If you or your spouse give away money or property to anyone for less than fair market value, you may not be eligible for Medicaid. In addition, the State of Iowa can make a claim against the people who received the gifts.
Eligibility Penalty Period
If you give away assets less than five years before applying for Medicaid, you may not be eligible right away. This is because the State of Iowa imposes a “penalty period,” which starts when you are otherwise eligible for Medicaid. The penalty period is based on the average statewide cost of nursing home care.
Example 1: Assume you gave $88,000 to your daughter on May 1, 2020 and that you enter a nursing home and apply for Medicaid four years later in May 2024. Since it has been less than five years since you made the gift, you would have a penalty period. If the average cost of nursing home care in 2024 was $8,800 per month, your penalty period would be 10 months. The penalty period is calculated by dividing the amount of the gift by the average cost of nursing home care at the time you apply for Medicaid. Thus, an $88,000 gift divided by the average cost of care of $8,800 would give you a 10-month penalty period.
Example 2: Assume you gave $88,000 to your daughter on May 1, 2019, but that you do not apply for Medicaid until June 1, 2024. In this case, you would be eligible because you applied for Medicaid more than five years after you gave the gift.
Claims Against People Who Receive a Gift
If you make a gift within five years of applying for Medicaid for nursing home care, the State of Iowa can also make a claim against whoever received the gift. In the first example above, since you made the gift to your daughter less than five years before applying for Medicaid, the State may have a claim against your daughter and can try to recover the cost of your nursing home care until they get back the amount of the gift.
Exceptions to Gift Rules
These Medicaid rules are not meant to prevent normal holiday and birthday gifts. They are to prevent people from making gifts just to become eligible for Medicaid. These rules also do not prevent you from selling your assets for their fair market value, or from pre-paying burial expenses, buying exempt assets, or paying other living expenses.
There are also several important exceptions to these rules. For example, you can make gifts in any amount to your spouse, or to your children who are disabled (but be careful if the gift could make them ineligible for their benefit programs). You also can transfer your home to your child who lives with and cares for you in your home for at least two years before you applied for Medicaid, if the care kept you out of a nursing home. It is very important to get legal advice before making any gifts of money or property when you may be applying for Medicaid in the future.
The rules for qualifying for Medicaid are often complex and confusing. You may call the Legal Hotline for Older Iowans at 1-800-992-8161 if you have questions or would like more information about Medicaid eligibility.