Medicaid has long served as an aid for seniors struggling to meet long-term care needs while trying to stay financially afloat. With healthcare costs on the rise, the Medicaid program has been challenged to continue providing seniors with the healthcare coverage they need while remaining economically viable. In an effort to confront that challenge, Congress signed into law the Deficit Reduction Act (DRA) of 2005, with provisions that effectively shift the financial burden of long-term healthcare from the government to families and nursing facilities. Since most older adults rely on Medicaid to cover long-term healthcare costs and the DRA adds an additional layer of complexity to the already complicated Medicaid program, it is important to understand how the DRA has altered the Medicaid landscape in the United States.
Medicaid is a means-tested, jointly funded, federal-state entitlement program created by Congress in 1965. States administer the program and set rules for eligibility and benefits within broad federal guidelines. As a result, there are wide variations in the Medicaid program from state to state.
Changes to Eligibility
Transfers during the look-back that do not affect Medicaid eligibility include those that were for fair market value, a purpose other than to qualify for Medicaid, or the sole benefit of the institutionalized elder’s spouse or permanently disabled or blind child.
Prior to the DRA’s enactment in 2006, the look-back period was 36 months for income and most assets and 60 months for certain trusts. This meant that Medicaid looked at an elder’s financial history for the 36 months before the date of Medicaid application. Now, Medicaid requires states to examine the 60 months prior to the Medicaid application date when an elder enters a nursing home or becomes eligible for Medicaid, whichever is later. The DRA, therefore, lengthened the look-back period to 60 months for all income and assets transferred after its enactment.
The best way to understand how the look-back asset/resource transfer rules work is by using examples. Each state is required to set standards for the average monthly cost of long-term care. For example, if the average cost of care is $7,380 per month, each $7,380 given away is equal to one month of ineligibility for Medicaid. That calculation equates to $246 per day based on a 30-day month.
On February 1, 2005, Sylvia gave $150,000 to her daughter. On March 1, 2006, she entered a nursing home and applied for Medicaid. Because the transfer occurred within 36 months of the date Sylvia applied for Medicaid, it was within the look-back period. The average monthly nursing home cost in her state was $246 per day. Sylvia would be ineligible for Medicaid for 610 days ($150,000 ÷ $246) beginning on February 1, 2005, the date of the transfer.
The change in the look-back period is regarded as the most troublesome provision of the new rules because older adults who have given gifts to family members fewer than five years previous to applying for Medicaid may be unable to qualify.
Many elders enter into contracts with life care communities or continuing care retirement providers where they can live in the same community while they’re healthy and receive nursing care should it become necessary. The DRA places restrictions on deposits or entrance fees paid to these facilities. Older adults who have the means to afford such an option should work with their legal and financial professionals to structure deposits or any fees they pay in a way that is Medicaid friendly.
While the existing rules about the countability of annuities have been unchanged, the DRA requires states to treat annuity transfers differently. The purchase of an annuity during the look-back period is treated as a disqualifying transfer if the type of annuity, as well as its terms, do not comply with certain Internal Revenue Service regulations, the Social Security Administration’s actuarial tables, and certain probate/estate planning restrictions.
Likewise, promissory notes, loans, and mortgages must contain certain restrictions or they will be considered resources that elders could use to pay for their long-term care. And purchases of life estate interests in another’s home are, per se, considered disqualifying transfers unless the purchaser resided in the home for at least one year after the purchase date.
In theory, Medicaid applicants can cure disqualifying transfers by recovering them. But in practice, getting gifts back or having otherwise transferred assets returned may be impossible. Medicaid regulations allow elders (or long-term care facilities with permission from the resident) to appeal decisions denying Medicaid coverage by applying for waivers from the local Medicaid Enrollment Center. When appealing a Medicaid denial, older adults should hire legal counsel.
Gifts Made Post-DRA
The following is an example of how assets gifted in order to qualify for Medicaid would be considered. On June 1, 2006, Tom gave his son $80,000. On June 1, 2010, Tom enters a nursing home. Because the post-DRA look-back period is 60 months, the gift creates a period of ineligibility beginning in the month Tom enters the nursing home or the month that Tom would be eligible for Medicaid if he had not given the disqualifying gift. So assuming that Tom meets Medicaid’s income and resource eligibility tests, he enters the nursing home. If the average cost of nursing home care in his state is $246 per day, Tom would be ineligible for Medicaid for 325 days ($80,000 ÷ $246) beginning on June 1, 2010, and running through April 22, 2011.
— John Gosselin is the founder of Law for Life, a Boston elder law firm. He is a recognized expert and frequent lecturer on reverse mortgages and their impact on government entitlement programs.