The Transfer Penalty
The second major rule of Medi-Cal eligibility is the penalty for transferring assets. Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medi-Cal on Wednesday. So it has imposed a penalty on people who transfer assets without receiving fair value in return. These restrictions, already severe, have been made even harsher by enactment of the DRA.
This penalty is a period of time during which the person transferring the assets will be ineligible for Medi-Cal. The penalty period is determined by dividing the amount transferred by what Medi-Cal determines to be the average private pay cost of a nursing home in your state.
Example: For example, if you live in a state where the average monthly cost of care has been determined to be $5,000, and you give away property worth $100,000, you will be ineligible for benefits for 20 months ($100,000 ÷ $5,000 = 20).
Another way to look at the above example is that for every $5,000 transferred, an applicant would be ineligible for Medi-Cal nursing home benefits for one month.
In theory, there is no limit on the number of months a person can be ineligible.
Example: The period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 ÷ $5,000 = 80).
However, for transfers made prior to enactment of the DRA on February 8, 2006, state Medi-Cal officials will look only at transfers made within the 36 months prior to the Medi-Cal application (or 60 months if the transfer was made to or from certain kinds of trusts). But for transfers made after passage of the DRA the so-called “lookback” period for all transfers is 60 months.
Example: To use the above example of the $400,000 transfer, if the individual made the transfer on January 1, 2003, and waited until February 1, 2006, to apply for Medi-Cal — 37 months later — the transfer would not affect his or her Medi-Cal eligibility. However, if the individual applied for benefits in December 2005, only 35 months after transferring the property, he or she would have to wait the full 80 months before becoming eligible for benefits. On the other hand, if the individual made the transfer on February 10, 2006, he or she would have to wait 60 months before applying for Medi-Cal in order to avoid an ineligibility period.
The second and more significant change in the treatment of transfers made by the DRA has to do with when the penalty period created by the transfer begins. Under the prior law, the 20-month penalty period created by a transfer of $100,000 in the example described above would begin either on the first day of the month during which the transfer occurred, or on the first day of the following month, depending on the state.
Under the DRA, the 20-month period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medi-Cal eligibility, (3) has applied for Medi-Cal coverage, and (4) has been approved for coverage but for the transfer.
For instance, if an individual transfers $100,000 on April 1, 2007, moves to a nursing home on April 1, 2008, and spends down to Medi-Cal eligibility on April 1, 2009, that is when the 20-month penalty period will begin, and it will not end until December 1, 2010.
California Rule: Unlike most other states, the look-back period is currently 30 months in California, and the transfer penalty begins to run on the first day of the month in which a transfer is made. California’s generous transfer rules allow for planning opportunities that are not available in other states.