Twenty years ago, on February 8, 2006, a law went into effect that many feared would eliminate Medicaid planning and asset protection.  Known as “The Deficit Reduction Act of 2005,” the law made Medicaid planning more intricate than before.  Fortunately, by careful planning and by staying with the law’s “safe harbors,” asset protection planning is still alive and well.  With proper legal planning, it is still possible to prevent the loss of everything to a nursing home stay.  With proper planning, you can increase your options and avoid the nursing home. 

In 2006, Congress enacted a new law the imposed punitive new restrictions on the ability of seniors to transfer assets before qualifying for Medicaid coverage for nursing home care.  The new law made significant changes to the eligibility rules for long-term care assistance for the elderly and disabled.  The law was purported to save the government $10 billion by reducing Medicaid entitlement expenditures.  The law has made Medicaid eligibility more difficult for millions of seniors and disabled individuals.  These changes included:

Changes in the State of the penalty (or waiting) period for asset transfers

• Shifts the start of the penalty period for transferred assets from the date of the transfer to the date when the individual transferring the assets enters a nursing  home and would otherwise be eligible for Medicaid coverage.  In other words, the penalty period does not begin until the nursing home resident is out of funds.

     Examples of who would be harmed:

• • A woman who helped her granddaughter by paying $15,000 for her college tuition, a year before applying for Medicaid.
  • A widow with Alzheimer’s who cannot account for her expenditures four years ago by her now deceased husband.
  • A widower who sends money to his daughter – a single parent with two underage children who lost her job due to chronic fatigue syndrome, a year before suffering heart attack and debilitating stroke that results in the need for long-term care
  • The caring sister who gives $20,000 of her savings to help a needy sister remain in her home.

Increasing the Look-back period

Increases the look-back period from three to five years.  This still punishes seniors for everyday family transactions or poor record-keeping.  The vulnerable, frail elderly would be unable to get care because the proposal would require record- keeping and documentation that is far beyond normal practices, especially for victims of Alzheimer’s disease or dementia.

Extending the look back period from 36 months to 60 months for all transfers has complicated and lengthened the application process.  This has affected accounts receivable for nursing homes.

This law will punish people who have been law-abiding citizens.  They will severely hurt the elderly and individuals with disabilities who act in good faith.

The decisions you make today may have a significant impact on your future.  For example, if you make contributions or give gifts to churches, charities or family members, you may be ineligible for Medicaid long-term care services for up to five years after you gave the gifts, even if you had no intention of using the Medicaid program at the time.  

Medicaid eligibility, as with the previous look-back rules, any transfers before the five-year look-back, regardless of the amount, would not affect eligibility.