Dramatic New Medicaid Regulations

Article submitted by Joseph A. Dawson and Marco D. Chayet of the law firm CHAYET, YOUNG, DAWSON & DANZO LLC.
For more information, they can be reached at 303-355-8500.

On February 8, 2006, President Bush signed the Deficit Reduction Act (DRA) of 2005. This legislation contained several changes to the Medicaid regulations that will dramatically affect millions of elderly individuals. The Medicaid program is the needs-based program that helps pay for long term care. It is important to be aware of these new Medicaid regulations, especially if you or a loved one requires long term care now or will require long term care in the future. Here are some of the major Medicaid changes under the new law:

Increases the Look Back Period

Now, all transfers, whether to individuals or to trusts, will be subject to a five-year look back period rather than the prior three-year look back period. This will make the application process more difficult and could result in more applicants being denied for lack of documentation, given that they will need to produce five years' worth of records instead of three years.

Postpones the Penalty Period Start Date

Under the old rules, if you made a transfer within the three years prior to a Medicaid application, you would incur a penalty period based on the amount of the gift. The penalty period would begin on the month that you made the transfer.

The new law shifts the start of the period of ineligibility for a transfer of assets from the first day of the month of the transfer to the later of that date or "the date on which the individual is eligible for medical assistance under the State plan and would otherwise be receiving institutional level care."

So, what does this mean? First, the penalty period does not begin until the individual moves to the nursing home or requires a level of care that is equal to nursing home care. Second, the penalty period does not begin until the person would be eligible for Medicaid, meaning until they have spent down to $2,000 (or a different asset limit in some states).

An example should help explain how this will work. Let's assume that a senior transfers $60,000 to her son on July 1, 2006 but keeps $100,000 in her name. Let's further assume that our senior falls and breaks her hip on July 1, 2007, and subsequently moves to a nursing home. The senior spends down her savings over the following year, leaving her eligible for Medicaid on July 1, 2008, but for the transfer penalty. Under the new law, because the penalty does not start until she is at a nursing home level of care and is down to the $2,000 asset limit (minus the normal exemptions such as the residence, a vehicle, personal property items, and a burial plot or plan) she would not be eligible until April 30, 2009. Unless the son can give back the $60,000 transfer, how her care will be paid for during the intervening 12-month period of ineligibility is anyone's guess.

The Effective Date

The new transfer rules apply to all transfers occurring on or after the date of enactment of the DRA (February 8, 2006). Transfers made before February 8, 2006 will be judged under the old rule where the penalty period begins in the month of the transfer.

Annuities

The new rules require that the state be "named the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the annuitant. The provision also provides that the state be the secondary beneficiary where a community spouse or minor or disabled child is the primary beneficiary.

The Valuable House Rule

Under the new law, equity in homes of nursing home residents exceeding $500,000 shall be countable unless the nursing home resident's spouse, child under age 21, or blind or disabled child is living in the house. The effective date of this provision is January 1, 2006.

Seek the Advice of an Elder Law Attorney

This is a preliminary analysis of this law. In order to determine if these new laws will affect your particular situation, you should seek the advice of an Elder Law attorney who is competent in the area of Medicaid law.