The U.S. House of Representatives and Senate have passed similar versions of a bill that would make the most substantial changes in Medicaid eligibility rules since the 1980s. If the House, which is expected to return January 31, approves the modified version passed by the Senate, the bill will proceed to President Bush, who is expected to sign it into law.
For most Medicaid applicants, the proposed law would make it harder to qualify for benefits, require a greater spend-down of assets, and provide less protection for a community spouse.
If passed in its current version, here is what the legislation calls for:
Longer look-back period. The current 36-month look-back period for asset transfers to individuals will change to a 60-month look-back period. This change applies only to transfers made on or after the date when the bill is enacted. Therefore, starting 36 months after enactment, the look-back period will gradually increase until it reaches 60 months.
Changed gifting penalties. A Medicaid applicant is ineligible for benefits as a result of gifts of cash or property made by the applicant or the applicant’s spouse within the look-back period. The period of ineligibility is based upon the amount of the gift, divided by the average monthly statewide cost of a nursing facility (currently $6,062.35 in Pennsylvania).
Currently, the ineligibility period begins in the month the gift is made. Under the proposed law, the ineligibility period would begin when applicant would otherwise be eligible for benefits if not for the gift.
For example, a person with $51,000 gives his son $25,000 on January 15. Under current rules, the ineligibility period starts January 1 and lasts 4.12 months ($25,000 ÷ $6,062.35 = 4.12). If, during those 4.12 months, the person spends another $25,000 to pay for care, the person will qualify for benefits in May, at the end of the ineligibility period, with $1,000 left.
Under the proposed rule, the ineligibility period would not even begin until the person spends down remaining assets. Therefore, there would be no advantage to making a gift within the look-back period to qualify for benefits.
Bottom line: the proposed rule means that most applicants would not qualify for benefits if they have given away assets within the look-back period (unless “undue hardship” is shown or the gifted resource is returned).
“Income-first” rule. Federal law provides that the spouse of a Medicaid recipient (a “community spouse”) in entitled to a certain minimum monthly income. Often, a community spouse’s income falls below that amount, and the question becomes where the community spouse will get the rest of the income.
Currently, states have the option of allowing the community spouse to keep resources to generate income, and then to receive income from the spouse on Medicaid if necessary (the “resource first” method), or requiring the community spouse to look first to the Medicaid spouse’s income, and then keep resources to generate income only if the community spouse has not yet reached the entitled amount of income (the “income first” method).
The proposed law would require all states to use the income first method, thereby requiring many community spouses to spend down more of their assets.
Annuity requirements. If a Medicaid recipient has an annuity purchased within the look-back period, the state government would become the primary beneficiary, after the recipient’s spouse or any minor or disabled child of the recipient. Upon the person’s death, the state may be able to recover some or all of its costs for the Medicaid recipient.
If the community spouse owns such an annuity, the state could become a beneficiary, at least to the extent the community spouse has received Medicaid services.
Cap on home equity. A person who has home equity exceeding $500,000 would not qualify for Medicaid, unless the person’s spouse, disabled child, or child under age 21 is residing in the house. A state could elect to raise that amount to $750,000. A reverse mortgage or home equity loan could be used to reduce home equity to qualify.
Still time to act
We stress that although this legislation is quite close to passage, it has not yet been enacted as this newsletter goes to press. You still have time to urge your representative in Congress to vote against the bill, which would financially harm many spouses and families of those going on Medicaid.
For those who could qualify for benefits in the next year or two, there may be action you can take to preserve assets under the current rules, before the final enactment of this bill. If that describes you or someone you know, call our office immediately for an evaluation.