Under the new Deficit Reduction Act of 2005 (“DRA”) rules, a person who is otherwise eligible for Medicaid will be subject to a transfer penalty period based upon transfers made for less than fair market value. As of 2011, the Medicaid agency will look back through the last 5 years for asset based transfers. The DRA increased the look back period for transfers on non-trust assets from 3 to 5 years, for transfers made on or after February 8, 2006. Therefore, any transfers made prior to February 8, 2006 will be governed under pre DRA rules.

For example, let us assume a person made transfers of $13,000 to each of his three grandchildren last year, for a total annual gift of $39,000. He would be penalized by the Medicaid agency in the following manner. First Medicaid determines the regional nursing home transfer rate in Suffolk County which is approximately $11,000 per month. This number is usually less than what an individual not on Medicaid would pay privately for the same services in a Suffolk County nursing home. Second The Medicaid agency will calculate the total transfers made and divide that number by the nursing home transfer rate of $11,000. In this example the penalty would be $39,000 divided by $11,000 to get 3.5 months of penalty time from the date the Medicaid application was filed (not from the date of the transfer).

Therefore annual gifts of $13,000 or less may not be a good component to your long term health care plan if you wish to rely on Medicaid to pay your nursing home bills.