New Jersey’s Medicaid rules are complicated, and seem like they’re always changing. One such change in the rules that occurs on a regular basis is the State Medicaid agency’s amendment to the Medicaid program’s “penalty divisor.” On December 10, 2012, a Medicaid Communication, or notice, was released by the Division of Medical Assistance and Health Services, the State Medicaid agency, announcing an increase in the penalty divisor to $7,787, effective November 1, 2012. The divisor was previously $7,757.
What is the Medicaid “penalty divisor?” When a resident of New Jersey applies for Medicaid benefits, the State Medicaid agency “looks back” to determine weather the applicant (or the applicant’s spouse) 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.
The agency calculates 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 purchased had the applicant retained the assets rather than gifting 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 $7,787, or 12.8 months, approximately 12 months and 24 days, of ineligibility for Medicaid benefits. The penalty period begins on the first day of the month in which the applicant filed for Medicaid.
What is the impact of an inaccurate Medicaid “penalty divisor?” A penalty divisor of $7,787 is actually far less than the actual average monthly cost of nursing home care in New Jersey, and the inaccuracy hurts nursing home residents applying for Medicaid. The divisor as calculated periodically by Medicaid is designed to mimic what a family would pay privately for a semi-private room in a nursing home in New Jersey. However, most New Jersey nursing homes charge more than the rate calculated by Medicaid, and many nursing homes charge much more. For example, many of our clients face bills of $9,000 to $11,000 and more each month when a loved one requires care in a nursing home. Because of the difference between the inaccurate “penalty divisor” calculated by Medicaid and the actual monthly cost of nursing home care, Medicaid applicants often face periods of ineligibility for Medicaid which are much longer than they should be. As a result, an applicant often ends up spending more in paying the nursing home privately through the penalty period than was gifted during the look-back period. Without sufficient assets to pay for care, the applicant may receive an eviction notice from the nursing home. An eviction of a nursing home resident for non-payment is specifically permitted under New Jersey law. Getting competent legal advice from an Elder Law attorney about the impact of gifting assets before making any transfers could avoid this unintended consequence.
Medicaid Communication No. 12 – 16, announcing the increase in the” penalty divisor” is annexed hereto – Medicaid Communication No. 12-16