The Medicaid five-year look back rule is often confused with the length of the penalty period. Here’s how to understand these two different concepts and how they relate.
The five-year look back is a reporting period. It is triggered by filing a completed Medicaid application. On the application, the applicant is required to self-report all the gifts made in the past five years leading up to the application date. Hence, the “look back period”.
Medicaid does not like it when the applicant spends down to the asset limit ($2,000 in assets for an individual) by giving assets away. So, the regulations penalize the applicant for giving assets away. The penalty is expressed as a waiting period during which the applicant must self-pay for care until the waiting period ends.
The length of a given penalty period is determined by the total amount of gifts made in the five years leading up to the application date divided by the average monthly cost of skilled care in Delaware (“the divisor”). The divisor is recalculated every year.
For example, if the divisor is $10,000, then every $10,000 given away creates a 30-day waiting period. The more you give away, the longer the waiting period. The waiting period can be longer than five years in some cases. If the applicant’s cost-of-care is significant, then there needs to be substantial assets on hand to cover it.