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Medicaid Changes

The Deficit Reduction Act was passed by the House of Representatives on February 2, 2006. The vote was 216 to 214 in approving the Act. Unfortunately, only one Kansas representative (Dennis Moore) voted against the Act. There were a number of Republicans from other states that voted against the passage of the Act. Regardless, we are faced with some new rules.

Gifting
The most significant change deals with gifting and the length of the look-back period. The look-back period is analogous to a rearview mirror on a motor vehicle. It is the period of time over which Medicaid is permitted to review financial transactions of the applicant to determine whether any of those actions will result in Medicaid disqualification. It begins on the date of the application for Medicaid and goes backward in time. Financial transactions farther back in time (outside of the look-back period) are not part of the application process and cannot be a basis for Medicaid disqualification.

Until the change in law, the law provided for a twotier look-back period. For outright transfers, there was a 36-month look-back period. For transfers to a trust or annuity, there was a 60-month look-back period.

The new law requires a 60-month look-back period, regardless of the type of transfer. All transfers, regardless of whether they were direct or to a trust, will be subject to a 60-month look-back period.

The Deficit Reduction Act changes the period of ineligibility. Under the old law, the ineligibility time period began running the month of the transfer. In Kansas that means if you gave away a substantial sum in one month, the disqualification period would begin the following month. The “divisor” in Kansas is $3,000 (our Medicaid officials deem this to be the average cost of a month in a nursing home). So, a gift of $9,000 would result in a 3-month disqualification beginning the month of the transfer. If the transfer occurred today, you would be eligible to apply for Medicaid any time after three months from today.

The new law changes that ineligibility period. It provides that “the period of ineligibility is the first day of a month during or after which assets have been transferred for less than fair market value or the date of which the individual is eligible for Medicaid assistance under the State plan and would otherwise be receiving institutional-level care based on an approved application for such care but for the application of the penalty period, whichever is later, and which does not occur during any other period of ineligibility.”

That is very hard to follow, but this is what it means to me: Let’s say you give away $9,000 worth of property in January 2005. Two years later you run out of money and you apply for Medicaid. Medicaid can look back at the last 60 months, and discover that $9,000 transfer. From that point that you apply for Medicaid (and would otherwise be qualified for Medicaid but for the gifts), the disqualification period begins running. In other words, you do not have any more money and now you are disqualified from Medicaid for three months!

The third significant change deals with aggregation of gifts (adding up of gifts). Under the old law, if you gave away money, so long as it did not equal or exceed $3,000 per month, that was not considered a gift for disqualification of Medicaid purposes. In addition, if you gave more than $3,000 in a month, the law allowed you to round down, so that if the gift was more than $3,000 but less than $6,000, there would be a disqualification of only one month. If the gift went over $6,000, but was less than $9,000, there would be a disqualification of two months. You see the pattern.

Under the new law, all gifts can be added up. Let’s take an example. Let’s say that each month you give money to your church (a gift is defined as something given without consideration). Let’s also assume that you gave money to the United Way. Perhaps at some point you gave money to your granddaughter to help her pay for her wedding or gave money to one of the grandchildren to go to college. What about those $100 gifts at Christmas time?

A literal reading of the new law allows all those gifts that occurred during the last 60 months to be added together, then divided by $3,000, to get the number of months of disqualification from Medicaid.

Hardship Waiver
The law does allow for a hardship waiver. In order for the hardship provision to apply, the application of the transfer of assets provision would need to deprive the individual of either medical care such that the individual’s health or life would be endangered, or of food, clothing, shelter or other necessities of life. One wonders how these people are going to pay for and litigate that hardship provision. If the application is denied, what about the appeal process, and how is the applicant going to be able to afford that appeal process in terms of legal counsel?

The hardship provision language does allow for a nursing home facility in which the institutionalized individual is residing to file an undue hardship waiver on behalf of the individual with the consent of the individual or the personal representative of the individual.

The Act also provides that the State may pay the nursing home for the first 30 days of nursing home care while a hardship application is pending. It does not address what happens if the hardship is not granted. Where does the nursing home patient go?

Annuities
The Act also affects annuities and how those are handled. The change in law is not very much different than the way Kansas has handled annuities anyway.

Homestead
A change that is not particularly applicable in Kansas is a limit on the value of the homestead equity. Under the old law, there was no limit. Under the new law, if your house is worth more than $500,000, that excess equity will have to be spent down. The law allows states to increase that equity level to $750,000. There are other changes in the Medicaid arena. The new law also affects other programs (such as student loans, co-pay on Medicaid and Medicare, and other provisions).

Good News
That is the bad news. The GOOD NEWS is that these changes generally are not retroactive. In other words, if there have been transfers in the past, they will not disqualify you in the future, and the old rules would apply.

The other GOOD NEWS is that these rules have to be adopted by the Social and Rehabilitation Services of Kansas. Then it has to write its rules on how these changes will be implemented. My experience with SRS is that many times it takes a more rational approach to the changes. My understanding from some of the seminars that we have attended regarding the changes is that SRS plans some type of phase-in program, so that the changes are not too drastic.

I know these changes are very complicated. Before you take any action, please consult with an elder law attorney.

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