Written By: Jeffrey A. Marshall , CELA* 

  Seniors and nursing homes will have to cope with drastic new Medicaid rules that take effect this week ( March 3, 2007 ). The rules make it much harder to qualify for government aid in meeting nursing home costs.  The children of nursing home residents may also be affected. 

Under the new rules, people who made a gift after February 8, 2006 may be ineligible for Medicaid nursing home benefits when they run out of other funds. For applications filed after March 3, 2007 , the penalty for making a gift will not begin to run until the nursing home resident has no other funds to pay for care.  This means nursing homes are likely to be stuck with beds filled with people who cannot pay. 

The new penalties on gifts are part of a law, called the Deficit Reduction Act (DRA), passed by the last Congress and signed into law by President Bush in February 2006.  The DRA forces Pennsylvania to deny Medicaid long-term care benefits to applicants who made a non-exempt gift.

Approximately two thirds of nursing home residents receive some assistance from the Medicaid program.  Nursing home residents who are already on Medicaid should not be affected unless they make a gift in the future, but new applicants will find it much harder to qualify.  Because the Medicaid ineligibility period will no longer begin to run until the nursing home resident is out of funds, there will be a period of time during which neither the nursing home resident nor Medicaid can pay for needed care. The Congressional Budget Office estimates that this will affect about 15% of individuals who are admitted to nursing homes each year.

Why the DRA Means Trouble

Unmarried individuals usually don't qualify for Medicaid financial assistance with the cost of nursing home care until they have exhausted all but $2,400 of their cash and investments. $2,400 is not enough to pay for even one month in a nursing home. Therefore, in order for the nursing facility to get paid, help from Medicaid is needed.

The problem arises if the nursing home resident has made a gift with a value of more than $500 after February 8, 2006 and within 60 months of applying for Medicaid. 

Under long-standing Medicaid program rules, gifts make an individual ineligible for Medicaid help with long-term care costs for a period of time.  In the past, state examiners would look back for 3 years to see if you had made any gifts.  Under the old law, the ineligibility period began when you made the gift.  So, for most nursing home residents, the penalty period had run long before any application for Medicaid was filed.

For example, under the Pre-DRA rules, assume John gave his grandson $20,000 for college in December 2005.  By April 2006 the penalty period would have expired and Medicaid would ignore the gift.  If John needed nursing home care after that, Medicaid would help pay the nursing home when John spent his remaining funds down to $2,400.

Under the DRA, the look back period is expanded to 5 years, and most importantly, the penalty period doesn't begin until John is in the nursing home and has spent down his funds to $2,400.  So, if John gives his grandson $20,000 for college in December 2006 and then applies for Medicaid Assistance 50 months later in February 2011, he will be ineligible for financial help for approximately 3 months. Who pays for that 3 months?  Not, John - he has already spent down his assets to $2400 or less.  Not the state - the DRA doesn't allow it.  Not the grandson - the money is likely long gone.  The nursing home is left holding the bag. 

Special rules apply if you are married.  But, gifts by either spouse make both ineligible for Medicaid nursing home benefits.  Gifts can also make seniors ineligible for some other Medicaid long term care benefits, like home and community-based waiver services. 

In some cases, a nursing home that isn't getting paid may decide to sue the children of the nursing home resident.  Under Pennsylvania 's recently enacted family support law (Act 43 of 2005), children can be liable for the parent's unpaid medical and nursing home expenses if the parent can't pay.  This rule applies even though the child never received any gifts from the parent.   

The DRA law is so complex that it has taken Pennsylvania more than a full year to figure out how to comply with its requirements.  The rules are extremely confusing and there are numerous exceptions.  Waivers are possible in some cases. 

More details of the DRA law and Pennsylvania's rules are available on the Marshall, Parker & Associates website at www.paelderlaw.com.

What You Should Do Now

Seniors:

Seniors should anticipate that they will someday need long-term care, either at home or in a nursing home. The new law places a premium on planning well in advance of the onset of illness.

∙           Seniors who are healthy and have sufficient financial means may want to consider the purchase of long-term care insurance.

∙           Seniors who are unlikely to need long-term care within the next five years may want to make gifts now, rather than waiting.  There are many ways to give away assets, including irrevocable trusts and retaining reserved interests. Don't make large gifts without advice from a lawyer who understands the DRA. 

∙           Keep records of any gifts made for at least five years.  This includes regular gifts such as church or other charitable contributions. 

∙           Get an asset protection power of attorney that will allow your family to plan for you in the event you become incapacitated.  An asset protection power of attorney allows your family to try to protect the things you own if you ever need to qualify for Medicaid.

∙           If illness strikes, get the best possible planning advice as soon as possible.  Make sure your lawyer is an expert in the DRA. Don't try to do-it-yourself.  Mistakes can cost you and your family much more than the cost of good planning advice.        

Family Members of Seniors Who Need Care:

Under Pennsylvania law, children can be held liable for a parent's nursing home costs, if the parent is out of money, but doesn't qualify for Medicaid.  Encourage your parents to plan early and get good legal advice before making any large gifts.

Be careful when signing documents for a parent, especially admission paperwork at the nursing home. Understand what you are signing.  Sign as power of attorney for your parent, not on your own behalf.  Don't make personal guarantees.  Make sure your parent gets the best advice possible if they ever need long-term care. Mistakes can cost you dearly. 

You might also want to contact your state representative and senator and tell them to repeal the family support law - Act 43 - that makes children financially responsible for their aging parents' health care costs.

Nursing Homes:

Nursing Homes may end up being the largest victims of the DRA. The American Health Care Association, a group representing nearly 11,000 long-term care providers, said the change in the penalty rule "leaves the nursing facility (not the state) to collect from individuals who have no funds to pay privately and are not Medicaid eligible during their penalty phase."  

Nursing home administrators need to understand how the DRA is likely to affect their facility. Facilities are at risk if their residents have made ineffectively planned gifts within 5 years of Medicaid application. These residents may be ineligible for Medicaid payment when they run out of other funds.  Nursing homes should work closely with a certified elder law attorney or other lawyer who understands the DRA.

Even small gifts of under $1,000 which were made years prior to admission can create a penalty.  Administrators need to avoid the transfer penalty payment gap.  A facility is much better off with a resident on Medicaid than with a resident who has no source of payment and who cannot be discharged. A lawyer who understands the DRA may be able to help the facility avoid the transfer/non-payment trap if contacted before the resident's private funds are exhausted. 

In the past, some nursing homes have viewed elder law attorneys as enemies.  Nursing home administrators must come to recognize that knowledgeable elder law attorneys are their allies in making sure residents always have a payment source for their care.

More Information

Extensive resources on the DRA are available on Marshall, Parker and Associates' website at www.paelderlaw.com.

∙   Understanding the Deficit Reduction Act- http://www.paelderlaw.com/DRA.html

∙   Selected Provisions of the DRA- http://www.paelderlaw.com/pdf/DRA_Provisions.pdf

∙   DPW Operations Memos- http://www.paelderlaw.com/Draft_memos.html

∙   Act 43 Filial Responsibility- http://www.paelderlaw.com/pdf/Act_43_of_2005.pdf

∙   Children Can be Liable for Parents' Nursing Home Costs-

     http://www.paelderlaw.com/budd.html

Elder care professionals may also be interested in attending Marshall, Parker & Associate's Annual Professional Update for an in-depth discussion on the DRA and how these laws affect consumers and providers. Please contact Melissa Bottorf at mbottorf@paelderlaw.com for more information.

Attorney Marshall can be contacted at webmail@paelderlaw.com or at 1-800-401-4552

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