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back period and the nephew’s refusal to make it available through liquidation is a divestment. John is subject to a penalty period starting from the date he requested Long Term Care Medicaid if he was otherwise eligible. This page last updated in Release Number: 26-03 Release Date: 08/12/2026 Effective Date: 08/12/2026 17.3 Penalty Period 17.3.1 Penalty Period Introduction If an unallowable divestment occurs, the institutionalized person is ineligible for Medicaid coverage of long-term care services for a time period known as the penalty period. The length of the penalty period is based on the value of the divestment. Once the penalty period starts, it runs uninterrupted until it expires, even if the person is no longer in a long-term care facility or "otherwise eligible" for long-term care Medicaid. If an undue hardship waiver is requested and granted, then the penalty period will be waived per 22.4 UNDUE HARDSHIP. Penalty periods only impact someone’s eligibility for LTC services and do not affect an applicant or member’s eligibility for Medicaid card services (21.4.1.1 MEDICAID CARD SERVICES) when they are residing in a medical institution. An individual ineligible for Community Waivers programs due to a divestment may still be eligible for other types of Medicaid that do not cover long-term care services. 17.3.1.1 Institutions and the Penalty Period During the penalty period, Medicaid doesn’t pay the institutionalized person's daily care rate in the nursing home, although they are still eligible for Medicaid card services (see 21.4.1.1 MEDICAID CARD SERVICES). Example 1: Martha resides in a nursing home and applies for institutional Medicaid. Martha is ineligible for Medicaid to pay for her long-term care services in the nursing home for five months due to a divestment. She is eligible for institutional Medicaid, but Medicaid will only pay for her card services during the five-month penalty period. Once the penalty period is over, Martha’s institutional Medicaid will pay for her long-term care services. 17.3.1.2 Community Waivers Programs and the Penalty Period A person is not eligible to enroll in Community Waivers programs during a divestment penalty period. However, a person who is ineligible for Community Waivers programs due to a divestment penalty may be eligible for other programs during the penalty period. They cannot be eligible for Waivers Medicaid or Institutional Medicaid, but they can become eligible for a form of Medicaid not based on receipt of long-term care services, such as SSI-related Medicaid or MAPP, if they meet the eligibility requirements for that program. Example 2: Joe applies for Community Waivers programs through Waivers Medicaid and is determined ineligible for nine months due to a divestment. The IM agency determines that Joe can become eligible for SSI- Related Medicaid by meeting a deductible. Even if Joe meets the deductible and becomes eligible for Medicaid, he may not enroll in any Community Waivers programs until his nine-month divestment penalty period ends.