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CHANGES IN STORE FOR MEDICARE AND MEDICAID
President Bush signed into law in February the Deficit
Reduction Act, otherwise known as the fiscal year 2006 budget
reconciliation bill. That law, which contained more than $39
billion in cuts, including $6.4 billion from Medicare and $4.8
billion from Medicaid, has plenty of changes in store for
seniors.
Under the new law, for instance, most Medicaid beneficiaries
would be required to pay higher co-payments for health care
services and could be denied service for lack of payment.
Provisions affecting Medicare include higher premiums for
beneficiaries, with greater increases for higher-income
beneficiaries, and a freeze in payments for home health care
providers. The bill also cancels a scheduled cut in Medicare
reimbursements to physicians and provides medical care to some
hurricane survivors.
Here, according to Bernard A. Krooks, founding member of
Littman Krooks in New York City and White Plains and Harry
Margolis, founder and president of ElderLawAnswers.com, are the
three major changes to Medicaid eligibility rules under the new
law.
1. The look-back period will be 60 months for all asset
transfers.
Under the old law, outright transfers were subject to a
36-month look-back period and transfers to or from certain
trusts were subject to a 60-month look-back period.
Under the new law, the look-back period — though some asset
transfers will be grandfathered — has been increased from 36
months to 60 months for all transfers. And all transfers
made within the look-back period will have to be documented and
explained to Medicaid authorities.
2. Start of eligibility deferred.
Under the old law, the "penalty period" for
institutional Medicaid started on the first day of either the
month in which the transfer is made or the first day of the
following month. But the new law postpones the beginning date
for any transfer penalty to the first day of the month in which
the individual is (1) in a nursing home or receiving "waivered"
home care, (2) has spent down his or her savings, and (3) would
be eligible for benefits but for the transfer.
States do have, however, the option of starting the penalty
period in the month of asset transfer or in the month following
asset transfer. For example, in New York, it's the month
following the month of transfer and in Massachusetts it's the
first day of the month in which the transfer occurs.
The point, basically, is this: Imagine you transfer $50,000
that would normally disqualify you for 12 months based on your
state's costs. Before, if you transferred $50,000, you'd be free
and clear after a year (measuring from transfer date). Now, the
measuring doesn't even start until the person would otherwise be
eligible (but for the transfer), so they will have to wait an
entire year from the date they are already impoverished and
seeking care, or will have to wait for the five-year period
(from #1 above) to expire. This could even unwittingly affect
gifts for someone made years earlier before they even
anticipated needing Medicaid.
The upshot of this change? Individuals, in most states, must
own less than $2,000 in non-exempt resources when applying for
Medicaid. To establish this date, the nursing home resident or
any prospective applicant must apply for Medicaid coverage and
be approved (but for the transfer).
3. Equity in home will count.
Under the old law, a person's home was exempt regardless of
value, if certain conditions were met. Under the new law, the
equity in a Medicaid applicant's otherwise exempt home will be
countable to the extent it exceeds $500,000. Thus, a person with
equity in a home of more than $500,000 would not be eligible for
Medicaid. Of note, states will have the option to raise the
limit to $750,000.
Seniors and their adult children may need to consult with
qualified and competent professionals who can evaluate issues
and recommend potential solutions, including long-term care
insurance, reverse mortgages and home equity loans.
Another provision of the new law will give all states the
authority to set up Long Term Care Partnership programs, or
programs that encourage residents to buy private long-term care
insurance by relaxing Medicaid nursing home benefit
qualification rules for private policy holders who exhaust
private benefits. Up until now, only California, Connecticut,
Indiana and New York have been permitted to operate partnership
programs.
February 2006 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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