2025 Medicaid Penalty Divisor

As I have written about frequently in this blog, many of Medicaid’s numbers are updated annually.  Most but not all are adjusted in lock step with Social Security’s cost of living adjustment (COLA), which is affected by the rate of inflation.

One Medicaid number that doesn’t adjust with Social Security is the Medicaid penalty divisor.  That is the number by which any transfers for less than fair value are divided to calculate the penalty – or waiting period – for Medicaid benefits.  This time period begins when a Medicaid application is filed and the applicant has proven that he/she has met all the other Medicaid requirements.  In other words, Medicaid would be approved but for the transfer of assets.  The more money transferred, the longer the penalty.

The divisor is supposed to represent the average cost of nursing home level care in the state.  Over time that number has increased as the cost of care continues to rise so it should somewhat correlate to the rate of inflation.  I cannot recall any year in which the cost of care actually decreased.  Yet, last month New Jersey announced the new divisor effective 4/1/2025 which has actually decreased by 8.5% from last year.

Effective April 1, 2025 the Medicaid divisor has decreased from $440.10 to $402.74.  Although the State does not explain its method of calculating the average cost of care, it is claiming that the cost of long term care decreased by 8.5% at a time when the Social Security COLA was up 3.2% signifying an increase in overall costs.  On a monthly basis the average cost of care now comes to $12,250 down $1136 per month from last year’s $13,386 per month.  Hard to believe when the cost of everything has increased.

Nevertheless, this new divisor will apply to applications seeking benefits after April 1, 2025.  The old divisor will still be used for benefits sought before that date.