DRA CHANGES EFFECTIVE NOVEMBER 1, 2009

The Deficit Reduction Act of 2005, Pub. Law 109-171 (“DRA”), which President George W. Bush signed into law on February 8, 2006, made several significant changes in the federal law governing Medicaid, with major changes in the transfer penalty rules. Indiana was very slow in implementing the DRA, making all DRA provisions effective November 1, 2009. The following is a brief synopsis of how the law impacts older adults and persons with disabilities as they plan for Medicaid:

TRANSFERS OF ASSETS

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 involving trusts) 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.

· DRA extends the “lookback period” to five years in ALL cases. However, the five year lookback applies ONLY to transfers occurring on or after November 1, 2009, so it cannot be fully implemented until November 1, 2014 (five years from the implementation date).

· Furthermore, the DRA indicates that 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.

· DRA requires that states use a per diem calculation in figuring the length of the transfer penalty. So if the equation, for example, results in a penalty of 5.5 months, the state cannot round down as it did pre-DRA. Instead, the penalty is based on a per diem penalty calculation. The .5 months is multiplied by 30.42 (standard of days in a month), resulting in a five month, 15.21 days penalty period. This is rounded to a five month, 16 day penalty period.

Example under the old rule:
Mary gives $20,000 to her daughter in June of 2009 to help her out after a difficult spell of illness. Mary becomes ill and applies for Medicaid in December of 2009. There is a penalty of four months assessed for the transfer. The penalty begins to run in July of 2009 and expires on October 31, 2009. Mary can be eligible for full Medicaid benefits when she applies in December 2009 as she has no resources other than $1000 in a checking account.

Example under the DRA:
Mary gives $20,000 to her daughter in January of 2010 to help her out after a difficult spell of illness. Mary becomes ill, goes into a nursing home, and applies for Medicaid in June of 2011. There is a penalty of 4 months and 11 days assessed for the transfer. [.34 x 30.42= 10.34, rounded up to 11 days.] Mary can be eligible for Medicaid in June of 2011 to pay for her nursing home care as she has no resources other than $1000 in a checking account. However, the penalty of 4 months and 11 days begins to run on June 1, 2011 and ends October 11, 2011. 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.

ANNUITIES

The DRA addresses the treatment of annuities and provides an analysis of when purchase of an annuity can be considered a transfer subject to penalty by Medicaid.

· The purchase of an irrevocable, non-assignable annuity providing for equal payments with a payback within the life expectancy of the annuitant will not be a transfer subject to penalty. The income derived from this type of annuity is countable in the Medicaid income budgeting process.

· The State must be named as the remainder beneficiary on annuities or the purchase will be considered to be a transfer of an asset for less than fair market value. This change appears to be designed to require both the Medicaid applicant and the Medicaid applicant’s non-recipient spouse, if applicable, to name the state as beneficiary for payment of whatever the state spends on the recipient’s Medicaid.

OTHER ISSUES UNDER DRA

The DRA adds specific language to address promissory notes, “life estates” in real estate, and undue hardship exceptions to the rules, among other issues. One should seek legal counsel to address any of the issues that may come up as a result of the State’s implementation of the DRA.

Notice:  The information above is provided as an update to our clients and visitors to this website.  This is for information purposes only and does not constitute legal advice.