Volume 16, Number 3 · July 2006

New Rules for Medicaid Planning

On February 8, 2006, President Bush signed into law the Deficit Reduction Act (DRA) of 2005 making the widest changes to Medicaid in years. At least one lawsuit has been filed challenging the constitutionality of the DRA and it is still too soon to know when and how the Medicaid changes will take effect in Pennsylvania. What we know is that eligibility for Medicaid benefits will be greatly curtailed. Residents or candidates for personal care, assisted living, etc., should take special note. Here are a few examples.

Look-Back Period for Gifts:
For some time, an individual applying for Medicaid was required to disclose any gifts made within three years of the application for benefits. This is known as the look-back period. The DRA changes the look-back period to five years.

Start of the Penalty Period:
The start of the penalty period has also changed. Under prior law, the penalty for making gifts began to run in the month in which the gift was made. The DRA now moves the penalty period to a later start date. The penalty period now starts to run on the date of the gift OR the date the applicant would otherwise be entitled to receive Medicaid, whichever is LATER. This means that an individual in a nursing home must spend down all resources to the applicable limit and be approved for Medicaid before the penalty start date even begins to run!

The penalty provision applies regardless of the reason for the gift. Therefore, birthday and holiday gifts to children will render an individual ineligible for Medicaid, as will gifts to a charity, helping a child purchase a new home, or paying tuition for a grandchild. All gifts will be lumped together to calculate the penalty, even when they are small amounts.

Annuities:
The DRA treats the purchase of an annuity as a gift unless the annuity meets certain requirements:

The state becomes a remainder beneficiary under the annuity to the extent of the amount of medical assistance received by Medicaid recipient or the state is the secondary beneficiary after the community spouse or disabled or minor child.
The only exceptions are annuities in Individual Retirement Account or Roth annuities.

Home Equity:
The family home exemption is no longer absolute. Under the DRA, home equity in excess of $500,000 will be treated as an available resource.

This is a preliminary analysis of the new law. How it is interpreted by Pennsylvania is still unclear. As you can see, this new federal law will certainly limit Medicaid eligibility. This will make the application process more difficult and will require applicants to produce five years of records. The DRA does include hardship waivers for those that have made gifts. Therefore, we suggest you keep accurate records and document gifts that were made when you were healthy and not made to qualify you for Medicaid. It is also recommended that you consult with your Peacock Keller attorney before making a gift or purchasing an annuity. Those who have long term care insurance are encouraged to revise three-year contracts to five-year contracts. Those without long term care insurance may want to consider purchasing it.

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