Nursing Home Assistance, As We Know It, To Change

By Diane Kuhn Huff

      The Federal Deficit Reduction Act of 2005, among other things, imposes punitive new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid assistance to pay for nursing home costs. 

The legislation had passed the House of Representatives by a 212-206 margin.  It passed the Senate by a 51-50 vote (Chaney returned from Iraq to break the tie).  However, as the Senate’s version contained some minor changes, the House must vote again on the measure.  The House will reconvene in January.  The President advised he will sign the bill.

Here is how the bill changes the Medicaid qualifying rules:

• The penalty period for transferred assets would change to “the date on which the individual is eligible for medical assistance under the State plan and is receiving services . . . but for the application of the penalty period.”  Essentially this means that the penalty period starts when the person is in the nursing home and is out of money.  Currently, the penalty period starts in the month of the gift. 
• The “lookback” period for all asset transfers extends from 3 years to 5 years.
• Annuities must name the State as the remainder beneficiary to repay the State for Medicaid dollars spent on the patient.
• Individuals with home equity over $500,000 would be ineligible for Medicaid nursing home assistance, although States may raise this to $750,000.
• The purchase of a life estate would be included in the definition of “assets” unless the purchaser resides in the home for at least one year after the date of purchase.
• Funds to purchase a promissory note, loan or mortgage would be included among assets unless the repayment terms are actuarially sound, provide for equal payments and prohibit the cancellation of the balance upon the death of the lender.
• States would be barred from “rounding down fractional periods of ineligibility when determining ineligibility periods resulting from asset transfers.

      http://www.johnascottpc.com/articles/DRA2005.htmThe change in the penalty period is particularly worrisome.  It significantly curtails any gifting by older persons to their family or charities, regardless of the reason.  Gifts to assist a grandchild’s college are counted, as are gifts to help a child who just lost a job, as are gifts to the Red Cross to help the Hurricane Katrina victims.   Nursing homes will be caught in the crossfire, because they will have a patient with no funds but not eligible for Medicaid because of the penalty.

Is this the end of Medicaid planning?  No, the rules are stricter.  Protections for the community spouse are still in place.  Planning may need to take place sooner and with a more knowledgeable advisor.

For more information on how the Deficit Reduction Act of 2005 will affect you or your clients who may need nursing home care, please call Diane Huff for an individual consultation.

December 30, 2005