In the 80’s and 90’s the myth of the “welfare queen” led to punitive and sometimes harmful changes to the welfare rules. Well, the so-called “welfare queen” has aged, and is now apparently a “millionaire on Medicaid,” leading Congress to pass the Debt Reduction Act which will have potentially devastating effects on middle income elders who have the bad luck to need nursing home care, and on nursing homes themselves.
The changes to the Medicaid provisions of the DRA include postponing the penalty period start date and increasing the look-back period.
Under Medicaid rule, transfers of assets for less than fair market value will result in a corresponding ineligibility period for Medicaid coverage of nursing home care. Prior to February 2006, the ineligibility period started at the date of transfer, meaning that if you gave approximately $7000 to your child, you would be disqualified from Medicaid coverage for one month (Massachusetts considers $7000 to be the approximate cost of one month of nursing home care). However, you could plan ahead and be sure to keep enough money to pay for one month of nursing coverage (usually between $6000-$9000/month) if you should need it. Upon applying for Medicaid, they would “look back” 3 years to see if you made any transfers of this nature, or five years if you made any transfers to a trust.
Under the new regulations (after February 2006), the penalty period starts at the later of the first day of the month of the transfer, or the date when the individual would otherwise be eligible for Medicaid. Meaning that, the ineligibility period will begin to run when the person has run out of money to pay for their nursing home care. So, in the above scenario, after the person gives away $7,000, and then uses their remaining money to pay privately for nursing home care for a number of months, when they have run out of money (except for the $2000 they are allowed to keep under Medicaid rules) and would otherwise be eligible for Medicaid, they will have a penalty period of a month during which there will not be any funds to pay for the nursing home. Because a nursing home cannot evict a patient without a safe place to transfer them to, nursing homes will be stuck providing care to a patient who cannot pay, and not receiving any reimbursement from Medicaid.
In addition, the look-back period will change from 3 years for most transfers, to 5 years for all transfers, whether into a trust or outright to an individual.
Do you have all of your records from 5 years ago? Can you predict what your health situation will be in 5 years? If you give your child money for them to use on a down payment for their house, or to help them in the adoption of a child or their schooling or medical expenses, what will the consequences be in a few years if you or your spouse should need nursing home care? What about charitable contributions, will people be more hesitant to make theses gifts, for fear they might come back to haunt them as disqualifying transfers?
An elder law attorney can best help you and your loved ones navigate this changing area of the law.
Estate Planning, Medicaid, Probate and Trusts involve complex areas of law. Individual circumstances must be considered before any advice can be given. The general information above is not to be construed as legal advice, which can only be given after consideration of the unique facts of each matter. Please seek the advice or counsel of your attorney, financial advisor or CPA as it may be appropriate.