As we discussed in a previous E-Alert, the Deficit Reduction Act of 2005 passed
by the narrowest of margins in December of 2005, but because of some technical
difficulties a second vote was required in the House of Representatives in early
February 2006 to actually make it law. That vote passed by a vote of 216 –
214. The President signed the bill into law on February 8, 2006, but now a second
technical difficulty has been discovered. It seems that the bill that the President
signed is slightly different than the one voted on by the House of Representatives,
so that in fact it may not be law at this time. Many House Democrats are questioning
the law’s validity, but the White House and many Republicans are treating
the law as if there is nothing wrong. An elder law attorney in Alabama has filed
a lawsuit challenging the law’s constitutionality.
Even if the Deficit Reduction Act is in fact a valid law, most states will
still be operating under the old Medicaid law until the legislature of that
state adopts the new federal rules. Such states have until the first day of
the first calendar quarter beginning after the end of the legislature’s
next session (or the end of the next year of a two-year session) to comply.
For instance, if a state’s next legislative session begins in September
2006 and ends in December 2006, the deadline would be January 1, 2007. If the
session ended instead in February of 2007, then the deadline would be April
1, 2007.
The bottom line is that in most states the new Medicaid rules will not become
effective for several months. Therefore, a window of opportunity still exists
for clients to qualify for Medicaid coverage under the old rules. For those
clients who desire to put a pre-need plan in place under the less restrictive
rules, that opportunity remains open for a short period of time. In last month’s
E-Alert, we discussed the possibility of using an Irrevocable Income Only Medicaid
Trust as a part of such pre-need planning.
As a reminder, the Deficit Reduction Act makes the following changes to the
Medicaid rules:
- It extends the “lookback” period for all asset transfers from
three years to five years.
- It changes the start date of the penalty period for uncompensated transfers
of assets from the date of transfer to the later of the date the transfer
occurs or the date on which the individual is eligible for medical assistance
under the State plan.
- It would make any individual with home equity above $500,000 ineligible
for Medicaid nursing home care, although states may raise this threshold as
high as $750,000.
- It establishes new rules for the treatment of annuities, including a requirement
that the state be named as the remainder beneficiary.
- It requires all states to apply the so-called “income-first”
rule to community spouses who appeal for an increased resource allowance based
on their need for more funds invested to meet their minimum income requirements.
- It extends long-term care insurance partnership programs, such as those
in California, Connecticut, and New York, to any state.
- It allows Continuing Care Retirement Communities (CCRCs) to require residents
to spend down their declared resources before applying for medical assistance.
- It sets forth rules under which an individual’s CCRC entrance fee
is considered an available resource.
The legislation is also designed to close certain asset transfer “loopholes,”
including:
- The purchase of a life estate would be included in the definition of available
resources for purposes of determining Medicaid eligibility unless the purchaser
resides in the home for at least one year after the date of purchase.
- A promissory note, loan, or mortgage would be included among available
resources for purposes of determining Medicaid eligibility 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.
- States would be permitted to treat multiple transfers of assets as a single
transfer and begin any penalty period on the earliest date that would apply
to such transfers.
Whether your client has an immediate need to qualify for Medicaid or is contemplating
pre-need planning under the old rules, your clients may be able to avoid the
application of these more onerous rules by acting now. Contact us to schedule
an appointment with one of our Medicaid planners to discuss your client’s
options for planning during this short-lived window of opportunity.
