Understanding the Medicaid Look-Back Period: 14 Key Questions, Answered

Reviewed by Lucinda Ortigao, CFP Lucinda Ortigao is president of Cape Investment Consulting Inc. and is a Certified Financial Planner.

You may have heard of the Medicaid “look-back period,” but if you aren’t sure how it would affect your loved one’s ability to qualify for Medicaid or pay for senior care, we can help. Understanding the ins and outs of the look-back period and its potential resulting penalties can make a huge financial difference and help protect your family’s assets and funds. Learn about how to qualify for Medicaid, what the look-back period entails, and how to avoid penalties so that your loved one can pay for the care they need.

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Key Takeaways

1. The Medicaid look-back period goes five years into the past. A senior’s spending, gifts, and donations over the previous 60 months will be evaluated.
2. Certain types of spending during the look-back period can lead to a penalty. If it’s clear your loved one has intentionally “spent down,” their Medicaid eligibility will be postponed.
3. There are ways to minimize assets without incurring a penalty. These include home renovations, car upgrades, Medicaid-compliant annuities, and establishing a trust.
4. Families have to pay for care independently during a penalty period. Seniors can rely on savings, income, and other sources to pay for senior living until the penalty period ends.

What is Medicaid?

Medicaid is an insurance program funded jointly by the federal government and individual states. It’s designed to provide health care coverage to low-income Americans who can’t afford the care they need on their own, as well as people with qualifying disabilities. With over 85 million people enrolled, Medicaid is currently the largest provider of single-source health insurance in the U.S. [ 01 ]

Medicaid’s eligibility requirements and coverage vary greatly from state to state, so where your loved one lives can affect their Medicaid eligibility, the benefits they’ll receive, and the potential penalty periods discussed below.

Who qualifies for Medicaid?

To qualify for Medicaid, a senior must meet several requirements:
Their income has to fall below a state’s Medicaid income limit, or their medical-related care costs must exceed their income.

• They must live in the state where they receive benefits.
• They must have a significant medical need.
• Their countable assets have to fall within the range determined by their state.

Because each state has its own requirements, it’s important to contact your state’s medical assistance office for more details, or to speak with an elder law attorney who can walk you through the nuances of your state’s unique program and application process.

What are the financial eligibility requirements for Medicaid?

In addition to meeting medical criteria, senior applicants must adhere to strict financial eligibility requirements both before applying for Medicaid and after they have qualified.

Even if a senior has limited resources and wouldn’t be able to pay for senior living or nursing home costs out of pocket, they may have countable assets or income that exceeds their location’s Medicaid requirements. These income requirements are typically based on earnings beneath 133% of the state’s poverty level. [ 02 ] So, if the poverty line in your state is calculated at $15,000 of annual income, your income would need to be less than $19,950 to qualify for Medicaid.

Causes of Medicaid financial ineligibility

There are two main reasons seniors don’t financially qualify for Medicaid: their income or their assets (or a combination of the two). To meet the financial requirements, a person must carefully minimize or “spend down” excess funds.

If your loved one’s income is too high: Some states offer spend-down programs that can help seniors qualify for Medicaid. This means that a state lets people subtract their non-covered medical expenses — prescription drugs, health insurance premiums, deductibles, and doctor and dentist visits — from their monthly income until it’s at a level that qualifies them for Medicaid. Spend-down periods vary by state, and they can last anywhere from one to six months. [ 03 ]

If your loved one has assets that disqualify them from Medicaid: Sometimes, even if a senior can’t immediately pay for long-term care, they might own assets like a home, land, or large amount of savings. Gifting assets or money can’t be part of a senior’s plan to qualify for Medicaid.

To make sure seniors don’t simply give their assets away to family and friends, the Centers for Medicare and Medicaid Services (CMS) reviews applicants’ financial histories over a “look-back period” of five years.

What is the Medicaid look-back period?

The Medicaid look-back period is a window encompassing the 60 months before a senior applies for Medicaid. During this period, the applicant can’t have gifted money or assets over a certain value to friends or family. If any gifting occurred for less than fair market value during this period, a senior will incur a “penalty period” of Medicaid ineligibility. [ 04 ]

For example, if a senior applies for Medicaid on Jan. 1, 2024, they must not have gifted money or assets since Jan. 1, 2019, to be eligible.