Medicaid Eligibility Changes

By Toghers, based on information provided by the law firm of Vincent, Romeo, & Rodriguez, LLC (www.elderlawcolorado.com)

Introduction

The Deficit Reduction Act of 2005, (DRA), signed into law on February 8, 2006, made significant changes to the Medicaid laws. The home, formerly a wholly exempt asset, is now exempt only up to $500,000 of equity value. The “look back” period for gifts is extended from the three years to five years and penalty periods now begin only after the applicant is completely spent down and already in the nursing home. Rules for the treatment of annuities are significantly changed as well.

In this article, some of the changes are outlined and planning techniques that are still available are explained. This advice is general in nature and detailed planning should be undertaken only with the help of an experienced elder law attorney. In addition, Medicaid laws differ from state to state, so some of these planning methods may work in some states and not in others.

Exhaust “Traditional” Medicaid Planning Techniques First

Many tried and true planning techniques can still be utilized in the post-DRA world.

Repayment of Debt

Paying off mortgages, credit card debt, car loans, and so on should be explored as a method for reducing countable assets. For married couples, this has the added advantage of reducing the monthly bills for the community spouse.

Conversion of Countable Assets to Exempt Assets.

• Home Improvements. Because the home often is the major exempt asset, families should explore upgrades and deferred maintenance as a way of converting countable assets such as cash or stocks, into equity in the home. Such spending has the added advantage, for a couple, of avoiding costly and worrisome home repairs and improvements after the spouse is in the nursing home.
• Purchase a New Car. If married, the couple may own one automobile of any value. Thus, consideration should be given to selling an older vehicle and purchasing a new one. For single individuals, only $4,500 of the value is exempt unless the applicant can show that the vehicle is necessary for providing medical care. A letter should be obtained from the primary physician indicating that the vehicle is necessary.
• Purchase Personal and Household Items. Items such as furniture, household goods, clothing, and electronic equipment have never been considered countable assets, and this has not changed since the passage of the DRA.
• Irrevocable Prepaid Funeral and Burial Plans. Such plans have long been exempt and remain so after the DRA. Since we will all need it someday, paying in advance for a “pre-need” plan makes good sense. The funeral home should be advised that the client may apply for Medicaid so that the language of the contract can reflect that the plan is irrevocable.
• Business Property. For single individuals, or married couples, business property may be exempted when the business is essential to producing income for the applicant or community spouse. The entire value may be exempted. This can be an important issue to spot in areas with many entrepreneurs and small businesses.

Transfers of Assets

• Exempt Transfers of the Home.The primary residence of the applicant may be given without a transfer penalty to any of the following: a spouse who remains in the home; a child who has lived in the parent’s home and provided care for at least two years; a sibling of the applicant who has an equity interest in the home; a blind or disabled child; or a sole benefit trust for the spouse or disabled child.
• Transfers Made for Non-Medicaid Qualifying Purposes. This is an area where great caution must be taken. There is a rebuttable presumption that any gifts made within five years prior to the application were made for purposes of qualifying for Medicaid. Such gifts will be treated as transfers without fair consideration (such as gifts) and penalized. Families (and their lawyers) should carefully document the purpose of the gift, such as a down payment for child’s home, college tuition for a grandchild. Individuals who already have a chronic illness which may result in institutionalization should avoid such gifts, as the presumption may be impossible to overcome. Probate avoidance techniques, such as placing homes into joint tenancy with children, must be undertaken with great care.