I’ve written before about the dangers of filing a Medicaid application yourself, without any idea of how the Medicaid rules work. But, in the past month we have had a rash of calls from folks who did just that and ended up with Medicaid penalties - months of Medicaid ineligibility and no way to pay for care.

It’s a disturbing trend but it can’t be ignored. The state is taking longer to decide Medicaid applications and is scrutinizing them more than ever. Why? Because it just doesn’t have the money to pay for care. If it can find transfers and impose penalties - waiting periods - that means it doesn’t have to pay for care during those months.

So often, when I explain how the Medicaid penalty works the response I get is, “no problem, Mom didn’t gift any money” or “Mom never really had much money so it won’t be an issue”. But, there is a certain innocence in that answer, a lack of understanding of the Medicaid regulations and of the economic recession that is affecting our government as well as average Americans.

For example, several times in the past month we have received calls from people who have been questioned by Medicaid about transfers that have been made by the applicant 3 and 4 years ago. It typically starts with a letter from the Medicaid caseworker asking for documentation concerning a particular transaction on “such and such date” or a request for copies of all checks over $500.

So, here’s the problem. Before you filed the Medicaid application did you ever review those checks, or is now the first time? What happens if the checks are payable to family members - or to any individuals for that matter - but not to businesses? Well, Medicaid will ask you what those checks were written for. Your explanation must be backed up by documentation. So if Mom wrote you a check to reimburse you for something, but you don’t remember what, or you can’t produce the paperwork to support that, it is subject to a Medicaid penalty.

Do you remember what you did 5 years ago? Do you have paper records to back up what you say you did with your money if someone asked? Oh, and keep in mind that you aren’t being asked about your own finances but rather someone else’s. If you haven’t been managing Mom’s accounts you don’t know what you you’ll find. Now add a deadline to the mix. The letter you received from Medicaid says you’ve got 10 days to provide the documentation or the application could be dismissed. But Mom didn’t keep her old statements so you’ll have to contact the bank to get replacements. Good luck getting that in 10 days.

In this type of environment it becomes very easy to see how well intentioned families end up with disastrous consequences. Mom has no money left and Medicaid won’t pick up the cost of care when they thought it would, leaving a gap of months (the more uncompensated or unexplained transfers the longer the gap). The nursing home needs to pay its bills and is looking to the family to pay the $10,000 or $20,000 (or more) balance. The finger pointing starts as does the talk of lawsuits.

That’s why it bears repeating. You can’t walk into the Medicaid office, innocently hand them all your documents and say “please give me Medicaid”. You’ve got to be prepared. You’ve got to know what’s in those documents and how you are going to respond to the inevitable questions. It’s like an IRS tax audit. You’d be crazy to walk into the auditor’s office without a professional. Same thing with Medicaid. The stakes are just too high.