Harley Gordon, President of The Corporation for Long-Term
Care Certification, comments on the Deficit Reduction Act of 2005:
The Deficit Reduction Act of 2005, which is expected to be
passed by Congress after the new session begins In late January, will make radical changes to Medicaid law. Below, are the
key features of the legislation and an analysis of who the winners and losers will be.
Change in the Start of the Penalty Period
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. This effectively kills the “half-a-loaf” process.
Winners:
- The state.The date money is gifted within the look-back
period is brought forward to the date the applicant requests benefits.
- Long-term care insurance. Lawyers will have little choice but
to start taking the product seriously.
Losers:
- Nursing homes. 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.
- Elder law attorneys: Half-a-loaf was one of the most
effective procedures to protect assets in a crisis.
- Families: Nursing facilities will figure out how to screen
the individual for asset transfers before a commitment for a bed is made. The individual will have to remain at home. In addition,
the facility may decide to file a petition for conservatorship for the patient with the goal of suing the children for transfers.
Increasing the look-back period
The period of time the state can “look-back” from the
date of application is
increased to five years.
Winners:
- The state: 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.
The result? It gives Medicaid intake offices more opportunities to legitimately delay approval.
- Long-term care insurance: Imagine an attorney telling
seminar participants that the look-back period is so long they should start considering giving away their retirement portfolio
while they are healthy. Smart lawyers will start hosting seminars that focus on long-term care planning and by definition,
recommending long-term care insurance.
Losers:
- Nursing homes: It's very difficult to comply with the three-year
look-back because of poor record keeping. It now becomes a nightmare. The result? Eligibility is delayed.
- Elder law attorneys: Medicaid planning had the biggest
impact on nursing homes. Since placement is usually a last option, a three-year look-back made it possible to do significant
planning if families contacted an attorney at the beginning of an illness. That becomes very difficult with a five-year requirement.
Annuities
The applicant is required
to disclose and produce any interest in annuities, all transfers within the past 5 years, and a statement as to the remainder
beneficiary status.
Winners:
- The state: Annuities still work but the state must be
designated as the remainder beneficiary. There is now zero incentive to purchase them.
- Long-term care insurance: So-called ‘Medicaid friendly”
annuities were marketed as an alternative to LTCi.
- Nursing homes: With the elimination of this whole class of
planning, families either have to pay privately or purchase LTCi.
Losers:
- Nursing homes: If a family tries to annuitize an annuity,
it triggers an ineligibility based on its size. The facility is left with the monthly payment.
- Annuity salespeople: Their business is now obsolete.
- Elder-law attorneys: Annuities were an effective tool to qualify
applicants for benefits.
Law 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
federal monthly 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.
Winners:
- Nursing homes: The new law means more private pay patients.
- Long-term care insurance: The new law acts as a strong incentive
to purchase the product.
- Home health care providers: See below under “Nursing
homes”
- Assisted living: See below under “Nursing homes”
- Elder law attorneys: This is likely one area where the need
for their services will increase. Faced with spending funds on nursing home care, families will be looking at alternatives
such as LTCi, home health care providers and assisted living.
Losers:
- Nursing homes: It is possible that elder law attorneys will
now encourage people to keep their homes longer. This increases the need for home care 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.
- Community spouses: 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 (a) his pension if he did not take a survivorship option; and or (b)
her social security if it is less than his. She is now faced with limited income and few assets.
Primary residences
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.
Winners:
- Long-term care insurance: Elder law attorneys once again will
start looking at LTCi as an available option to protect wealthier clients.
- Nursing homes: It appears that residents will have to take
out home equity loans to pay for private care.
- Mortgage brokers: They will benefit as home equity loans become
more popular.
- Home care and assisted living: Attorneys may recommend that
families consider these options rather than pay for skilled nursing home care from the equity in a patient's home.
Losers:
- Nursing homes: Families may opt to keep the individual home
longer or use assisted living.
- Children: There are two problems: 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.
- Elder law attorneys: Those who encouraged healthy clients to
forego LTCi in favor of placing assets in an expensive home.
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 who the winners and losers
are because there is sure to be litigation regarding who actually owns the fee and other difficult issues.
Hardship waivers
The states are required to put together rules that will waive any of the new provisions should they
pose an undue hardship.
And
Long-term
care partnership programs
Congress has given states the right to create partnership programs.
Winners:
- The LTCi industry
- Nursing homes
- Home care agencies
- Assisted living facilities
Losers:
Final thoughts
The majority
of attorneys who understand how long-term care is financed have used Medicaid responsibly to help families in a crisis. Elder
law attorneys generally agree that most clients came to see them because their families had never discussed the impact needing
care would have on caregivers and retirement portfolios.
This legislation should convince professionals that Medicaid
will no longer be used as just another option to pay for care, but rather as a true safety net.
Harley Gordon
President, CLTCC
