You did the planning. You ran the numbers, purchased the Medicaid Compliant Annuity, and helped the family file the application. Then, three or four months later, the notice of decision arrives: denied.
It’s one of the most frustrating moments in Medicaid planning, but it isn’t always the end of the road. Fortunately, most denials we see come through our office can be resolved without ever reaching a courtroom. That is, as long as the client is truly eligible and the agent responds quickly and strategically.
Here’s a breakdown of why Medicaid denials happen, how to prevent them, and what to do when one lands on your desk.
The 5 Most Common Reasons for a Medicaid Denial
1. An incomplete application
This is the most common reason we see. Caseworkers typically reach out to the appointed representative before issuing a formal denial, but if that request goes unseen or unanswered, the result is a denial.
The culprit is usually a communication gap rather than a refusal to provide documents. A missing email address or an illegible phone number on the application means the caseworker’s request never reaches the right person.
Best practice: Submit every required document up front, and double-check that the appointed representative’s contact information is accurate and legible.
2. The client wasn’t actually qualified.
Before building a spend-down plan, confirm the client is 65 or older (or blind or disabled), lives in a Medicaid-approved facility, and resides in the state where benefits are being sought. Skipping this step means a lot of wasted work and a very frustrated client.
3. Too many assets
Being even $1 over the limit will get an application denied. Some clients have ten or twelve checking accounts, so it’s easy to forget about a small account. Plus, a late-month income deposit becomes a countable asset the following month.
Best practice: Build a buffer. We typically recommend aiming for roughly $1,500 for the institutionalized individual (rather than the full $2,000 limit) and a cushion of around $5,000 for the community spouse.
4. Disqualifying transfers
Medicaid reviews the applicant’s transactions over the past five years (the lookback period), and gifts made within it may result in a penalty period. Each state uses a divestment penalty divisor, which approximates the average monthly cost of nursing home care. As an example, a $50,000 gift in a state with a $10,000 divisor produces a five-month period of ineligibility.
Sometimes this rule can be used to create an intentional penalty period, such as with the Gift/MCA plan for a single person. The real problem is an undisclosed gift you only discover when the denial notice arrives.
5. Caseworker error
Medicaid offices often face heavy turnover and understaffing, and the rules are complex. Caseworkers sometimes misinterpret their own state’s rules or simply aren’t familiar with the planning strategy at hand.
Best practice: Include a cover summary with the application explaining the strategy, the expected result, and citations to the state’s own eligibility handbook. It’s far easier to guide the caseworker to the correct decision on the front end than to reverse it on the back end.
Step 1: Read the Denial Notice Carefully
Don’t panic. Denials can come in several forms, so start by identifying exactly what the notice says.
- Straight denial of benefits for specific months
- Denial for other programs not applied for
- Eligibility with a penalty period
- Incorrect attribution of income or assets
Some notices cite only a broad section of the eligibility handbook without a clear reason. In that case, contact the caseworker, and if needed, submit a request to review the internal case file.
Step 2: Escalate the Issue as Necessary
- Talk to the caseworker. Most denials we see are resolved at this level, as long as the client was truly eligible. Often the file stays open, and you can supplement the record to correct an error or miscommunication.
- Ask for a supervisor review. If the caseworker is entrenched or new to the role, a supervisor will sometimes correct the file on the spot.
- Request a fair hearing. If the agency still stands firm, this is your formal appeal.
Step 3: The Medicaid Fair Hearing Process
Watch the deadline: The notice of decision typically gives you 30 to 90 days, depending on your state, to request a fair hearing, and the notice explains how.
Consider bringing in an attorney: Fair hearings are legal proceedings, and an attorney can handle procedure. There’s also a bigger-picture reason: one bad decision can create bad case law across the state and damage planning strategies for everyone.
Prepare the brief: In most states, hearings are fairly informal, so the brief doesn’t need to be elaborate. A strong one includes:
- A clear, organized summary of the case facts, assets, and income
- Every possible argument. You can’t raise new arguments on appeal, so preserve them all now.
- Exact statutory and eligibility handbook citations
- Supporting case law, whether binding or persuasive
- Evidence such as copies of checks showing when the spend-down occurred and financial statements
- A list of any expert witnesses
Prepare your witnesses: Develop a line of questioning ahead of time and rehearse. Remember that the state can cross-examine them.
What to expect at the hearing: Fair hearings are almost always held by phone. Expect informal opening statements, testimony from any expert witnesses, cross-examination, and clarifying questions from the hearing officer or administrative law judge (ALJ). Because the ALJ may hear a range of benefit appeals, they may not be deeply familiar with Medicaid planning rules. The judge may also request a post-hearing brief to address questions raised during the call, which gives you the chance to look up citations you couldn’t produce on the spot.
The decision: The ALJ typically has about 90 days from the hearing to rule. If the decision is reversed, the agency usually accepts it, though it may appeal. If you lose, you can appeal to a higher court, which is why preserving your arguments matters.
Read More: The Importance of Working with an Elder Law Attorney for Medicaid Compliant Annuities
Key Takeaways for Agents and Advisors
- Vet the facility and the client before you plan, including Medicaid bed availability, age or disability status, and residency.
- Build asset buffers and hunt down every small account.
- Disclose and document gifts, and confirm the penalty start date on the notice matches your plan.
- Submit a strategy summary with the application, with citations.
- Make sure the appointed representative’s contact details are correct and respond to caseworker requests fast.
- Read the notice of decision closely, including the program, penalty dates, and income attribution.
- Escalate in order: caseworker, supervisor, fair hearing.
- Calendar the appeal deadline the day the notice arrives.
Don’t Wait: Contact Krause Agency Right Away
If you work with Krause Agency and a client receives a denial, don’t hesitate to reach out to us! Our team has deep experience in this area, an internal library of case law available to support your position, and, when necessary, will provide expert testimony at a fair hearing on the annuity or related issues.
Watch Now: My Client Received a Medicaid Denial… Now What?
Medicaid rules, asset limits, and appeal deadlines vary by state and change over time. This article is for educational purposes only and is not legal or financial advice. Consult your state’s Medicaid agency and a qualified elder law attorney for guidance on specific cases.