MEDICAID RULES UNDERGOING DRASTIC CHANGES
by Kenneth J. Rampino, Esq.
The United States Senate narrowly passed a budget reconciliation Bill which
drastically changes how and when a person can qualify for Medicaid. The Legislation,
which is expected to reduce the federal deficit by $39.7 billion dollars, will most likely be
passed by the House of Representatives which approved a similar version of the Bill by a
212-206 margin. The timing of the vote in the House is not clear as of the writing of this
Article, but is expected sometime in early January. The date of passage is significant
because the legislation approved by the Senate provides generally that the new rules will
only apply to transfers made on or after the date of enactment.
Expansion of Look Back Period-Under current rules, the Department of Human
services may consider transfers to individuals for a period of thirty six months preceding
the filing of a Medicaid application whereas the “look back” period for transfers into a
trust is sixty months. Under the proposed new rules, the “look back” period for all
transfers will be sixty months.
Calculation of Penalty Period-There is a great deal of confusion among the
public in determining how a transfer of an asset for less than its fair market value affects
the grantor’s eligibility for Medicaid. Many people think that any gift will result in
ineligibility for thirty six months, or sixty months if the transfer is to a trust. The fact is
that the ineligibility or penalty period is calculated by dividing the value of the gift by the
average monthly cost of nursing home care on a private pay basis which is currently
$6,612.00 (the “monthly divisor”) in Rhode Island. So, for example, if a parent were to
make a gift of $66,120.00 to her child, it would result in a ten month penalty period. If
the gift were made more than thirty six months prior to the Medicaid application, it would
not have to be reported and the Department would not consider it. The proposed
legislation alters how to calculate the penalty and when the penalty period begins and
ends.
In Rhode Island the penalty period is calculated by dividing the value of the gift
by the monthly divisor and then rounding down to the nearest whole number. So, for
example, if a gift of $13,000 were made, there would be a one month penalty period.
($13,000.00 divided by 6612=1.966122 rounded down to one. Under this methodology, a
person can gift $13,000.00 per month for twelve months thereby transferring $156,000.00
while never creating more than a one month ineligibility period at a time. The proposed
new rule prohibits states from rounding down, requiring them instead to compute
fractional periods of ineligibility and accumulating multiple transfers. Consequently,
multiple $13,000.00 gifts over a twelve month period would result in a 23.29 months of
penalty.
Without a doubt the most onerous aspect of the proposed new legislation is not
how the penalty is calculated, but when the ineligibility period begins. The current rules
provide that the penalty begins in the month during which the transfer is made. So, if a
transfer was made in January of 2005, the penalty will have expired on October 31, 2005
so that the donor would not penalized subsequent to that date. The new rule is
complicated and difficult to parse, but at the risk of oversimplifying, it is fair to say that it
effectively establishes the beginning date of the penalty period as the date on which the
Medicaid applicant would be otherwise eligible for the program except for the imposition
of the penalty. Therefore, assuming the Bill passes in its present form, a person who
makes a $66,120.00 gift in January of 2006 and who applies for Medicaid in November
of 2011 at which time he or she will be confronted with ten months of ineligibility going
forward. The Senate did build in some safeguards under which hardship waivers would
be available when application of the new rule would deprive an individual of food,
clothing, shelter or medical care endangering life or health. It will be interesting to see
how the hardship waiver provision will be applied to a nursing home patient who, by
virtue of divestiture, will be deprived of shelter, food, medical care, etc. if Medicaid
eligibility were denied.
Cap on Home Equity-A principal home is considered an exempt resource. That is to
say, a person can have an ownership interest in a home and still be eligible for the
Medicaid program, although the State may make a claim against the person’s estate if it is
probatable even if the home is a part of the estate. Presently, there is no limit on the
amount of equity an individual may have. The new rules require the states to cap the
amount of equity a qualified Medicaid applicant may have at $500,000.00 to
$750,000.00.
Other Changes-There are other changes embedded in the legislation involving annuities
and the amount of resources a spouse of a Medicaid applicant may retain. In the next
issue of the Mature Matters Newsletter, we will update you on the status of the
Legislation including the treatment of these two important topics.