Understanding Medicaid Home and Community Services: A Primer, 2010 Edition. Permissible Transfers


Certain transfers can be made without penalty:

  • Transfers made to a spouse or a third party for the spouse’s benefit.

  • Transfers of a home to a minor child or child with disabilities, or siblings or adult children who have lived in the home before the beneficiary was admitted to an institution or the waiver program, and who meet certain other conditions.38

  • Transfers by Medicaid applicants/recipients to their blind children or children with disabilities or to a trust for those children’s benefit, regardless of the child’s age.

  • Assets transferred into a trust solely for the benefit of a person under age 65 with a disability. Eligible trusts include special needs trusts and pooled trusts established by a nonprofit association that manages multiple accounts.39 These trusts are not counted in Medicaid’s resource eligibility determination.

When a state has determined that an impermissible transfer has taken place, it must deny coverage for long-term care services in an institution or through an HCBS waiver program. Coverage may also be denied at state option for long-term care services such as home health or personal care provided through the State Plan for individuals who are not residing in institutions. For the most part, such penalties do not affect the person’s eligibility to receive any other services under the Medicaid State Plan.

States calculate the duration of the penalty based on private pay nursing facility rates--whether the person who has transferred assets is actually in a nursing home or seeking home and community services--even though the monthly cost of services in the community is likely to be substantially lower. The duration of the penalty is calculated by dividing the uncompensated value of the transferred assets by the monthly cost of care in a private nursing facility. The same formula is used for people applying for services through an HCBS waiver program.

The penalty calculation is the same regardless of (a) whether the person was living at home or in a facility at the time of transfer, and (b) whether the person was actually using or paying for services. However, Federal law requires that states make exceptions in cases of undue hardship.

Prior to February 2006, the rule regarding the penalty start date--the month the transfer occurred--reduced or eliminated the effect of the penalty, depending on the amount of the transfer and the amount of time that passed between the date of the transfer and the date of application to Medicaid. Thus, if a transfer was modest and occurred relatively early in the 3-year look-back period before the individual applied for Medicaid, it often had no effect.

To correct this situation, the DRA-2005 changed the start date for the penalty period for all transfers made after February 2006 and extended the look-back period from 3 to 5 years. A penalty for transfers made after February 2006 now begins the month an individual becomes eligible for Medicaid and is in a nursing facility or other institution or who is eligible for an HCBS waiver based on institutional rules.40

Effect of Transfer on Benefit Loss: Example for Transfers

  • A person withdrew $20,000 from savings and gave it to an adult child on January 1, 2005.

  • The person is receiving an institutional level of care--that is, she is either in a nursing home or is eligible for waiver services based on institutional rules--on April 1, 2009.

  • The monthly cost of nursing facility services is $4,000.

  • The penalty period is 5 months ($20,000 divided by $4,000).

  • The 5-month penalty period begins on the date the person is eligible for Medicaid; in this example, from April 1 through August 31, 2009. During the 5-month penalty period, a person who is eligible for Medicaid can receive services other than long-term care services. Once the penalty period is no longer in effect (beginning September 1), the person can receive coverage for long-term care as well as other services.41

View full report


"primer10.pdf" (pdf, 2.08Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®