In 2006, Congress passed the most sweeping revision to the Medicaid laws in history as a part of the “Deficit Reduction Act”. This law increased the likelihood that seniors in need of nursing home care would face the loss of their assets and become impoverished before obtaining state assistance through Medicaid. Why were such changes made? The purpose of the new law was to trim the budget and cut federal spending. Medicaid changes were only a small part of this effort. Other sections of the law included substantial changes to programs including child support, student loans, farm help and welfare. The federal government hoped these changes will help it save forty billion ($40,000,000,000) dollars over the next five years.
Republicans supported the budget cuts for the most part. They claimed that this was a necessary step toward fiscal responsibility. There was some concern on their part that entitlement programs – such as Medicare and Medicaid – would consume too much of the budget in the coming years when eighty million baby boomers will enter retirement. However, Democrats claimed that at the same time that programs for the less well-to-do are being cut, the president is calling for tax cuts to wealthy Americans.
Whatever the political motivation for the changes, the new law definitely impacted seniors in regard to long term care. The days of very easy transfers, risk free annuities and totally exempt homes did come to an end. More than ever, families needed to do proper legal planning to assure quality care for their loved ones and to preserve inheritances for their children.
Specifically, some of the areas that the new law changed are as follows:
1) Home – The Deficit Reduction law limits the amount of equity a nursing home patient can keep in their home. Those over the limit will not qualify for Medicaid. The limit is set in the federal law at five hundred thousand ($500,000) dollars but states have the right to modify this amount.
2) Annuities – For an annuity to be exempt under the Deficit Reduction law the state must be named as an irrevocable beneficiary. There are certain exceptions. However, people who bought annuities to protect their assets are now subject to the state Medicaid recovery effort.
3) Look Back Period – Previously when a person applied for Medicaid, the state looked back three years to examine ordinary transfers. Under the Deficit Reduction law the state began to look back five years for all transfers. If transfers are found during that period, a penalty period will be imposed.
4) Penalty Period – Under the old law, transfer penalty periods would start at the time the gift was made. For example, if Mrs. Smith was entering a nursing home and had transferred sixty thousand ($60,000) dollars to her son two years prior, her penalty period would have expired. Now, all penalties start at that time that the person enters the nursing home. This forces the person to get the assets back in order to pay for the nursing home during the penalty period. Alternatively, the nursing home are now more likely to get stuck with a non-paying client. Both nursing homes and associations representing the elderly (such as AARP) have objected to this rule that produces more hardship cases.
With these laws now being regularly enforced, it is necessary for those preparing for retirement to consult with a qualified elder care attorney to assess their situation and advise them regarding the law. The government has the right to change laws to protect the budget. However, senior citizens, their families, and the facilities that serve them also have a right, and even an obligation, to know the law and to work within it to protect their clients, their families, and their interests.