If you want Medicaid to help pay for nursing-home care, assisted living, in-home care, or adult foster care, you must meet strict income and asset requirements. Due to these rules, many candidates donate their resources and money to qualify. An individual’s financial transactions, which may involve guidance from an attorney for estate planning, are reviewed by the Medicaid administering agency during a look-back period before their application is accepted. If a transaction violates the look-back rules, the applicant will be penalized by losing Medicaid eligibility for a period of time. The period could be months or even years. It is important to speak with an experienced Medicaid planning attorney in Houston before you make any decisions.
We serve families across Houston and the surrounding counties, including Harris, Fort Bend, Brazoria, Montgomery, Matagorda, and Wharton. We are familiar with the local processes and costs that drive Medicaid planning in this area.
We are close by and ready to help, supporting those near Houston Methodist Hospital (Texas Medical Center), Memorial Park, NRG Park, The Heights, Sugar Land, Pearland, The Woodlands, and Bay City.
In Texas, HHSC currently uses a statewide daily penalty divisor of $262.37 for case actions disposed on or after Sept. 1, 2025. Texas divides the total uncompensated transfer amount by the applicable daily divisor and rounds down to whole days. Note that Houston-area nursing-home prices often run above the statewide median, so a single statewide divisor can be conservative for local families.
It is important to plan for Medicaid as soon as you can to secure your eligibility for Medicaid. There are certain look-back exceptions and exemptions, particularly for families in difficult situations. Some options can be confusing, with difficult terms to meet without the help of a Houston Medicaid planning attorney. Certain common mistakes and violations can occur. Call The Law Office of Whitney L. Thompson at (281) 214-0173 to speak with a skilled Houston Medicaid planning lawyer.
What is the Medicaid Transfer Penalty?
The Medicaid transfer penalty refers to the consequences imposed on individuals who transfer their assets for less than fair market value to qualify for Medicaid coverage for nursing home costs. This penalty is crucial to understand, particularly in the context of Medicaid planning in Texas.
The penalty arises because Medicaid, a joint federal and state program, is designed to provide assistance to those who genuinely need financial aid for nursing home care. Transferring assets to meet the Medicaid eligibility threshold can be seen as an abuse of the system, which is why penalties are in place. These penalties discourage individuals from artificially impoverishing themselves.
In Texas, HHSC applies the Texas Medicaid Penalty Divisor ($262.37/day for case actions disposed on or after Sept. 1, 2025; $242.13/day for case actions disposed 9/1/2023–8/31/2025) to transfers made for less than fair market value during the 60-month look-back. The penalty period equals the total uncompensated transfers divided by the applicable daily divisor, rounded down to whole days.
Example: For a $73,339 transfer, the calculation is $73,339 divided by $262.37, which results in 279 days of ineligibility (Texas rounds down). That’s a little under 10 months, during which Medicaid will not pay for nursing-home care.
Medicaid Look-Back Rules and Exemptions in Asset Transfers
It’s crucial to pay attention to Medicaid’s look-back rules when getting ready for long-term care. Simple things like giving gifts on special occasions or selling something without the right paperwork can cause problems. Each state has different rules, so it’s key to know what counts in your state, especially when it comes to setting up trusts or moving assets around.
- Gifts: The federal annual gift-tax exclusion is $19,000 per recipient in 2025, but this IRS rule does not create a Medicaid exemption. Even ordinary occasion gifts can trigger a transfer penalty under Medicaid’s look-back rules.
- Lack of Documentation: If you transact an asset and receive a value equal to the fair market value without proper documentation, you may violate the rules of the look-back period. This situation is particularly relevant for assets with a government record like boats, motorcycles, or vehicles because of their registration requirements.
- Irrevocable Trusts: Many individuals incorrectly assume that an irrevocable trust is automatically exempt from the look-back period given that some irrevocable trusts can be used to circumvent the terms of the look-back period. However, creating an irrevocable trust during the look-back period can sometimes be considered a violation of the look-back period.
Because Medicaid is a federal and state program, look-back rules vary by state. Even the penalty divisor amount varies by state because the average cost of nursing home care varies. Some states calculate using a monthly average penalty divisor, while others use a daily average penalty divisor. A successful plan must account for the specific differences in Medicaid rules found in each state.
In the Houston metro, HHSC applies the same statewide rules, but local prices can differ. As a benchmark, Texas’ 2024 median monthly nursing-home costs are $5,475 (semi-private) and $7,087 (private); many Houston facilities run above those medians. In Matagorda County (Bay City area), public directories show lower average ranges (around $4,000–$5,500/month, depending on facility and room type).
Strategies for Complying with Medicaid Look-Back Regulations
Strategies to avoid violating Medicaid look-back rules and avoiding penalties can help families keep some of their assets while still qualifying for Medicaid. A Medicaid planning attorney can help you identify which strategy is best to implement in your circumstance. These strategies have many interconnected parts and often require skilled assistance to apply correctly. It is easy to have a loved one disqualified, but very difficult to rectify the problem.
- Caregiver Agreements: Also referred to as Life Care Agreements, Elder Care Contracts, or Long-term Care Personal Support Services Agreements, the formal agreements permit compensation to the caregiver, spending down assets for services without violating the look-back period. These contracts between a caregiving relative, friend, or older adult permit a senior to receive necessary care that Medicaid does not cover while also providing the caregiver with needed compensation. This contract requires the services of an attorney to ensure its careful drafting.
- Medicaid-Compliant Annuities (Texas): Only annuities that meet post-DRA rules are treated as compliant. They must be irrevocable and non-assignable, actuarially sound, pay in equal monthly installments (no deferral or balloon), and name the State of Texas as remainder beneficiary (with limited exceptions). Annuities that don’t meet these requirements can cause a transfer penalty.
- Irrevocable Funeral Trusts: This trust type sets aside a specific amount of money (within state limits) for the sole purpose of funerary and burial costs. This trust helps applicants spend down excess assets without violating the Medicaid look-back period.
- Undue Hardship Waiver: Filing an undue hardship waiver request occurs when individuals violate the Medicaid look-back period, but it renders them without basic needs like shelter and food. It is difficult to receive this waiver as there must be an effort to exhaust all avenues of asset recovery, including legal options.
- Recuperation of Assets: If previously transferred assets during the look-back period can be recovered, the previous penalty established can be reconsidered. Some states will review all assets transferred to all people. Partial recovery of said assets may shorten the penalty period in some states but not in others. Though the returned assets will put an applicant over the Medicaid asset limit, these assets can then pay for long-term care as the applicant reapplies.
| Strategy | What it involves | Key considerations |
|---|---|---|
| Caregiver Agreements | A contract where a family caregiver is paid for services, allowing asset spend-down. | Must be properly drafted to avoid being treated as a disqualifying gift. |
| Medicaid-Compliant Annuities (Texas) | Turns assets into income through a strict annuity format to meet Medicaid rules. | Must be irrevocable, equal-pay, and name Texas as remainder beneficiary. |
| Irrevocable Funeral Trusts | Funds placed in a trust solely for funeral and burial costs. | Trust must be irrevocable and within state-approved funding limits. |
| Undue Hardship Waiver | A waiver request when disqualification would cause severe need. | Hard to obtain; requires proof that asset recovery has been attempted. |
| Recuperation of Assets | Recovering transferred assets to reduce or remove a penalty. | Returned assets may temporarily affect eligibility but can be used for care. |
Houston Medicaid Planning Attorney – The Law Office of Whitney L. Thompson, PLLC
Whitney L. Thompson
As a Houston Medicaid planning and estate planning attorney, Whitney helps families protect what they’ve built and prepare for the cost of long-term care. From her early advocacy at Thurgood Marshall School of Law’s wills, probate, and guardianship clinic to leading her own firm today, she brings practical insight and calm, compassionate guidance to sensitive family decisions.
A first-generation college graduate and entrepreneur, Whitney understands how overwhelming complex rules and “look-back” periods can feel. She offers clear, direct advice, focused on eligibility strategies, preserving assets for a healthy spouse, and creating plans that reduce conflict and costly litigation later. No question is too small, and every plan is tailored to your family’s goals.
Who Pays During Medicaid Penalty Period?
In Texas, Medicaid administration is under the control of the Texas Health and Human Services Commission (HHSC).
Transfers for less than fair market value made during the 60-month look-back period (before applying for long-term care Medicaid) result in a transfer penalty. The penalty period begins once the applicant is otherwise eligible for Medicaid long-term care (has applied, meets financial/medical criteria, and is institutionalized or receiving waiver services). HHSC calculates the penalty by dividing the uncompensated transfer(s) by the current daily transfer divisor and rounding down to whole days.
During this penalty period, a person’s family may be required to pay out of pocket for medical expenses incurred. It is important to note that the suspension of Medicaid eligibility can still stand even after the individual or the household has spent down their assets during the penalty period to pay for the medical expenses. The individual can only reapply for Medicaid once the penalty period has elapsed. This is why proper planning is crucial.
Working with an Experienced Medicaid Planning Lawyer
Consulting an experienced Medicaid planning attorney can bring more insight on how the Medicaid penalty period works alongside with the look-back period. Individuals without financial preparation may be put in a difficult situation due to the Medicaid penalty period. A skilled attorney may be able to assist in exploring your legal options to protect your assets while still maintaining Medicaid eligibility.
We regularly help families across Houston and Harris County, covering areas from The Heights, River Oaks, Bellaire/West U, Memorial, and Spring Branch to Clear Lake and the Galleria/Uptown. We also serve Fort Bend, Brazoria, and Montgomery counties, including Sugar Land, Pearland, and The Woodlands. For the Matagorda/Wharton area, our Bay City team is close by.
Call our Houston office (281-214-0173) or Bay City office (979-318-5079) to pinpoint your penalty timeline and options under the latest Texas HHSC rules.
