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Posted: February 08, 2006

Professional Caregiving

Impact of the Deficit Reduction Act of 2005 on You

The Deficit Reduction Act of 2005, which was signed into law earlier this week by President Bush, will make major changes to Medicaid law. We don’t always have time to pay attention to legislative action or to dissect it enough to really understand the consequences, so I have tried to simplify the language and give you an idea of who is affected by these changes.

One of the first changes will involve the timing of a penalty period for someone who has gifted or transferred their assets away. This changes the start of the penalty period for someone who has transferred assets from the date when the transfer was made (current law) to the date when one applies for Medicaid.

The states will benefit from this change. The date money is gifted within the look-back period is brought forward to the date the applicant requests benefits.

Nursing homes will likely not benefit from this change. In reality, the gifted funds will have been spent or the children will simply tell the facility they don't have them. Medicaid will not pay during the ineligibility period, leaving the facility the option of discharging the patient. Discharge may be impossible if the family will not take the individual home. Nursing homes can either sue the patient or write off the gifted funds.

The look-back period will also change. The current look-back period is three years for gifts made from individual to individual. The period of time the state can "look-back" from the date of application is increased to five years.

The states will likely benefit from this change as well. It’s difficult currently for families to find and organize a parent's finances to comply with the three-year look-back rule. It will now become next to impossible. This gives Medicaid intake offices more opportunities to legitimately delay approval.

Nursing homes will be affected because it's very difficult to comply with the three-year look-back due to poor record keeping. It now becomes a nightmare. As a result, eligibility can be delayed – just when it is needed most.

As it pertains to annuities, the applicant is required to disclose and produce any interest in annuities, all transfers within the past five years, and a statement as to the remainder beneficiary status.

The state will again benefit as annuities will still work but the state must be designated as the remainder beneficiary. There is now no incentive to purchase them. More long-term care insurance will be purchased as a result. Planning ahead will be encouraged, and will become the only way to effectively pay for long-term care. Waiting until crisis occurs, will likely only result in financial devastation.

Nursing homes will find that with the elimination of this whole class of planning (annuities), families either have to pay privately or purchase long-term care insurance.

The new law now mandates the "Income First Rule". States were given the option in 1993 of determining how a community spouse (the person at home) is allowed to be brought up to a monthly federal stipend. The spouse at home could keep either her spouse's monthly income or set aside assets to generate the difference between her monthly income and the federal minimum. The first option, referred to as the income first rule, was potentially devastating because it called for spending down assets. The second, referred to as the resource first rule, could potentially protect hundreds of thousands of dollars to be used to generate the income. The new law mandates the income first approach.

For nursing homes the new law means more private pay patients. Again, the new law also acts as a strong incentive to purchase long-term care insurance.

However, it is possible that professionals will now encourage people to stay at home longer. This increases the need for homecare services. Assisted living facilities may see an increase in census, but only if they increase staffing qualified to handle residents who previously would have been transferred to a nursing home. The law will also likely cause the states to re-visit the issue of licensing these facilities.

This rule is devastating to community spouses with little income and modest assets. The latter will have to be spent down to a maximum of $95,100 before she gets any of her spouse's monthly income. When he dies she may lose his pension if he did not take a survivorship option; and or her social security if it is less than his. She is now faced with limited income and few assets.

The new law mandates that Medicaid deny benefits for applicants with homes that have greater than $500,000 in equity. The measure was aimed at individuals that sought Medicaid benefits by sheltering assets in expensive homes.

Nursing homes may benefit from this part of the law as it appears that residents will have to take out home equity loans to pay for private care. Reverse mortgages will become more popular.

Homecare agencies will benefit as more people try to stay at home longer.

Children may be losers in this scenario. First, equity in excess of $500,000 will have to be used thereby diminishing their inheritance. Second, even if the amount is less, the state will place a lien on the home for recovery of benefits. What remains to be seen is whether a lien will be placed if there is a community spouse.

With deposits in Continuing Care Retirement Communities (CCRC) previously exempt, the new law requires that applicants for Medicaid benefits use the entrance fees paid for a CCRC. It is too early to determine the affects here because there is sure to be litigation regarding who actually owns the fee and other difficult issues.

The states are required to put together rules that will waive any of the new provisions should they pose an undue hardship. Also, Congress has given states the right to create partnership programs.

Finally, it is no secret that for dozens of years, Medicaid has been thought of as an alternative way to pay for long-term care. Medicaid planners have been able to use the current rules to shelter assets and qualify even the wealthy for Medicaid benefits. Now, with the Act becoming law, it will be important for all us to educate ourselves and our communities about planning ahead for long-term care, as Medicaid will be reserved for the truly needy -- the reason Medicaid was originally designed in the first place.

_____

Valerie VanBooven RN, BSN, PGCM, is a registered nurse, professional geriatric care manager, author, and professional speaker. She is a leading expert on long-term care planning and crisis management. Valerie is president of Senior Care Solutions, a private geriatric care management practice in the St. Louis area. Her books include Aging Answers: Secrets to Successful Long-Term Care Planning, Caregiving, and Crisis Management and her website is www.4seniorsathome.com. She can be reached at ASKvalerie@caregivershome.com. .

© 2006 Pederson Publishing, Inc. All Rights Reserved.
Commercial use, redistribution or other forms of reuse of this information is strictly prohibited without the prior written permission of Pederson Publishing.

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