Penalty Period for Medicaid Applicant Begins After Returned Assets are Spent Down

The U.S. Court of Appeals, Third Circuit, has ruled against a Medicaid applicant who requested a “credit” towards her Medicaid ineligibility penalty period after receiving returned countable assets that she previously gifted to family members.

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Marino v. Velez (U.S. Ct. App., 3rd Cir., No. 10-2324, Jan. 10, 2011).

Beatrice Marino, a resident of a nursing home in New Jersey, made gifts to family members totaling $192,000 in an effort to spend-down her countable assets in order to become eligible for Medicaid benefits.  Upon applying for Medicaid in February of 2009, a penalty period was imposed on Ms. Marino due to the uncompensated transfers.  Thereafter, her family returned $89,000 so that Beatrice would have funds for living expenses during her penalty period.  Although the state reduced her penalty period upon her receipt of such assets, she was told that the penalty period would not begin until April 1, 2010, which was the date that Ms. Marino’s resources would be below the allowable resource limit.

Ms. Marino began federal court litigation, requesting a preliminary injunction on the grounds that the state violated the Medicaid act by “tolling” her penalty period.  The U.S. District Court denied her request, holding that Ms. Marino was not eligible for Medicaid benefits until after she had spent down the returned gifts, at which time the penalty period would begin to run.  On appeal, Ms. Marino argued that the penalty period should have begun on March 1, 2009 (since she was resource eligible at that time), and been suspended beginning on June 1, 2009 (when the gifted funds were returned by her family) and then resumed on April 1, 2010.

The U.S. Court of Appeals, Third Circuit affirmed the District Court’s holding.  According to the Court of Appeals, since Ms. Marino requested that the state (1) recalculate her penalty after the gifts were returned, and (2) treat the gifts as though they had remained in her possession, she “cannot now claim that she should get credit toward her recalculated penalty period for those months, even though she remained technically resource-eligible for Medicaid.”

While properly implemented Medicaid spend-down strategies can be extremely valuable when planning for long-term care expenses and asset preservation, the unintentional incurrence of an ineligibility penalty period can be both financially and physically destructive to the applicant.  A thorough understanding of the complex Medicaid rules and regulations, as well as detailed information regarding the applicant’s resources, income and family circumstances, is required in order to correctly plan for the transfer and distribution of assets prior to the successful filing of an application for Medicaid benefits.