In regard to health care, the law authorizes states to impose new cost sharing, premiums, and reduced benefit packages on Medicaid recipients. The Congressional Bud get Office (CBO) estimates that the cost sharing change alone will ultimately impact about 17 million people or about 27% of Medicaid enrollees.  About a third of those affected will be children.

Seniors will have to cope with provisions that attempt to shift more of the financial burden of nursing home care onto families and nursing facilities. Few seniors have insurance that covers long term care and most nursing home residents rely on Medicaid to cover part of the cost of their care. The new law will make it more difficult for these residents to obtain this financial aid. 

The most troublesome provision of the new nursing home rules is the treatment of gifts.  Under the DRA, a senior who makes a relatively small gift to a family member may be unable to pay if nursing home care is needed three or four years later.

Under prior law, an individual making a gift could be ineligible for Medicaid-paid nursing home care for up to three years from the date of making the gift.  The DRA changes the start of the penalty period for transferred assets from the date of the transfer to the date of Medicaid application. This means that the penalty period will not start to run until the individual is in a nursing home and is out of other funds to use to pay for care. The law also extends the look-back period to five years.  

The grandparent who helped pay for a grandchild's education, the parent who helps a child with medical bills, and even the family farmer who passes on the farm will all be caught by this law if they get sick within five years of making the gift.  Gifts as small as $501 will trigger a period of ineligibility.

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 CBO estimates that this change will affect about 15% of individuals who are admitted to nursing homes each year.  

Nursing homes will apparently be required to provide uncompensated care to many of these residents. For this reason, the nursing home industry strongly opposed the change in the penalty start date.  The American Health Care Association, a group representing nearly 11,000 long-term care providers, said the change" 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." As a result, some are referring to the start date change as the "The Nursing Home Bankruptcy Act of 2005."  

The change in the gifting rules is particularly significant in Pennsylvania .  In our state, children may be held liable for the financial support of their indigent parents.  Some nursing homes, stuck with residents who have no means to pay for care, may seek reimbursement from the children.   Litigation between nursing homes and the children of residents is likely to flourish. Nursing homes will sue children who will counter-sue for sub-standard care. The costs of litigation will add to the nursing facilities' woes.

The Deficit Reduction Act contains many other changes that impact the families of nursing home residents.  Some are reasonable approaches to closing "loopholes" while others are complicated and ambiguous rule changes that are likely to engender confusion and litigation.  All are intended to ensure that persons who are unfortunate enough to encounter a long-term illness spend more of their income and assets to pay for the cost of their care.

Although many of its provisions are effective immediately, it is not clear how quickly the complicated DRA will be implemented in Pennsylvania .

Here are some planning steps seniors might want to consider.

    1.         If you are considering transferring assets to your children or to an asset protection trust, you should complete those transfers as soon as possible.

    2.         If you are healthy and can afford the cost, consider purchasing long-term care insurance.

    3.         Because of the extension of the look-back period to five years and the change in the way transfer penalties are calculated, seniors may wish to consider making transfers at least five years before needing financial help with long-term care costs.

    4.         The prior protections of the home are now under attack.  Seniors, especially farmers, may wish to consider transferring ownership interests in their homes and farms in order to protect these most valuable assets.  Make such transfers only after full consideration and with expert advice.

    5.         Talk to your lawyer about whether you need to update your estate planning documents.

    6.         Because of the complexity of the Deficit Reduction Act, you should seek the highest quality expert legal representation when reviewing your options.  This is no time to be penny-wise and dollar foolish.  Make sure your lawyer is experienced and knowledgeable in Medicaid as well as estate planning.