How is the penalty period calculated?
When you meet the income and assets levels needed to be eligible for Medicaid, you must file an application to receive benefits. In addition to disclosing your income from all sources and all of your assets, you must also identify any divestments that you made during the lookback period.
Each state has a divisor that it uses to calculate the penalty period. The divisor is reset each year, and the amount of the divisor varies from state to state. The caseworker handling your application will divide the total value of all divestment made during the lookback period by the divisor to calculate the penalty period.
As an example, let us assume that you made divestments totaling $60,000 during the lookback period. Let us further assume (for easy mathematical calculation) that the daily divisor is $200. By dividing $60,000 by $200, we find that you must serve a penalty period of 300 days before you become eligible for benefits. Under current law, the penalty period does not start until you are income and asset eligible and you have applied for Medicaid.
You can see the dilemma. If the penalty period prevents you from receiving benefits for any extended length of time, most nursing homes will not accept you as a patient unless you have the means of guaranteeing self-payment. If you gave away your property, you have no means of payment. While giving away your property (divesting it) may once have seemed like a good idea at the time, it may no longer be an attractive option if the catastrophic result is to render you ineligible for the care you need. Divestment is dangerous without both careful planning and appropriate counseling.