Medicaid Long-Term Care and the Five-Year Look-Back: Planning for Nursing Home Costs

Most Americans are surprised to learn that Medicare does not pay for long-term custodial care in a nursing home. Medicare covers only limited skilled nursing facility care after a qualifying hospital stay, up to 100 days with significant copays after day 20. For extended care, families typically pay privately until savings run low and then rely on Medicaid, which is the largest payer of nursing home care in the country. Because Medicaid has strict asset limits, the rules about gifts and transfers, especially the Medicaid look-back period, play a central role in long-term care planning.

What nursing home care costs

Genworth’s long-running Cost of Care Survey has reported national median costs for a private nursing home room well above $100,000 per year, with semi-private rooms somewhat lower and costs much higher in states such as Alaska, Connecticut, and New York. Assisted living and home care are less expensive but still significant. Few families can pay those amounts for long, which is why Medicaid eligibility planning matters.

Medicaid long-term care eligibility basics

Each state runs its own program under federal rules, but most share these elements:

Medical need. The applicant must need a nursing home level of care as determined by a state assessment.
Asset limit. Many states limit countable assets to about $2,000 for an individual, though some states set higher limits.
Income rules. Most of the applicant’s income goes toward the cost of care, leaving a small personal needs allowance. In states with income caps, applicants above the cap may need a qualified income trust, sometimes called a Miller trust.

Exempt assets

Not everything counts. Commonly exempt assets include:

The home, up to a home equity limit, if the applicant intends to return or a spouse or dependent relative lives there. The federal minimum home equity limit is adjusted annually and was over $700,000 in 2025, and states may use a higher figure.
One vehicle.
Personal belongings and household goods.
Irrevocable prepaid funeral arrangements and burial plots.
Certain retirement accounts in payout status, depending on the state.

The five-year look-back

When you apply for long-term care Medicaid, the state reviews all asset transfers made during the 60 months before the application date. Gifts or transfers for less than fair market value during that window create a penalty period, during which Medicaid will not pay for nursing home care even if you otherwise qualify.

The penalty period is calculated by dividing the total value of uncompensated transfers by the state’s average monthly cost of nursing home care, called the penalty divisor. For example, if your state’s divisor is $10,000 and you gave away $60,000 within the look-back period, the penalty would be six months.

Importantly, the penalty period does not start when the gift is made. It begins only when the applicant has applied, is otherwise eligible, and is receiving nursing home care. This means a poorly timed gift can leave a family with no way to pay for care during the penalty.

California uses a shorter look-back for some programs and has been changing its asset rules, so state-specific advice is essential.

Transfers that do not trigger penalties

Federal law exempts certain transfers, including transfers:

To a spouse.
To a child who is blind or permanently disabled, or to a trust for that child.
To a trust for the sole benefit of a disabled person under 65.
Of the home to a child who lived there and provided care for at least two years that kept the parent out of a nursing home, often called the caregiver child exemption.
Of the home to a sibling with an equity interest who lived there at least one year.
Of the home to a child under 21.

Protections for the community spouse

Spousal impoverishment rules prevent the spouse who stays at home, called the community spouse, from losing everything:

Community Spouse Resource Allowance (CSRA). The community spouse can keep a share of the couple’s combined countable assets, up to a federal maximum adjusted each year, over $150,000 in 2025, subject to state rules.
Minimum Monthly Maintenance Needs Allowance (MMMNA). If the community spouse’s income is low, part of the institutionalized spouse’s income can be allocated to them.
The home remains exempt while the community spouse lives there.

Spend down: lawful ways to reduce countable assets

Spending money on things of value for the applicant does not violate the look-back. Common examples include paying off debts, making home repairs or modifications, buying a new vehicle, prepaying funeral expenses, purchasing medical equipment, and paying for care. Keep receipts.

Medicaid-compliant annuities

In some situations, particularly for married couples, a single premium immediate annuity that meets strict federal requirements can convert countable assets into an income stream. The annuity must be irrevocable, non-assignable, actuarially sound, and name the state as remainder beneficiary in certain circumstances. These rules are technical and require professional guidance.

Irrevocable trusts

A properly drafted irrevocable Medicaid asset protection trust, funded more than five years before applying, can shield assets from countable resources. The grantor gives up control over principal. This tool works only with advance planning and may have tax and practical consequences.

Personal care agreements

A written agreement to pay a family member a fair rate for caregiving can be a legitimate spend-down strategy if it is documented properly and payments are for future services at reasonable rates. Informal payments to relatives without a written contract are often treated as gifts.

Estate recovery

Federal law requires states to seek recovery from the estates of deceased Medicaid recipients age 55 and older for long-term care costs paid. Recovery typically targets the home and other assets passing through probate, and some states use expanded definitions of estate. Recovery is deferred while a surviving spouse is alive or when a child under 21 or a blind or disabled child survives, and states must have hardship waiver procedures. Planning can sometimes reduce estate recovery, but rules differ widely.

Home and community-based alternatives

Most states offer home and community-based services (HCBS) waivers that pay for care at home or in assisted living for people who meet nursing home level of care. Waiver programs often have waiting lists, and services vary. The Program of All-Inclusive Care for the Elderly (PACE) is another option in many areas, providing coordinated medical and long-term services for people 55 and older.

Common mistakes

Giving away assets in a crisis without understanding the penalty.
Adding a child to a bank account or deed, which can create penalties and expose assets to the child’s creditors.
Missing the application timing, delaying coverage unnecessarily.
Failing to document spend-down purchases.
Relying on informal advice rather than an elder law attorney familiar with your state.

Working with professionals

Elder law attorneys, including those certified by the National Elder Law Foundation, specialize in these issues. Area Agencies on Aging and State Health Insurance Assistance Programs offer free guidance on benefits. Ask about fees in advance; many attorneys offer flat-fee planning.

Documents to gather before applying

Medicaid long-term care applications are paperwork-heavy. Most states ask for bank and investment statements covering the full look-back period, records of real estate, deeds, life insurance policies with cash values, annuity contracts, income statements, proof of citizenship and residency, and documentation of any large withdrawals or transfers. Caseworkers commonly ask for explanations of withdrawals over a set amount, so organizing records early prevents delays. Families should also make sure a durable power of attorney is in place that authorizes gifting and Medicaid planning if needed, because an agent without that authority may be unable to act.

Frequently Asked Questions

Does the look-back apply to home care Medicaid?

In most states, the look-back applies to nursing home Medicaid and many home and community-based waiver programs. Rules vary, so check your state.

Can Medicaid take my house?

While you are alive and the home is exempt, Medicaid generally does not take it. After death, the state may seek estate recovery unless an exemption applies.

Is it too late to plan once someone is in a nursing home?

No. Crisis planning options such as spousal transfers, annuities, and allowable spend down can still protect significant assets for married couples and sometimes for individuals.

This article is for general informational purposes only and is not legal, medical, tax, or financial advice. Rules vary by state and change over time; confirm details with the relevant agency or a licensed professional.