New Jersey Medicaid has reduced the penalty divisor for 2016, from $332.59 / day to $332.50 / day.

Let’s back up a bit.  If you apply for long term care Medicaid, to pay for long term care in a nursing home, assisted living facility or at home with aides, you have to disclose to Medicaid any gifts that were made in the past five years.  You also have to submit five years worth of records for any financial accounts you owned during that time.  Medicaid will review the records to verify whether any gifts were made.

If you have made gifts in the past five years, Medicaid will assign a gift penalty.  Medicaid uses the penalty divisor to determine the penalty.  You lose Medicaid for a period of time, based on the size of the gift.  If the penalty divisor is $332.50, you lose one day of Medicaid for every $332.50 you give away (roughly one month lost for every $10,000 gifted).  During the penalty period, Medicaid will not pay for your long term care, and you’ll have to pay for it yourself.  The penalty period doesn’t begin until you’re otherwise eligible for Medicaid (you’re medically eligible, your Resources are below $2,000, etc.) and you’ve applied.

The penalty divisor is based on the cost of nursing home care in New Jersey.  The cost usually increases, so Medicaid usually increases the penalty divisor.  When Medicaid decreases the divisor, that’s bad for applicants, as it means gift penalty periods will be longer.

There are a few different theories on why the penalty divisor was reduced this year.  One is that Medicaid has switched from a raw average calculation to a weighted average calculation.  Another is that Medicaid is more accurately counting the cost of care, figuring in less expensive nursing homes from outside New Jersey’s urban core.

Whatever the answer is, we’ll continue to help clients preserve live savings within their families rather than losing it all to long term care costs.