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Issue Alert - Medicaid (MA) Divestment PEM 405

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Jun 28, 2007

Program Area:


Issue Summary:

The Medicaid divestment rules have changed as a result of the Deficit Reduction Act of 2005.

Persons Affected:

Medicaid applicants and potential applicants who may need long-term care either from a nursing home or home and community-based services.

For More Information:

Center for Civil Justice 320 S. Washington, 2nd Floor Saginaw, MI 48607 (989) 755-3120, (800)724-7441 Fax: (989) 755-3558 E-mail:

Michigan Poverty Law Program 611 Church Street, Suite 4A Ann Arbor, MI 48104-3000 (734) 998-6100 (734) 998-9125 Fax


Medicaid (MA) applicants are subject to certain rules regarding how they can use their assets and income and what impact this activity will have on their eligibility for Medicaid. If an individual transfers income or an asset for less than the fair marker value, this is called divestment. Divestment results in a penalty period in Medicaid, but it does not make one ineligible. Only long-term care (LTC) and waiver clients (see PEM 106) are penalized. The transfer must have happened during a certain period of time called "the look-back period" in order for it to impact eligibility. Not all transfers of resources are considered divestment.

If a Medicaid applicant or recipient entering long-term care disposes of assets for less than fair market value on or after a look-back date, they are ineligible for certain benefits. They lose MA for nursing home care, for home health services, and for certain other services for a number of months. The number is determined by dividing the amount divested by the monthly cost of nursing home care for a private-pay patient. Despite the penalty, they are still considered "eligible for MA." However, nursing home and home care costs are not paid.

The look-back period is measured from the "Baseline Date." Prior rules stated that the Baseline Date was the first date that an individual was a MA applicant or recipient and in nursing care. New rules state that the baseline date is the first day that the person is eligible for MA and in LTC or a waiver program. The look-back period was 36 months backwards from that date, except for certain transactions involving trusts. If the last transfer was more than 36 months (or 60 months, if applicable) before the date of application, there was no disqualification. If the applicant applied too early, he/she would not be able to apply again later and avoid a disqualification period that exceeded the look-back period. The Baseline Date remained unchanged despite denials and re-applications. This has not changed.

What's Happening?

The look back period is changing from 36 months to 60 months. In addition, the penalty period no longer starts from the date of the transfer but instead starts on the date which the individual is eligible for MA and would otherwise be eligible for LTC or waiver care if not for the penalty period. During the penalty period, MA will not pay the client’s cost for:
• LTC services, and
• Home and community-based services.
MA will pay for other MA-covered services.

For example, prior rules said that the penalty period ran from the date of divestment. A 10 month penalty could run its course long before the applicant had even applied for Medicaid. Under the new rules, that same 10 month penalty will begin to run on the day that the applicant would otherwise be eligible, if the divestment occurred during the 60 month look back period. Therefore, if someone divested an asset four years ago and there was a resulting penalty period, the penalty period would not run until the person was otherwise eligible for MA and in need of LTC or waiver services. If the divestment occurred more than 60 months prior, it would not be considered.

What Should Advocates Do?

Advising clients of what is and is not divestment is crucial. Clients will sometimes believe that it is okay to give their children assets or the family home, knowing that they will be entering a nursing home. These types of 'gifts' will jeopardize Medicaid eligibility for long-term and waiver care. Even something as simple as refusing an inheritance or deeding a home to a child without compensation is divestment. Although there are hardship provisions that will allow eligibility despite the transfer, it is better not to rely on that possibility. If you are unsure of whether or not a transaction will result in a penalty, contact a specialist that can assist you in making that determination.

What Should Clients Do?

Do not give away money, property, or other valuable possessions without first contacting an advocate. Remember, this rule only applies to individuals needing long-term care or home health services, but it is not necessarily a good idea to assume that this will not be something one needs in the next five years ( 60 months). Health care needs can change quickly, so it is better to think about all possibilities before making important decisions.

Finding Help

Most legal aid and legal services offices handle these types of cases, and they do not charge a fee.

You can locate various sources of legal and related services, including the free legal aid office that serves your county, at

You can also look in the yellow pages under "attorneys" or call the toll-free lawyer referral number, (800) 968-0738.