N ew Law Complicates Planning for N ursing Home Residents

 

Written By: Attorney Jeffrey A. Marshall , CELA*

A new federal law designed in part to shift more of the burden of nursing home costs onto families and nursing facilities has been enacted.  On February 8^th President Bush signed the Deficit Reduction Act (DRA) into law. 

The DRA enacts approximately $39 billion in reductions in Federal funding for the poor, the sick, farmers, students, and children.

In signing the Legislation, the President said, "The message of the bill I sign today is straightforward: By setting priorities and making sure tax dollars are spent wisely, America can be compassionate and responsible at the same time. Spending restraint demands difficult choices -- yet making those choices is what the American people sent us to Washington to do."

The Act makes major changes in government financing of health care. For younger Medicaid beneficiaries, it authorizes states to impose new cost sharing, premiums, and reduced benefit packages on Medicaid recipients. A report by 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.

The CBO report estimates that on co-payments for prescription drugs "[a]bout one-third of those affected would be children, and almost half would be individuals with income below the poverty level." The report says that by 2010 about 13 million low-income people will have to pay more for prescription drugs and this number should rise to 20 million by 2015.  The budget office also predicts that 13 million low-income people (about a fifth of Medicaid recipients) will face new or higher co-payments for medical services like doctor's visits and hospital care.

Under the DRA, seniors will have to cope with the government's attempt to shift more of the financial burden of nursing home care onto families and nursing facilities. 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 government financial aid. 

In particular, the DRA places new restrictions on the seniors who want to give their home, farm or other assets to their children or others. Under prior law, seniors who transferred assets within three years of applying for Medicaid were barred from coverage for a length of time beginning at the date of transfer. Under the DRA, the three-year "look-back" period is extended to five years, and the start date for the disqualification period is moved from the transfer date to the application date.

The changes in the Medicaid eligibility rules for long term care benefits include:

- Lengthening the Look-Back Period.

The general look-back period on transfers of assets is lengthened to 60 months for income and assets disposed of by an individual or spouse after the Act's date of enactment ( February 8, 2006 ).

- Change in the Beginning Date for Period of Ineligibility

Transfers of assets to a non-exempt recipient create a "penalty period" during which the donor and spouse are ineligible for Medicaid long-term care assistance. The duration is based on the amount transferred.  The Act changes the way the penalty start date is calculated.  For transfers occurring after enactment ( February 8, 2006 ) the penalty will now start on the latter of: 

(1)  the first day of a month during or before which assets have been transferred for less than fair market value, or

(2) the date on which the individual is eligible for medical assistance under the state plan and is receiving certain long-term care services.

This means that the donor (and spouse) will be ineligible for Medicaid for a period of time that will start to run only after they are otherwise financially and medically qualified for Medicaid (unless they can prove that the gift was made exclusively for purposes other than qualifying for Medicaid).  Any gift made within the prior five years will make a period of ineligibility. 

Because the penalty period begins to run only after the person who made the gift can no longer pay for their care, a worrisome question arises regarding who else might pay for that needed care.  A number of possibilities exist: the spouse (out of his or her protected allowance), the children (out of the goodness of their hearts, or for fear of being sued by the nursing home), the nursing home (by providing uncompensated care), or Medicaid (based on undue hardship criteria that states are directed to create).

- Limit on Home Equity

Individuals with substantial home equity may not be Medicaid eligible for nursing facility or other long-term care services. In the past, home equity was not considered available to pay for a Medicaid applicant's care.  Applicants were not required to borrow against their homes.  For the first time, the Deficit Reduction Act will place a $500,000 ceiling on this home equity exemption. ( Pennsylvania may elect to increase the exemption up to $750,000).

Individuals with a spouse, a child under age 21, or a child who is blind or disabled that lawfully resides in the individual's home will not be excluded from eligibility.

- Treatment of Annuities

The law makes complicated changes in the treatment of annuities.  In some instances, the purchase of an annuity will be treated as the disposal of an asset for less than fair market value. Unless, however, the state is named as the remainder beneficiary in the first position for at least the total amount of Medicaid expenditures paid on behalf of the annuitant or is named in the second position behind a community spouse, minor or disabled child.  Restrictions are placed on the disposal of remainder interests.

Medicaid applicants are required to provide the state with a description of any interest the individual or community spouse has in an annuity regardless of whether the annuity is irrevocable or is treated as an asset. The state may then be named as the remainder beneficiary.

These annuity changes apply to transactions, including the purchase of annuities, occurring on or after the date of enactment.

- Reduction of Community Spouse Protections  

States, like Pennsylvania , will no longer be allowed to let low-income community spouses keep additional financial resources to avoid later spousal impoverishment. 

Prepare for a Period of Confusion

Prior to enactment, the Senate and the House each developed their own quite distinct proposals to modify the Medicaid eligibility rules. The Senate and House versions had virtually nothing in common.  In Conference, the separate proposals were all placed into one piece of legislation apparently without much forethought as to how the provisions would work together.  As a result, the Act contains numerous confusing, ambiguous, and even conflicting provisions. 

The Center for Medicare and Medicaid Services will eventually have to try to make some sense of these sections of the Act and provide guidance to the states.  In the meantime, seniors, nursing homes, state Medicaid agencies, county assistance case workers, and elder law attorneys will have to try to make sense out of the muddle. 

Transfer of Asset Provisions Troublesome

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.

The DRA changes the start of the penalty period for transferred assets from the date of 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 pay for care

The grandparent who helped pay for a grandchild's education, the parent who helps a child with medical bills, 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.  Unfortunately, gifts as small as $501 that are made anytime in the five years before applying for Medicaid will trigger a period of ineligibility.

The new law is expected to create confusion and fear amongst seniors.  The law effectively creates virtually impossible record-keeping and documentation requirements for seniors, especially those suffering from Alzheimer's or other long term illness. Churches and charities are concerned that the law may negatively impact contributions.

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.   

N ursing homes will likely end up providing uncompensated care to at least some of this 15%. It is not surprising that 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, the Elderlawanswers website has dubbed the start date change as the "The N ursing Home Bankruptcy Act of 2005."  

The DRA may also indirectly increase the liability of children of nursing home residents for the cost of their parents' care.  In Pennsylvania , under Act 43, children may be held liable for the financial support of their indigent parents.  N ursing homes, stuck with providing uncompensated care to residents may seek reimbursement from the children. Litigation between nursing homes and the children of residents is likely to increase.

Practical Effective Dates Unclear

Although many of its provisions are effective immediately, it is not clear how quickly the complicated DRA will be implemented in Pennsylvania . It will take some time for state authorities to review and interpret the Act and develop procedural changes to forward to local County Assistance Offices. Additional formal legislative and regulatory changes may be required to implement some of the provisions.  

Additional legislation may even be required at the federal level.  Apparently, as a result of a clerk's error, the legislation signed by the President differs from the legislation passed by the House of Representatives.  Whether this mistake will be cured by a technical correction or will engender new debate remains to be seen.

N eed Long-Term Care - Get Expert Help  

Because of the complexity of the Deficit Reduction Act, seniors needing long term care should  seek only the highest quality expert legal representation when reviewing their options under the new law. 

Links

Selected Long-Term Care Provisions of the Deficit Reduction Act

http://www.paelderlaw.com/pdf/DRA_Provisions.pdf

 

Congressional Bud get Office Report on the Deficit Reduction Act

http://www.cbo.gov/ftpdocs/70xx/doc7028/s1932conf.pdf

 

Pennsylvania Act 43-2005 (Children Liable for Support of Indigent Parent)

http://www.paelderlaw.com/pdf/Act_43_of_2005.pdf 

 

Elderlawanswers article on children's liability for parent's nursing home costs

http://www.elderlawanswers.com/resources/article.asp?id=5181&section=4&state=

 

President Bush's Remarks on Signing the Deficit Reduction Act

http://biz.yahoo.com/prnews/060208/dcw071.html?.v=21

 

Related Elder Care Law Alerts Articles

"Bill Puts Seniors At Risk"

http://www.paelderlaw.com/DRA_2005.html

 

"Punitive Medicaid Cuts N ear Enactment"

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

 

"Medicaid: What Steps Should Seniors Take N ow?"

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

 

"Legislation Could Slash Medicaid, Child Support, Food Stamps and other Social Welfare Programs"

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

Act 43:  Can Children be Liable for their Parent's N ursing Home Costs? 

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

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

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Reverse Mortgages: Unlock the Financial Power of Your Home

 

Written By: John Krasja, AFC First Financial Corporation

A record 43,131 Home Equity Conversion Mortgage (HECM) reverse mortgages were insured by FHA in fiscal 2005, up from 37,829 in 2004. This is the latest indication of how the HECM reverse mortgage is fast moving into the mainstream of financial products.

Today's HECM is saving thousands of homes that would otherwise be lost. It is dramatically improving quality of life and is providing cash for in home care, structural modifications, and home improvements that enable senior homeowners (minimum age 62) to "stay in place" and defer or eliminate the need to leave the family home.

The  N ational Council on Aging Study "Use Your Home to Stay at Home: Expanding the Use of Reverse Mortgages to Pay for Long Term Care" report,  (January 2005) http://www.ncoa.org/attachments/ReverseMortgageReport3.pdf   funded by the Centers for Medicare and Medicaid Services and the Robert Wood Johnson Foundation, suggests that reverse mortgages could save Medicaid $3.3 billion annually by 2010.

A reverse mortgage is simply a mortgage loan with no payments due until the home is sold or the surviving borrower moves out. Having access to mortgage proceeds without the need to make payments in return can dramatically improve cash flo w. And eligibility is based on home ownership and available equity, so income or lack thereof is not an issue. Proceeds are available as a lump sum, a line of credit, or in monthly disbursements. Monthly disbursements continue for the life of the survivor so long as the borrower lives in and owns the home.

Reverse mortgage borrowers can use the proceeds for any purpose; for necessaries, for in-home health care, to prevent a foreclosure, to pay off credit cards, or simply to return to or maintain their traditional lifestyle with a sense of financial security.

A 79 year old gentleman paying $896 per month on a $76,000 mortgage on his $130,000 home in Monroe County is replacing his conventional mortgage with a reverse mortgage thus eliminating his monthly mortgage payment; a 72 year old Philadelphia woman with a monthly cash flo w shortfall will be receiving $998 per month or a lump sum or line of credit of over $157,000 on her $300,000 home; an 82 year old Allentown man paid off his $38,000 mortgage on his $130,000 home, took a $10,000 lump sum for miscellaneous expenses and still has a $55,000 rainy day fund line of credit from his reverse mortgage; an 82 year old Philadelphia woman qualified to receive $300 monthly or a lump sum of $38,000 on her $62,000 home.

With regard to benefit programs, since the reverse mortgage is a loan and loan proceeds are not income, having a reverse mortgage will generally not affect social security or eligibility for Medicaid, SSI, or similar programs.

Consumer protections in the FHA program include a required counseling session with an FHA approved counselor and strict limits on fees that can be charged. And the FHA program eliminates the "doomsday" scenarios present in earlier private programs. Monthly payments cannot stop so long as one borrower resides in and owns the home; the loan is "non-recourse" so only the home is involved, and the borrower retains home ownership with the ability to benefit from appreciation or to sell the home and pay off the loan at any time.

It should be noted that the reverse mortgage must be in first position, that there are FHA lending limits in each county, and that since fees are financed and the effective cost decreases over time, reverse mortgages work best as a long term solution. 

Further information is available on the following websites:

http://www.ncoa.org

http://www.hud.gov/buying/rvrsmort.cfm

http://www.aarp.org/revmort/

http://www.fanniemae.com/homebuyers/findamortgage/reverse/index.jhtml?p=Find%2Ba%2BMortgage

http://www.abanet.org/aging/hec.doc

Since 2003, John Krasja has focused on reverse mortgage lending for AFC First Financial.

He can be contacted at jkrajsa@afcreversemortgage.com or at (610) 433-7486. You can also visit AFC Reverse Mortgage website at http://www.afcreversemortgage.com/index.html.

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Matthew J. Parker , CELA* Becomes Member of the Firm 

The Elder Law Firm is pleased to announce that Matthew J. Parker , CELA has become a member of the firm.  A member serves the role traditionally associated with a law firm partner.      

Mr. Parker has been an associate with Marshall, Parker & Associates' since 2000.  He provides elder law, comprehensive estate planning, estate administration, and guardianship services to seniors and their families. 

In 2005 Attorney Parker earned the prestigious designation of Certified Elder Law Attorney (CELA) by the N ational Elder Law Foundation.  A Magna Cum Laude graduate of the University of Pittsburgh , he received his JD from the Dickinson School of Law in 1995.  He has taught for the Pennsylvania Bar Institute and is a frequent speaker to consumer and professional groups. 

Attorney Parker is a member of the National Academy of Elder Law Attorneys, and the Elder Law Section of the Pennsylvania Bar Association. 

Founded in 1980, the Elder Law Firm of Marshall, Parker & Associates' has become widely recognized throughout Pennsylvania as a leader in providing expert estate planning and elder care planning services. It has offices in Wilkes-Barre , Williamsport and Jersey Shore .  As a result of Attorney Parker's advancement, the firm will become known as The Elder Law Firm of Marshall, Parker & Associates, LLC.

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Attorney Marshall Quoted On Impact of N ew Medicaid Laws

The change in the gifting rules as a result of the Deficit Reduction Act will have a significant impact on many states, including Pennsylvania , where children of nursing home residents can be financially liable for their parents care.  ElderLawAnswers, one of the premier websites providing information on elder law, has quoted from Attorney Marshall's article, "Bill Puts Seniors at Risk" that was published in the January 20^th, 2006 edition of the Elder Care Law Alert.  

 

With filial responsibility codes existing in 30 states and an influx of residents who are unable to pay for care, the probability that litigation between nursing homes and children will flo urish not only in Pennsylvania , but across the nation. 

 

To read the article in its entirety, please visit their website at http://www.elderlawanswers.com/resources/article.asp?id=5181&section=4&state=

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*Attorneys Marshall and Parker are certified as Elder Law Attorneys by the N ational Elder Law Foundation under authorization from the Pennsylvania Supreme Court.