Important Information on Why the New Medicaid Law Changes Now Require Advance Planning for Nursing Home Costs....
On February 8, 2006 President Bush signed the Deficit Reduction Act which made major changes in the Medicaid rules.
The law itself, some 776 pages, will have a dramatic impact on anyone who is considering protecting assets in anticipation of potential long-term home health or nursing home costs in the coming months and years.
Among the major changes in the law was a lengthening of the “lookback period” for all asset transfers or gifts made after February 8, 2006. Under the old rules, transfers which did not involve a trust typically resulted in asset transfer penalties of no more than, and in many cases less than, 3 years. Under the new legislation, however, all asset transfers will now have a lookback period of 5 years.
Perhaps even more concerning is that the start of the penalty period won’t begin until the Medicaid applicant has already spent down his or her assets. While the rules are quite complicated, under the old law a gift would create a certain penalty period depending upon how much was actually transferred.
Let’s take an example. Let’s pretend that you live in a state which said that the average cost of a nursing home was $5,000 per month. Let’s further assume that you made a gift of $50,000 in January of 2005.
Under the old rules a $50,000 gift in a state which said the average cost of nursing home care was $5,000 would lead to a 10 month penalty period from the date of the transfer. In other words there would be a 10 month transfer (i.e. $50,000 divided by $5,000 equals 10 months) from January of 2005 which in our example was the date of the gift. You would then not be eligible to apply for Medicaid assuming you had no other assets until that penalty period ran out in October of 2005.
Under the new law, however, that period of ineligibility will not begin until the gift has been made and the spenddown has been completed. Only then will the penalty period begin. This means that without proper planning, the gifted funds may have to be given back to pay for your care.
What’s more, the new law makes any individual with home equity of more than $500,000 (or if the states elect they can raise this to $750,000) ineligible for Medicaid. In other words, under the old law the home was an exempt asset. Under the new law the home may be an exempt asset but only so long as the home equity is not greater than $500,000.
What does this mean for you? Simply this. First of all people must begin planning far sooner than they ever have had to in the past. The new law is designed to encourage people to purchase long-term care insurance. If you are healthy enough to do so and physically able to qualify, then we strongly recommend that you consider this type of insurance.
If on the other hand, you do not have long-term care insurance and cannot obtain it or afford it, then you should begin your legal planning immediately. You should contact an attorney who practices in the area of estate planning and elder law to assist you. If you begin early enough, there may be steps you can take now to help protect your assets even in light of the new Medicaid asset transfer changes. To find an attorney to assist you, you can consult the directory for this website. If there is no one listed in your area at this time, then email us and we will help you find an attorney in your area well versed in these issues.
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