In this article, you’ll discover how Medicaid penalty calculations work, how to avoid costly mistakes, and why an elder law attorney can help protect your eligibility.

To qualify for Medicaid help paying nursing home bills, you cannot simply transfer your assets and move into a nursing home. However, the rules allow you to protect assets if you know your way around Medicaid penalty calculations in Texas.

The government has a legitimate reason for delaying benefit payments.

When a person has assets and gives them away state and federal budgets simply can’t afford it. They would go bankrupt quickly. Congress does not want a person with assets to move into a nursing home on Friday, give their assets away over the weekend and qualify for Medicaid the next week. Neither level of governments can afford to provide nursing home care for everyone. It’s just too expensive.

Those who try to “hide” their savings instead rather than following the Medicaid gifting rules will cause themselves significant financial harm. You don’t want to be one of them. The law penalizes applicants when assets are transferred for less than their value. During the penalty period, the person needing care will be ineligible for Medicaid benefits. This includes gifts as well as “bargain sales.” A bargain sale occurs when an asset is sold for less than its fair market value.  By understanding Medicaid policy, it’s possible to use the rules to keep from losing all your assets.

The Texas Medicaid Penalty Divisor Rate and How It’s Used

Each state uses a formula to determine the delay. The key factor is an amount called a divisor. The divisor is used to determine the length of the gifting penalty. The government wants to reserve Medicaid only to those who they believe need it. They prefer families spend down their assets before applying for governmental help. These penalties take the form of a delay in when they will begin providing Medicaid benefits.

They use the delays to dissuade transfers they see as solely to gain eligibility.

Congress has set up rules known as Medicaid gifting rules. Government policy penalizes applicants for transfers that take place during a Medicaid look back period. The look back period is the sixty-months immediately before the application date. All transfers made during this period of time must be submitted for review by the Texas Medicaid agency. The agency reviews the transfers to determine if they are subject to penalty.

Transfers that receive less than the asset’s market value are generally penalized. The Texas Medicaid agency assesses penalties in the form of days the applicant is not eligible to receive funding. Every state has its own divisor rate. A divisor sets the length of the penalty for transfers subject to penalty. It is designed to reflect what a family would pay privately for semi-private care in the state.

For Texas, the amount for 2025 is $242.13 per day. For every $242.13 Medicaid, the benefits start is delayed by one day. When you apply for Medicaid nursing home benefits, the application asks a simple “yes/no” question about asset transfers. The question asks whether you transferred any assets during the 60 months before applying. If the answer is yes, you must list each asset transferred. You must also disclose its market value at the time of transfer, how much you received for the asset, and who received the property.

The Texas Department of Human Services reviews your answers as part of the application process. A Medicaid employee works out the penalty calculation. Let’s look at an example using the Texas divisor rate. This works out to about $7,350 per month. If the amount transferred is $73,500 then the Texas Medicaid penalty calculator would look like this:

• Divide $73,500 by $7,350
• The result is roughly 10 months

This means there would be a ten-month delay before Medicaid provides funding for nursing home room and board. The patient and their family are responsible for payment during that time.

When does the penalty start?

Under the Deficit Reduction Act, the penalty would not start until five conditions have been met.

1. The person making the transfer must already live in a nursing home
2. The patient meets the medical requirements for the program
3. That person’s income and assets are within Medicaid’s established limits
4. A Medicaid application has been properly submitted on behalf of the patient
5. The application would have been approved but for the asset transfer

According to Senior Source.com, the average semi-private rate in Texas runs a family $5,329 per month ($63,948 annually). Costs for a private room are understandably higher. The survey estimates a private nursing home room’s median annual cost of $80,304 a year. Metropolitan areas like Houston, Dallas, San Antonio, and Austin are usually on the higher end of the scale running. Semi-private rooms are about $5,718 monthly. Private accommodations about $7,605 per month.

Avoiding the penalty

There are ways to avoid the penalty, but you need solid advice from an elder law attorney. An attorney skilled in Medicaid planning can help you position assets in ways that avoid a penalty. To keep the most assets for family members requires careful advanced planning. The best solution is one that transfers assets outside of the five-year look back period.

Of course, it is difficult to predict when you will need long term care.

Can the penalty be reduced?

If you find yourself on the wrong side of the penalty calculation, there are ways to “cure” the penalty. Congress created a special provision that reduces the length of the penalty. This law says that the penalty can be eliminated if all of the gifted assets can be returned to the patient. If only a portion is returned, the penalty can be reduced. By returning the assets you can use other strategies that better fit your needs.

As you can imagine, the rules are confusing.

You’re better off getting guidance from an attorney. Texas Medicaid penalty calculations are complicated. It’s made more challenging when people make transfers without knowing the law. Unintended consequences are the norm without experienced direction. As with most Medicaid planning strategies, talk to an elder law planner for reliable advice.

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Medicaid is a government health care program that helps pay long-term care expenses. The person needing care must meet both financial and level-of-care guidelines. Support is only provided to nursing homes previously certified by Medicaid. Medicaid-approved facilities need to offer three basic services:

• Skilled nursing or medical care and related services
• Rehab that is needed due to an injury, disability or illness
• Long term care that offers services and care that are health related and needed due to a physical or mental condition

Nursing Home and Medicaid Tips

1. You have to be meet Medicaid’s income and asset rules to get help paying nursing home care, The patient is limited to no more than $2,000 in “countable assets”. Countable assets include just about anything that can be turned into cash. “Non-countable assets” include your home and all connected lands or buildings as long as their equity value is $525,000 or less. Texas rules also exclude one automobile, certain funeral arrangements, burial plots, and personal items like clothing and household furnishings.
2. Not all nursing homes accept Medicaid payments. When checking out a facility, ask whether they accept Medicaid patients. A Medicaid certified facility means the nursing home meets certain minimum care requirements. The facility is also inspected annually to ensure they meet Federal and state guidelines.
3. The person needing care must be “sick enough” to get Medicaid. He or she must need “medically necessary” care. In Texas, the medical determination is made by a state agency called the Texas Medicaid and Health Partnership. That agency makes its decision based on input by the nursing home’s Director of Nursing.
4.  If the patient has income above Medicaid’s monthly limit  they can get financial assistance if they pass their income through a Miller Trust.  The trust is an attorney-created document that legally reduces the amount of “countable income” below the income limit.
5.  You can enter a nursing home facility as a private pay patient and pay for care out of your own pocket. Medicaid law provides a number of options to “spend down” to the become asset eligible while still protecting assets. Once you are financially and medically eligible, Medicaid will provide financial support.
6. The rules regarding eligibility for Medicaid are very strict. Giving away assets is allowed but making gifts exposes you to serious penalties and delays. The Texas Department of Health and Human Services is very serious about having you to understand these rules. Medicaid looks back five years to see whether you’ve done anything to reduce your assets. Handled poorly previous gifts can create significant financial penalties.
7.  Medicaid lets the person needing care keep a small amount of money for basic needs. This means you can keep a small amount of cash to pay for things like snacks and personal products. Called the “personal needs allowance” in Texas, the amount is $60 for 2016. Unless the person is married, all other income must be used to pay health insurance premiums and the cost of nursing home care. If the patient is married, they may be able to divert part of the income to their spouse.
8. When you apply for Medicaid for nursing home care, you are required to report your assets. If you are married, they also consider the assets held by your spouse. Medicaid law protects a certain level of assets and income for a spouse who is not living in a nursing home.
9. A Revocable Living Trust is useless in protecting assets for your family. Since the trustee has the right to revoke the trust, Medicaid rules expect you to do so and use the money for care expenses.
10. Home ownership plays a big role in your Medicaid eligibility and coverage. You can structure the home so Medicaid ignores the value when determining eligibility. Home equity can work against you if the value of the home exceeds $525,000. If you do not take steps otherwise, the state can demand repayment for care received once the patient dies (known as “Medicaid Estate Recovery”).

These quick tips about Medicaid and nursing homes barely scratch the surface.

Medicaid asset protection can help avoid spending more than legally necessary. I can help you protect your assets. If you’re interested, click here for a free Medicaid eligibility assessment.