What is the Medicaid Look-Back Period?

The phrase “Medicaid look-back period” refers to a window of time before someone applies for long-term care Medicaid, also known as Nursing Home Medicaid. If the applicant has gifted or transferred income or assets for less than their market value, a “penalty period” will be applied and they won’t be eligible for Medicaid.^[01]

No, the 60-month look-back period applies only to long-term care Medicaid in all states except California.^[01] It doesn’t apply to regular Medicaid, also known as Aged, Blind, and Disabled (ABD) Medicaid, or to uses of Medicaid’s home and community-based services waivers. In these cases, each state’s Medicaid program decides how far they’ll look back into an applicant’s financial history.

Let our care assessment guide you

For all states except one, the look-back period is five years, or 60 months. In California, the look-back period is 2.5 years, or 30 months. California is in the process of phasing out its look-back period altogether. It’s expected that by July 2026, California’s Medicaid program will no longer have a look-back period.^[01]

Medicaid program administrators use the look-back period to ensure long-term Medicaid is only used by people who are financially needy and not by people who very recently had higher incomes and more valuable assets.

When someone applies for Medicaid to cover the cost of a nursing home, Medicaid program administrators will review their financial history for the past five years, looking specifically for valuable assets that were gifted or transferred to someone else for less than their market value.^[02]

To determine someone’s eligibility for Medicaid, administrators will review a variety of documents, including:

• Financial statements, including statements from your bank and any investment accounts
• Documents related to property transfers, such as deeds and contracts
• Receipts for transactions whose value exceeds Medicaid’s allowable asset limit value

As an example, if a senior applies for Medicaid on January 1, 2025, they must not have gifted money or assets since January 1, 2020, to be eligible. If the person did give away or transfer assets during the look-back period, they’ll incur a penalty period. During the penalty period, they aren’t eligible for Medicaid.

How long is the Medicaid penalty period?

When a person who applies for Medicaid is found to have transferred income or assets below their market value during the five-year look-back period, the penalty period begins on the day they applied for Medicaid.

The length of a penalty period is determined by the “penalty divisor” for the state in which your loved one lives.

What’s a Medicaid penalty divisor?

Medicaid administrators use a formula to determine the length of an applicant’s penalty period.^[03] The penalty divisor is the denominator in this formula and is equivalent to the average cost of a nursing home in your loved one’s state or county. The numerator is the value of the gift itself.

For example: In Alabama, the penalty divisor is $7,800.^[03]

If your aging parent who lives in Alabama gifted you $100,000 in January 2021, but they applied for Medicaid on January 1, 2025, the resulting penalty period would be $100,000 divided by $8,152, which equals 12.8 months.

Thus, the penalty period would be 12.8 months, and your parent would be eligible to receive Medicaid benefits in February 2026.

Talk with a Senior Living Advisor

The first step to avoiding penalties is knowing how they’re incurred. Below, we detail which types of transactions cause penalties during the look-back period, which don’t, and safe ways to spend down without affecting Medicaid eligibility.

Which financial transactions during a look-back period result in a penalty period?

Any gift of more than a nominal value must be reported on the Medicaid application form and will result in a period of disqualification.^[04]

Disqualifying gifts include:

• Significant sums of money
• A senior’s home
• Cars
• Deeds to land
• Expensive possessions that could be considered investments, such as highly valuable jewelry, either gifted or sold for less than their fair market value
• Large charitable donations

Gifts of nominal value include:

• Birthday, wedding, or holiday presents
• Gifts of already-owned items

What transfers or gifts are exempt from the Medicaid look-back rule?

Both before and after entering a nursing home, seniors can transfer financial assets to these individuals without incurring a penalty period of Medicaid ineligibility:^[05]

• A spouse or, in some states, a domestic partner
• A trust for the benefit of a senior’s child who is blind or permanently disabled, per Medicaid’s definition
• A trust for the sole benefit of anyone under age 65 who is permanently disabled, per Medicaid’s definition

Some exceptions apply to the transfer of a home, as well. In addition to the individuals listed above, a home can be gifted to:

• A senior’s child under the age of 21
• A child who is blind or disabled, even if the home isn’t in a trust
• A sibling or relative who already holds an equity interest in the house, who has lived in the home within the year before Medicaid application
• A “caretaker child,” meaning a child who lived in the home caring for their aging loved one for at least two years before the date of Medicaid application

Is it possible to reverse the Medicaid penalty period?

In certain cases, yes, Medicaid penalty periods can be reversed. In some states, if gifted assets are returned to the Medicaid applicant, the penalty is nullified. In others, returning part of the gift results in a reduction of the penalty period.

Understandably, returning the value of a gift may not be possible. The recipient may have already spent the money or may not wish to return the assets in question.

Also, even if returning funds eliminates the penalty period, it often results in the Medicaid applicant having too many resources to qualify for Medicaid in the first place.

In many cases, older adults may have income above the Medicaid threshold yet still find themselves in need of public assistance due to high medical costs. Several states address this through a Medicaid “spend down,” which allows individuals to reduce their countable income by subtracting allowable medical expenses.^[06]

By lowering their countable income, these individuals may become eligible for Medicaid long-term care. This may also be referred to as the “medically needy” pathway to Medicaid eligibility.

For example, a single person might receive $2,000 each month in income, but live in a state that requires Medicaid recipients to have a monthly income below $1,200. If their state has a Medicaid spend-down program, they could qualify for Medicaid by spending $785 each month on medical expenses, including prescription drugs, doctor copays, and long-term care costs.

Spend-down periods vary by state and may be anywhere from one to six months in length. After an individual spends down to their state’s medically needy income limit, they’re eligible for Medicaid for the rest of the period (if they meet all other criteria). It’s important to track and document all medical expenses if your loved one is considering a Medicaid spend down.

Does spending down violate the rules of the look-back period?

No, there are legally acceptable ways for Medicaid applicants to spend down assets without violating the rules of the look-back period.^[06] Some are straightforward, while others are more complex. They include:

• Using funds to upgrade a home or pay for home renovations
• Buying a new car or trading in an old one
• Prepaying funeral or burial expenses
• Purchasing items for the home that wouldn’t count as investments (For example, new jewelry is considered an asset, but new furniture typically isn’t.)
• Creating a personal service contract or “life-care contract” that prepays for future caregiving work
• Purchasing a Medicaid-friendly annuity (This can be done at any time.)
• Creating and funding an irrevocable trust (The senior must wait five years before applying for Medicaid.)
• Transferring a home using a “lady bird deed,” which is a life estate deed that allows the owner to maintain control of a property until they die, at which point the property automatically transfers to their chosen beneficiary without going through probate (This option is only available in some states.)

It’s not always possible to predict the need for a nursing home stay or the need to apply for Medicaid. If your loved one is already in a nursing home when they apply for Medicaid and is denied because they gifted or sold assets during the look-back period, they’ll have to pay for care out of pocket or use another resource until the spend-down is complete.

Medicaid can be confusing. Consider hiring an elder law attorney who can help you and your loved one understand the rules for your specific situation. They can also help you with legal ways to protect your loved ones’ assets, such as a Medicaid asset protection trust.

Hiring a financial advisor can also be helpful as you and your loved ones consider how to pay for senior care.