jjcelderlaw
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Feb 22, 2006, 9:54 AM
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New Federal Law Makes Medicaid Planning More Difficult
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The Deficit Reduction Act of 2005 (DRA) was signed into law by President Bush on February 8, 2006. This legislation contains new and harsh restrictions on the treatment of transfers without fair consideration for the purpose of qualifying for Medicaid. The DRA also places a cap on the exempt equity value of a Medicaid recipient's principal residence; changes the law on Medicaid's treatment of annuities and entry fees for Continuing Care Retirement Communities (CCRCs); and permits all states to adopt Long Term Care Insurance Partnership Programs.
These changes under the DRA became effective as of February 8, 2006, the effective date of the act, except for the imposition of the cap on home equity, which applies to all Medicaid applications filed on or after January 1, 2006. Some states may take advantage of a grace period to come into compliance with the new provisions in the DRA if state legislation will be needed to conform to the DRA's new requirements.
The old laws provided that Medicaid could look back 36 months from the date of a Medicaid application to see if the applicant made any transfers of assets without consideration. If the applicant made any gift transfers during this period, Medicaid imposed a penalty during which the applicant may not qualify for Medicaid. The length of this penalty period depended upon the size of the gift and could even be longer than the “look back” period.
Traditional Medicaid planning typically involved careful calculations to determine how much a prospective Medicaid applicant could give away to reduce assets to Medicaid eligibility levels. The applicant had hold back enough to pay for nursing home care during the penalty period, which began to run on the first day of the month in which the gift transfers are made. If the gift and “hold back” amounts were calculated correctly, the “hold back” amount would be spent down to Medicaid eligibility levels at the same time the penalty period expired, allowing the applicant to qualify for Medicaid at that time to cover nursing home costs.
The new law changes the Medicaid “look back” period from 36 months to 60 months; and delays the start of the penalty period until the applicant is in the nursing home and the applicant would be eligible for Medicaid, but for the gift transfers. In other words, the “hold back” amount would now need to be spent down to Medicaid levels before the penalty period begins.
This could leave the applicant in a terrible situation: in a nursing home with no money to pay privately and unable to qualify for Medicaid until the penalty period from the gifts has expired. The law does provide for hardship waivers, but it is not known how often, if ever, these would be granted.
The new law also imposes restrictions on the use of annuities; and removes the exemption for an applicant’s principal residence if the applicant’s equity in the residence exceeds $500,000 (although states may elect to increase this amount to as much as $750,000). Other provisions of the new law affect the treatment of income between spouses in many states; the treatment of entrance fees of applicants living in Continuing Care Retirement Communities; and the treatment of transfers to purchase life estates.
These changes will only apply to transactions, including gift transfers and annuity purchases, made on or after February 8, 2006 (except the restriction on the exemption for the principal residence, which applies to all Medicaid applications file on or after January 1, 2006). Medicaid planning has become much more difficult, complex and dangerous than it used to be. Medicaid planning will still be possible for many individuals, but will require new planning techniques. It will become more important than ever for those interested in Medicaid planning to consult with an experienced attorney before taking any steps to reduce or reposition assets to achieve Medicaid eligibility.
To read more about how the new law affect Medicaid planning in the State of Colorado, go to: http://www.jjcelderlaw.com/NewMedicaidDRA.htm.
(This post was edited by StephenWinbaum on Aug 1, 2007, 11:02 AM)
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