As of April 1, 2024, the New Jersey Department of Human Services, Division of Medical Assistance and Health Services has increased the Medicaid penalty divisor from $384.57 to $440.10 per day[1]. This change affects individuals applying for Long Term Services and Supports (LTSS) who have transferred assets for less than fair market value within the lookback period.
Understanding the Medicaid Penalty Divisor
The penalty divisor is the average daily cost of nursing home services in New Jersey, which is adjusted annually based on a survey of all nursing facilities in the state[1]. This figure is used to calculate the penalty period for Medicaid applicants who have made disqualifying asset transfers.
When an individual applies for Medicaid LTSS, the state examines their financial records for the past five years, known as the lookback period, to determine if any assets were gifted or transferred for less than fair market value. If such transfers are found, a penalty period is imposed, during which Medicaid will not pay for the applicant’s long-term care services.
Calculating the Penalty Period
To determine the length of the penalty period, the value of the transferred assets is divided by the penalty divisor, and the result is rounded down to the nearest whole number[1]. For example, if an applicant transferred $100,000 in assets, the penalty period would be calculated as follows:
$100,000 (amount gifted) ÷ $440.10 (divisor) = 227 days
The penalty period begins on the date the applicant is otherwise eligible for Medicaid LTSS, but for the penalty[1].
Impact on Medicaid Applicants
The increase in the penalty divisor from $384.57 to $440.10 may result in shorter penalty periods for some Medicaid applicants who have made disqualifying asset transfers. However, it is important to note that the penalty divisor still does not fully align with the actual daily cost of a semi-private nursing home room, which often exceeds $500 per day.
As a result, even with the increased penalty divisor, applicants may face significant out-of-pocket expenses during the penalty period. For example, if an applicant transferred $100,000 in assets and incurred a penalty period of 227 days, they would be responsible for paying the nursing home’s daily rate of $500 for those 227 days, totaling $113,500.
The Importance of Proper Estate Planning
Given the potential financial impact of Medicaid penalties, it is crucial for individuals and families to engage in proper estate planning to protect their assets and ensure eligibility for long-term care services when needed. Working with an experienced elder law attorney can help navigate the complex Medicaid rules and regulations, minimizing the risk of penalties and preserving assets for future generations.
Conclusion
The increase in New Jersey’s Medicaid penalty divisor for 2024 highlights the ongoing challenges faced by individuals and families planning for long-term care. While the higher divisor may lead to shorter penalty periods in some cases, it is essential to recognize that the actual cost of nursing home care often exceeds the penalty divisor. Proper estate planning, including working with a knowledgeable elder law attorney, can help mitigate the financial impact of Medicaid penalties and ensure access to necessary care services.
References
- State of New Jersey Department of Human Services, Division of Medical Assistance and Health Services. (2024). Medicaid Communication No. 24-03: Increase in the Penalty Divisor – Effective April 1, 2024.
- American Council on Aging. (2021). Medicaid Lookback Period: Gifting & Asset Transfer Rules.
- Eckman, B. D. (2021). The Importance of Estate Planning in Light of Medicaid Penalty Divisor Changes. Law Firm of Benjamin D. Eckman Newsletter.
