Important Changes You Need to Know in

Medicare and Medicaid Coverage

By Danielle Mayoras and Don Rosenberg of the Center for Elder Law

Medicare and Medicaid have instituted changes which will have a great financial impact on you. If you find yourself in the position of needing long term care assistance, these changes will have an even greater impact. Brief summaries of the most significant changes are outlined below.

Increased Look-back Period. All transfers under the new law, whether to individuals or to trusts, will be subject to a five year look-back period rather than the current three year look-back period for individuals (or five years for trusts). It is our understanding that beginning with all July 2007 applications, Medicaid will examine all transactions and gifts for the five years preceding the application date. This will make the application process more difficult and could result in more applicants being denied for lack of documentation, given that they will need to produce five years' worth instead of three years' worth of records. This will be particularly true for families that have a loved one with dementia. Keep in mind, however, that even with the current three year look-back period, rarely does the Department of Human Services (“DHS”) require documentation for the full three years.

Altered Penalty Start Date and Computation of Penalty. For asset transfers that are less than fair market value, the penalty period will begin on the date that the individual would otherwise have been eligible for long term care services (Medicaid as well as the Home Based Community Waiver) but for the asset transfers, rather than the date of the asset transfer itself. Further, all transfers during the look-back period will be added together to determine the transfer penalty. The transfer penalty will be broken down to disqualify a nursing home applicant on a daily basis. Specifically, every $197 gifted during the look-back period results in a one-day disqualification for Medicaid.

Charitable and political contributions, as well as innocent gifts to family, are some of the types of transfers that could result in a Medicaid ineligibility period.

For example, a healthy grandmother gives her granddaughter $20,000 to assist with her college education. Three years later, the grandmother has a stroke and requires nursing home care. Over the next eighteen months, she spends her life savings on her own care. Forty-eight months after her gift to her granddaughter, the grandmother has depleted her assets and applies for Medicaid. She will be penalized for about four months before she will receive Medicaid benefits, even though she has no money remaining to pay for her care. How her care will be paid for during that four month period of ineligibility is anyone’s guess.

Hardship Waivers. To dissipate the effect of these harsh new rules, Congress is mandating that each state institute a process for seeking a hardship waiver for those instances when the application of the transfer penalty would result in a deprivation of medical care that would endanger the applicant’s health or life, or for “food, clothing, shelter, or other necessities of life.” The process must include notice to the applicant, a timely process for ruling on the application, and an appeal process. Because the standard and procedure of the new hardship provision are simply mirrors of the pre-DRA hardship provisions, there essentially has been no change in the undue hardship exception to the transfer penalty period application.

Home Equity. Medicaid previously disregarded the value of a primary residence in counting assets. Under the DRA, individuals with more than $500,000 in home equity will be ineligible for Medicaid nursing home benefits. Each individual state, however, does have the option of raising the threshold to $750,000. Michigan has elected to limit the home equity to $500,000. Keep in mind that under pre- and post- DRA laws, any home owned by a revocable living trust is considered a countable asset and must be removed from the trust before the applicant can qualify for Medicaid.

Treatment of Annuities. The DRA has set forth changes concerning annuities which are very complex -- including the requirement that the state in which the Medicaid recipient lives be named as the remainder beneficiary. Frankly, Michigan has chosen to ignore these mandated changes and has not yet changed their annuity policy.

Long Term Care Insurance Partnership. Under DRA, each state is now able to formulate a regulation that allows Medicaid to disregard any assets or resources in an amount equal to the insurance benefit payments that are made to (or on behalf of) an individual who is a beneficiary under a long term are insurance policy. These policies will not be available in Michigan for another 6 months to a year.

Proof of Citizenship. Effective April 1, 2007, the DRA requires individuals to provide satisfactory documentation evidencing citizenship, nationality, or acceptable alien status when applying for Medicaid or upon a Medicaid recipient’s first Medicaid redetermination.

There were many other changes which are too complex to discuss in an Alert such as this -- our intent with this Alert was to highlight many of the changes that may affect our clients.

WHAT DOES THIS MEAN? First, there is a window of opportunity to PLAN NOW under the former (still current) law. Second, the new “hanging penalty” rule dramatically increases the potential for severe penalties for the unwary or ill-advised. For instance, if an elder gives away assets (such as a gift for a grandchild’s college education, help to a needy child, a gift to charity, etc.) or even adds the names of his or her children to their investment accounts or real estate, and then that elder pursues Medicaid assistance within five years of the gift, he or she will face possible disqualification. While the new law preserves the right to argue that a potentially penalizing transfer was not done with any anticipation of becoming eligible for Medicaid assistance, the burden of proving the lack of intent is on the applicant.

It should be obvious the message out of Washington, D.C. and Lansing is to plan and plan early -- or you will have to “go it” on your own. We will continue to share new information with our current Medicaid planning clients. Please feel free to share this information with your friends, family, colleagues, and clients.

For further information check out The Center for Elder Law at: www.thecenterforelderlaw.com or call (248) 641-7526