Medicaid is the primary government benefit available to help qualifying persons pay for their long-term care costs. In New Jersey, Medicaid will cover care costs in an at-home setting, an assisted living facility, and a skilled nursing facility.
An applicant must meet certain financial and clinical requirements to qualify for Medicaid. To be deemed eligible, the applicant must submit his or her Medicaid application to the Board of Social Services in the county wherein he or she resides and is receiving care. In conjunction with the application, the applicant must disclose their prior 5 years of financial records. Medicaid then reviews the submitted financial records and if, during its review, Medicaid determines that the applicant (or his/her spouse, if any) has gifted or transferred assets that period to another person or entity without receiving fair value in return–even if the applicant is otherwise eligible in all other respects–Medicaid will impose a penalty.
The penalty is a period of time that Medicaid will not pay for the applicant’s care costs. The penalty clock runs prospectively, starting when the applicant would have been otherwise eligible, but for the gift. The penalty period is calculated by dividing the total amount of gifts made during the 5-year period, by a penalty divisor set by the State. This calculation results in the number of days that Medicaid will not cover the applicant’s care costs.
Generally, the penalty divisor slightly increases annually based on the average daily rate in a semi-private room in a skilled nursing facility in New Jersey. However, this year, on April 1, 2025, the penalty divisor unusually decreased from $440.20 to $402.74/day. This seems to be out of sync with the rising prices of long-term care in New Jersey.
For example, if Medicaid determines the applicant gifted $100,000 to his or her child, then the penalty period would be calculated as follows: $100,000/$402.74 = 248.30 days. Accordingly, Medicaid would not begin to pay for the applicant’s care costs for approximately 248 days. During this penalty period, the applicant (or, more often, the applicant’s family) will be responsible for privately paying for his or her care costs. With the prior higher penalty divisor, the penalty period would have been for approximately 227 days. In this scenario, under the new penalty divisor, that same client’s $100,000 gift will result in a longer penalty period by approximately 3 weeks.
Unfortunately, a penalty period of any length, as a result of gifting, can certainly be a hardship for the applicant and his or her family, who often do not have the resources to continue to privately pay for the applicant’s care. Of course, with the appropriate planning and foresight, there are Medicaid planning strategies available to protect your loved one’s assets and potentially avoid the imposition of a Medicaid penalty.
If you or a loved one is faced with decisions regarding long-term care, please call us ( 856.489.8388 ) to discuss how to navigate your way through the planning process. We can help you protect assets and properly qualify for Medicaid.
