Did They Just Throw Mama From The Train?

By Nancy R. Larson, Attorney

 

     It just got harder to be old.  In response to tightening the Federal budget and a promise by Congress last year to slash $10 billion from the Federal Medicaid budget, President Bush signed the new Deficit Reduction Act of 2005 on February 8, 2006.

            Chapter 2 of the new Deficit Reduction Act dramatically impacts planning for the golden years.

            Medicaid is the Federal government program that provides benefits to the elderly, poor and disabled.  Medicaid pays for approximately 48% of skilled nursing home care in the United States.  With costs of nursing homes in southern Illinois ranging from $3,000.00 to $6,000.00 per month, it is typical to spend $35,000.00 to $75,000.00 per year.  After personal resources are exhausted, many middle income and lower income families must rely on the Medicaid program to finance some of their long term care needs.  As a result, Medicaid has become the long term care safety net for many seniors.

            The Illinois Department of Healthcare and Family Services (HFS) is working on a new set of policy rules that will be provided to the local Illinois Department of Human services (DHS) offices.  DHS is the Illinois agency that determines whether someone is eligible for Medicaid.

            Under previous law, when a person applied for Medicaid 36 months of financial records were required to be submitted with an application.  The Deficit Reduction Act changes the 36 month look back period from 36 months to 60 months.  All applicants are now required to provide five years of financial records.  This will indeed be a recordkeeping challenge for the elderly and their families.

            If the Medicaid applicant transfers assets (by gift or trust) within five years of applying for Medicaid, those assets will be treated as if they wee still owned by the applicant in determining eligibility for Medicaid.  All transactions within the look back period must be documented and explained to the DHS.  Transfers for less than fair market value that are made within the look back period create a period of Medicaid ineligibility.

            Under the old law, the ineligibility period began on the date the applicant transferred an asset (i.e. made a gift).  In other words, a $10,000.00 gift made a year ago would create about a two month period of ineligibility for Medicaid.  That period of ineligibility started on the date the gift was made.  The person would be ineligible for Medicaid for two months following the date of the gift, which was 12 months ago.  The period of ineligibility would have expired 10 months ago, and the gift would not affect other Medicaid applications.

            The new ineligibility period begins on the date the person applies for Medicaid and (1) is in a skilled nursing facility and (2) whose application for Medicaid would be approved but for the imposition of a penalty period.

            The outcome will be harsher under the Deficit Reduction Act provisions.  Seniors may be ineligible for Medicaid even though they have spent down all of their assets private paying for their long term care.

            Under the Deficit Reduction Act, any gifts over a five year period are aggregated into a single penalty period no matter how small the gift.  In other words, gifts to churches, grandchild, or charities made with no intention of qualifying for Medicaid will result in a DHS caseworker imposing a period of ineligibility for Medicaid.

            Consider the father who gave $30,000.00 to his daughter four years ago for the down payment on a house.  Under pre-Deficit Reduction Act, that transfer would create a penalty period of about six months that would start on the first day of the month in which the transfer was made.  His ineligibility would have expired four months after making the gift, and he would be approved for Medicaid.

            Under the new Deficit Reduction Act, the $30,000.00 gift four years ago would result in denial of Medicaid eligibility.  Dad would apply for Medicaid, and it would be determined that but for the gift made four years ago, he would be eligible.  But the six month period of ineligibility starts when he would otherwise be eligible and is receiving skilled nursing care.  Dad is already in the nursing home and now faces a six month period of ineligibility.  With all of his assets gone, he is deemed Medicare.

            What will the nursing home do with a non-paying patient, who has no assets and will not qualify for Medicaid for six months?  The Deficit Reduction Act may become known as the “Nursing Home Bankruptcy Act of 2005”.

            A hardship waiver exception may be of some assistance; however, the DHS must set the policy for determining the applicability of the hardship waiver exception.  In the past, hardship waivers were nearly impossible to qualify for as it was triggered if the Medicaid applicant is in danger of loss of health or life or of “food, clothing, shelter, or other necessities of life”.  Federal law prohibits nursing homes from evicting a non-paying resident unless another institution will take the person.  If a facility cannot evict a non-paying resident without providing alternative care and no alternative care exists, is there really a hardship to the resident in shifting the burden of uncompensated care from the government to the nursing home indirectly which may change the way nursing homes do business.

            Under the new law, equity in homes of nursing home residents exceeding $500,000.00 will be considered an “available resource” and must be liquidated to pay toward cost of care.  States may elect to revise this amount to $750,000.00.  The house will not be counted as an asset if the nursing home resident’s spouse, child under 21 years of age, or disabled child is living in the house.

            The new law provides that the Medicaid applicant must disclose any interest the individual and spouse have in annuities.  To receive Medicaid benefits the applicant must list the State of Illinois as the remainder beneficiary for the amount of medical assistance paid by the state on behalf of the annuitant.  If there is a community spouse or minor or disabled child named first then the state is the successor beneficiary.

            The annuity must be irreversible, non-assignable, actuarially sound and provide for equal payment during the term of the annuity.  No deferral or balloon payments are permitted.

            This is a preliminary analysis as we wait for the State of Illinois to implement its policy and procedures in carrying out the provisions of the Deficit Reduction Act of 2005.

            What now?  Seeking legal counsel has never been more important.  Providing honest ways for seniors to protect their homes, loved ones, and independence will continue to be a priority.