On February 8, 2006, President Bush signed into law the Deficit Reduction Act of 2005 (DRA). This new law makes profound changes in the rules affecting eligibility for Medicaid. As a result, individuals who want to hold onto at least some savings or property need to plan sooner and plan better than ever before.
Today’s article will discuss one of the main obstacles to protecting savings or property: the penalty period during which an individual is not eligible for Medicaid. A penalty period arises when an individual seeking Medicaid benefits for nursing home or other institutional care has transferred money or property to another person or to a trust. Generally, the penalty period of ineligibility is calculated by dividing the amount transferred by the regional cost of nursing home care (the actual cost of a particular home may be higher). For example, if Mrs. Jones, who lives alone in New York City (where the regional cost of nursing home care is currently $9,132 per month) transfers $91,320 to her daughter or to a trust during the look back period (see below), she will not be eligible for Medicaid for nursing home care for ten months.
The DRA has changed the rules regarding which transfers must be considered, and when the penalty period begins. Under the old law, Medicaid looked back three years for transfers to other persons, and five years for transfers to a trust. Now, under the DRA, Medicaid looks back at all transfers for five years. This means that, in order to apply for Medicaid, an individual must produce a full five years worth of financial records, no matter who received the transferred assets.
Even more significant in the change regarding when the penalty period begins. Under the old law, the penalty period began on the first day of the month following the transfer. In many cases under the old law, the penalty period expired before the individual needed nursing home care. Thus, the individual’s assets were saved without incurring an actual financial penalty. In many cases, even if an individual’s assets were transferred immediately prior to going into a nursing home, at least half of such assets could be saved.
Under the DRA, the penalty period begins when (1) the individual applies for Medicaid, and (2) the individual is receiving institutional care such as in a nursing home, and (3) the individual is eligible for Medicaid but for the penalty period (meaning that the individual has less than $4,150 in non-exempt assets). It is easy to see that some people may find themselves in a situation where they need nursing care but have no ability to pay for it. For example, if Mrs. Jones who lives alone in New York City, transferred $91,320 to her daughter on February 28, 2006, and she entered a nursing home on December 31, 2006, and applied for Medicaid, she would not be Medicaid eligible until November 1, 2007, even if she had less than $4,150 in assets on the date she entered the nursing home. Under the old law, the penalty period would have expired prior to the time that Mrs. Jones went into the nursing home.
The DRA makes other important changes regarding Medicaid which will be discussed in future articles in The Best Elder Law Blog.
Medicaid planning has become more difficult and more complicated than ever before. Nevertheless, solutions and best courses of action are available. Seniors and their families will want to consult a qualified elder law attorney before taking any action that may compromise their rights, or their ability to obtain benefits to which they are entitled.