The Hardship Exception to the Medicaid Penalty Period: Rare But Possible

Unless the transfer meets an asset transfer exclusion- such as the transfer of the home to a caregiver child or the transfer of any asset to a disabled child- if you transfer assets within five years of applying for long term care Medicaid you will likely be subject to a period of ineligibility. There is an exception- however- if enforcing the penalty period would cause the applicant an “undue hardship.” This exception is very difficult to prove and rarely granted- but it may be possible in certain circumstances- such as if the applicant was the victim of financial abuse or exploitation.

Under federal Medicaid law- the state Medicaid agency must determine whether a Medicaid applicant transferred any assets for less than fair market value within the past five years. If there are any transfers- the state imposes a penalty period- which is a period of time in which the applicant will be ineligible for Medicaid benefits.

A Medicaid applicant can fight the penalty period by arguing that enforcing the penalty period will cause the applicant an undue hardship. Federal law provides that an undue hardship exists if the penalty period would deprive the applicant of (1) medical care necessary to maintain the applicant’s health or life or (2) food- clothing- shelter- or necessities of life. The burden is on the applicant to prove that hardship exists. A nursing home can also pursue a hardship waiver on behalf of a resident.

When claiming undue hardship in Virginia- the Medicaid applicant must provide the following written documentation: (1) a statement of the reason for the asset transfer; (2) attempts made to recover the transferred asset- including legal actions and the results of the attempts; (3) written notice of pending discharge from the facility or discharge from Community Based Care Services due to denial or cancellation of Medicaid payment for these services; (4) a physician’s statement that inability to receive nursing facility or CBC services would result in the applicant’s inability to obtain life-sustaining medical care; (5) a statement that the applicant would not be able to obtain food- clothing or shelter; (6) a list of all assets owned by the applicant and verification of their value at the time of the asset transfer if the applicant claims he did not transfer the asset in order to become Medicaid eligible; and- (7) copies of deeds or wills if ownership of real property is an issue.  If the undue hardship claim is denied by Virginia’s Department of Medical Assistance Services- no further decision related to the same asset transfer will be made should the applicant ever reapply for Medicaid coverage of long term care services.

Proving an undue hardship is also difficult because the applicant needs to show that he or she can’t afford nursing home care during the penalty period and that without nursing home care- the applicant’s health will decline. In addition- states are free to define “hardship” as they see fit and courts vary on how they enforce the hardship exception. For example- in Matter of Tarrytown Hall Care Ctr. v McGuire (N.Y. Sup. Ct.- App. Div.- 2nd Dept.- No. 2849/12- April 16- 2014)- a New York appeals court ruled that an undue hardship exception applied even though the nursing home did not attempt to evict the applicant because she was insolvent and unable to recover the assets- and because no other nursing home would accept her. On the other hand- in R.P. v. Division of Medical Assistance and Health Services (N.J. Super. Ct.- A.D.- No. A-6148-11T3- Oct. 22- 2013)- a New Jersey appeals court ruled that a Medicaid applicant whose son had transferred the applicant’s assets to himself was not entitled to an undue hardship exception because the applicant had not proven his health or life were endangered.

If you believe you are entitled to an undue hardship waiver- contact your attorney.

For more information, see the Elder Law Answers’ resource on Medicaid.