Do you need Medicaid and can’t wait for a 5-year lookback to qualify?

Then, consider Spousal Refusal, which with the Reverse Rule of Halves, represent 2 options to avoid the 5-year lookback requirements.

Spousal Refusal means that assets are transferred from the Medicaid applicant to such applicant’s spouse (the community spouse or the spouse not receiving Medicaid). Luckily, these transfers of assets to a spouse are exempt from the five-year look back period and thus, don’t trigger a penalty period.

Under Medicaid law, the community spouse can sign a Spousal Refusal which states that the community spouse refuses to make their income and resources available to the Medicaid applicant. This can be done especially when the community spouse may have assets over Medicaid’s allowable recourse limit or in excess of the income allowance.

In New York, Social Services Law §366(3)(a) provides that if the community spouse refuses or fails to provide the applicant with the necessary care and assistance, the medical assistance furnished to the applicant creates an implied contract with the community spouse. The cost of the medical assistance then may be recovered from the community spouse. However, this takes a lawsuit, which is often settled for far less than what was transferred, if the lawsuit is pursued in the first instance. Also, if repayment is pursued, the repayment rate is only based on the Medicaid reimbursement rate, which is significantly less than the private pay rate so there is very little to lose for a spouse to claim Spousal Refusal when they cannot plan in advance of the 5-year lookback.

Regardless, those needing Medicaid often have unique circumstances and everyone should get tailored legal advice on any strategy they seek to pursue before effectuating such strategy.

Medicaid provides a penalty period for the transfer of assets for less than its fair market value within 5-years of an individual’s application for Medicaid. The penalty is calculated by taking the amount of the transfer and dividing it by the average cost of one month of nursing home care in the region where the applicant resides.

A strategy used to maximize an applicant’s excess assets is the Reverse Rule of Halves. Essentially, this strategy allows the applicant to retain at least half of his excess assets and to become eligible for Medicaid sooner. When using this strategy, the Medicaid applicant gives 100% of their excess assets to a family member or multiple members. As this transfer may be a violation of Medicaid’s look back rule, a penalty period of Medicaid ineligibility will result. The family member, however, can return half of the gifted assets in installments back to the Medicaid applicant through a promissory note, so that the penalty period is also cut in half. The applicant, then, can use the returned assets to pay for care during the penalty period.

To utilize this strategy, the assets must be accessible either through a competent individual’s signature, joint ownership, or a Durable Power of Attorney. The return of assets will need to be done through a Deficit Reduction Act (DRA) compliant promissory note. To determine the value of assets that can be preserved with this strategy, the following factors are considered: