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Will you have to pay a penalty if you apply for Medicaid?

On Behalf of | Jan 13, 2023 | Health Care Planning

If there is one mistake that older adults often make when preparing for retirement or updating their estate plans, it is that they aren’t very realistic about their futures. People tend to assume that they won’t experience the negative effects of aging the way that other people might.

However, no one knows if they may eventually develop Alzheimer’s disease or similar, debilitating medical conditions as they age. Instead of assuming you will be healthy, it is typically a safer and smarter approach to assume you will need extensive medical support as you age.

Older adults frequently find themselves in need of Medicaid benefits in their later years because Florida Medicaid benefits apply to many forms of care that Medicare will not cover. Unfortunately, without advanced planning, someone applying for Medicaid may have to pay a penalty.

How the Medicaid penalty system works

The Medicaid penalty involves a review of someone’s financial transactions to determine if they gave away or transferred assets that could have helped pay for care. If they did, they will need to pay a penalty before they receive Medicaid coverage.

Florida annually determines what it costs for an average month of nursing home care. That amount is used when calculating somebody’s Medicaid penalty. Any gifts or transfers that would trigger a penalty get added together to produce a final figure. The state then divides that figure by the current transfer penalty divisor, which in 2022, was $10,809.00. That equation will determine the number of months that the applicant is subject to the penalty.

They will have to cover their own costs for that entire time even if they don’t have the resources to do so anymore. The Medicaid penalty leaves people without resources dependent on others or struggling with constantly increasing levels of personal debt.

How planning helps

Reviewing your personal holdings and making some careful changes can help you devise a workable strategy for avoiding a Medicaid penalty. Some people transfer certain property into trusts, while others choose to make a series of strategic gifts as a way of diminishing their personal holdings.

It is only through careful planning that someone can both streamline their future Medicaid application process and minimize their risk of a penalty. Carefully planning to qualify for Medicaid benefits can be a smart step when preparing for retirement.