MEDICAID ALERT

Despite protests from senior advocacy organizations across the country, the Deficit Reduction Act (DEFRA) of 2005 was signed into law by President Bush on February 8, 2006, with many of the Medicaid provisions taking effect on that date. The bill was controversial from the start, with Vice President Dick Cheney flying back from the Middle East to cast the tie-breaking vote in the Senate and the House of Representatives passing the bill by two votes.

The Medicaid rules require states to penalize individuals who transfer assets for less than fair market value in order to become eligible for Medicaid. The penalty is simply a time in which Medicaid will not pay for certain services such as nursing home care and home health care under what is called a Medicaid waiver.

Under the old law, Medicaid would “lookback” three years in most instances (and five years in some instances) to determine if a penalizable transfer had been made. Generally speaking, the penalty period began to run on the first day of the first month after which assets were improperly transferred.

DEFRA extends the “lookback period” to five years in ALL cases. Furthermore, the penalty period would begin at the time the individual is eligible for Medicaid and could receive certain long term care services (such as nursing home care) except for the application of the penalty period.

Mary gives $20,000 to her daughter in December 2005 to help her out after a difficult spell of illness. Mary becomes ill and applies for Medicaid in June of 2006. There is a penalty of five months assessed for the transfer. The penalty begins to run in January of 2006 and expires on May 31, 2006. Mary can be eligible for Medicaid in June of 2006 as she has no resources other than $1000 in a checking account.

Mary gives $20,000 to her daughter on February 9, 2006 to help her out after a difficult spell of illness. Mary becomes ill and applies for Medicaid in July of 2006. There is a penalty of five months assessed for the transfer. Mary can be eligible for Medicaid in July of 2006 to pay for her nursing home care as she has no resources other than $1000 in a checking account. However, the penalty of five months begins to run on July 1, 2006 and ends November 30, 2006. Mary has no funds to pay for her care during this period, yet Medicaid will not pay the cost of her nursing home stay during this time because of the penalty in place.

DEFRA also makes considerable changes in the area of annuities. One of the primary changes is that the State must be named as a remainder beneficiary in the first position for the amount Medicaid pays out on behalf of the annuitant or as a remainder beneficiary in the second position after a spouse or minor or disabled child for the amount Medicaid pays out on behalf of the annuitant. If the State is not named, the purchase of the annuity will be treated as a transfer of asset for less than fair market value and will be subject to penalty (the time for which Medicaid will not pay the cost of nursing home or waiver services (such as home health care).

· If you think there may be a need for long care in your near future, beware making gifts.

· Be extremely cautious if you are in the market for an annuity. Do not annuitize or set up an irrevocable annuity without seeking advice from an attorney knowledgeable in Medicaid law as there may be transfer penalties if you apply for Medicaid in the five years subsequent to the annuity purchase.

· If you think there may be a need for long term care within the next five years, consider implementing a Medicaid plan immediately.