medicaid is a social welfare program designed to help people in need
  • Medicaid is administered by each state/county-rules and benefits vary
  • Medicaid is designed to pay for long-term care once the individual's funds and assets are exhausted

Learning about long-term care planning is vital to protecting your savings and assets so as to allow those assets to be used to support spouse or children while allowing you to qualify for Medicaid under the program guidelines.

For example:

You have $20k in a savings account. If you need to go to a nursing home, you are expected to use all $20k to pay your medical bills before Medicaid steps in. However, if you gift $14k to your daughter more than 5 years prior to your application, there would be a double benefit. First, you only have to exhaust $6k instead of the full $20k and second and there would be no gift tax or penalties since it was gifted outside of the 5 year look back period.

When applying for Medicaid, transfers of assets or gifts or made earlier than 5 years prior to the date of application are not subject to penalties. On the other hand, any transfers of assets or gifts made within 60 months (5 years) of the date of application are subject to penalties.

While people are living longer, it is expected that most people will eventually need some form of long-term care; strategies with the Medicaid look-back period in mind should be addressed before the need arises.

In addition to avoiding taxes and penalties, if you gift well in advance there may be a secondary benefit to those receiving the gift; in the example above, your daughter could use the funds to pay her tuition, buy a new car, make repairs to her house, etc. There is no limit on how much a person can give away in a year, only how much can be given to any one person per year.

Medicaid comes with a very high price tag. While Medicaid is held out as a benefit for those who don't have a means of paying their medical bills, the system has one HUGE flaw: Medicaid can come after your home and assets when you die to pay for your medical expenses.

If you are over the age of 55, Medicaid has been allowed to seize assets since 1993. Different states have different estate recovery laws--all states are required to seek to recoup long-term payment costs, but it is optional to attempt to recoup all medical costs. That being said... those who are Medicaid-eligible under the ACA also should know that the 1993 federal law bars estate recovery when there is a surviving spouse, a child under the age of 21 or a child of any age with disabilities. However, there are exemptions that allow other family members to keep the family farm or home under certain circumstances.

3. MediCal: the Medicaid of California

  • The MediCal "Look-Back" period in California is 30 months
  • Currently, for each $6,840 of gifts made within that "look back", an individual will lose 1 month of MediCal eligibility
  • The gift penalty only affects gifts of cash or other non-exempt assets. Gifts of exempt assets, such as a home, can usually be made even during the "look back" without triggering a gift penalty.
  • Currently, in California, cash or liquid assets have a 30-month look back and real estate (other than the residence) has a 5-year look back.

The elder law professionals at the James C. Shields law firm can help you transfer these types of assets into an Irrevocable Trust, allowing for MediCal approval. If you think you may need long-term care within the next 5 years, call the Law Offices of James C. Shields for a free consultation to discuss all your options.