NJ Medicaid issued a notice that effective today, April 1, 2015, the penalty divisor has been increased to $332.59 / day.

What is the penalty divisor?  It arises when someone is seeking long term care Medicaid (i.e., Medicaid that pays for a nursing home, assisted living facility or home care aides) and has made gifts.  A gift is any transfer of property to any person other than your spouse (or certain other exceptions like a disabled child) for less than fair market value.  For example, if you give $50,000 in cash and securities to your children, that would be a gift.  Or, if you sell your house to your son for $50,000 when the fair market value is $300,000, then you have given a $250,000 gift.

(If you can prove the transfer was for a purpose other than to qualify for Medicaid, e.g. a wedding gift, then the transfer may not be counted as a gift.  But doing so is difficult.)

If you’re applying for long term care Medicaid, and you’ve made gifts in the last five years, then Medicaid calculates the total amount of your gifts (by reviewing your financial records) and assigns a transfer penalty.  A transfer penalty (aka “penalty period”) is a time period of Medicaid eligibility.  I.e., during the penalty period, Medicaid will not pay for your nursing home, and you must foot the bill yourself.

The transfer penalty is calculated using the penalty divisor.  So under the new transfer penalty of $332.59 / day, if you have made $50,000 in gifts, then you divide 50,000 by 332.59, for a penalty period of 150 days (roughly 5 months).

Since gifts are often an integral part of Medicaid planning and asset protection, an increased penalty divisor is a very good thing for New Jerseyans who need long term care.  FriedmanLaw is pleased that the increased penalty divisor will allow us to better help our clients protect their savings and their families from enormous long term care costs.