The Medicaid Five Year Rule

The five year rule is based on a federal law that is intended to prevent a long term care applicant for Medicaid, (Title 19), or a spouse, from giving away assets in order to qualify for payment for that care. It does not matter whether the sick spouse or the healthy spouse gives away the assets. It will create a period of time, called the penalty period, during which the state will not pay for the care. It is important to know that the penalty period does not begin until one of the spouses is in a nursing home, or has reduced their countable assets to the eligibility amount and is otherwise functionally eligible. The sick spouse is limited to $1600, and as of January 1, 2024, the healthy spouse can keep up to $154,140 of countable assets. The state doesn’t simply rely on what the applicant reports in the application. A caseworker will check the land records to see if a deed has been filed to transfer title. They will also see a social security number, check if the applicant and spouse have any bank or investment accounts, life insurance policies or annuities that have existed during that five year look back period. The Medicaid caseworker can look at any and all transactions to see if assets were given away. If there is a deposit in an account, the caseworker will ask where that came from if the source is not clear.

Assets transferred between spouses are allowed at any time. So if one has a stroke and without warning needs long term care, it is allowed to transfer the house or any other asset into the healthy spouse’s name and it will not include the five year gift transfer rule. But the asset still counts towards the asset limit, unless it is an exempt asset such as the home. The five year rule also allows other exceptions where transfers within the five years do not result in a penalty. One is a transfer to a child who is disabled under the definition of the social security disability rules. Another is to a child who has lived with a parent for at least two years and who has given care to that parent needed to keep the parent out of a nursing home.

If the state finds a gift within the five year look back period that is not allowed, it will impose a time period penalty based on the amount that is given away. The state will not pay for care during that time. As of July 1, 2023, the state says the average cost of a nursing home is $14,244 per month. So if the gifted money was $43,572 that is three times the average cost of care and would result in a three month penalty period. After the penalty period runs out, the Connecticut Medicaid program will pay for the care.

There are numerous exceptions and variations to what can be done during the five year period, including at the last minute. And those rules and the financial limits change periodically, so it is vital to get professional advice on what those rules are both before and at the time you may be faced with the need for care.