What Happens if You Exceed Resource Limits During a Penalty Period?

DE PERE, Wis. - Aug. 20, 2013 - PRLog -- My office receives no shortage in calls from attorneys and agents whose clients received an inheritance or had a home sale in the midst of a Gifting/Medicaid Compliant Annuity plan (also referred to as a Half-a-Loaf plan).  The concern is usually that the client will no longer be "otherwise eligible" in that his or her countable resources now exceed the program eligibility limits.  In some cases I've even seen this occur on an income level as well.  Income will increase or care costs will decrease, and suddenly the applicant's care costs are well above his or her income.

In an initial thought process, I can see where this could cause some concern.  Medicaid Planning 101 covers the importance of staying within program limitation guidelines, and establishing an applicant's "otherwise eligible" factor so that any applicable period of ineligibility may begin.  Key word: begin.  So, what happens in a case where a penalty period has already commenced?

The Centers for Medicare and Medicaid transmittal dated July 27, 2006, page three, state that "once the penalty period is imposed, it will not be tolled (i.e., will not be interrupted or temporarily suspended), but will continue to run even if the individual subsequently stops receiving institutional level care."  Meaning, once an applicant has been identified as "otherwise eligible" for benefits, the penalty period does not stop even though the applicant might not continue to be "otherwise eligible" during the entire penalty period.

Notwithstanding the above, state interpretation may vary.  In my experience I have seen most states apply what is outlined in the CMS transmittal with the exception of Michigan.  Michigan's policy manual states that a "divestment penalty period must be stopped if an individual is not eligible for any reason," and then restarted "when the individual is again eligible for Medicaid and in an LTC facility" (BEM 405).

That being said, an increase in income or resources during a divestment penalty period usually is not much of a concern.  It's more important to ensure that the individual meets income and resource guidelines upon the end of the divestment penalty period so that eligibility may once again be established.  This can be done by way of a Medicaid Compliant Annuity in most cases.