CHANGES IN MEDICAID LAW
The Deficit Reduction Act of 2005 (DRA) made significant changes to the Medicaid
laws. Alabama recently introduced revised provisions in response to that law, which
almost create more questions than they answer. The purpose of this article is to give you
a brief overview of the major changes in the application of the law.
You should know that the DRA has been challenged in court as unconstitutional, but is
effective law until a final ruling is made which will be years away.
Medicaid is for those with insufficient resources and income to pay for their medical
costs. Medicaid is financed by the State of Alabama, which pays approximately 30% of
the costs, and the Federal government which pays the balance. Upon qualification for
Medicaid, a patient is eligible for skilled nursing care.
Changes in Resource Requirements.
DRA has made some changes to the resource test
which restricts the kind and amount of assets you can own:
1. Personal Effects and Household Goods are no longer considered assets;
2. Only the first $500,000 in equity of your real estate is excluded.
Changes in Look-Back Period.
The look-back period for reviewing transfers has been
expanded from 36 to 60 months for all transfers prior to the date of application. Alabama
has interpreted this by introducing a phase-in period so that the 60-month period does not
begin to be effective until 2009 for transfers prior to February 2006.
When the Penalty Period Begins.
The commencement of the penalty period used to
calculate whether a person is eligible for Medicaid Benefits previously began on the date
the transfer of an asset began. Now, it begins on the date you apply for Medicaid
Benefits. The impact of this could be devastating for many families for whom nursing
home care comes as a surprise. For instance, Mom and Dad give Granddaughter $15,000
for college. Dad has a stroke a year later. It used to be that the penalty ran from the date
of the gift. Now it runs from the date the Medicaid Application is made. So Dad will have
to pay for his own nursing home benefits for about four months.
An annuity acquired prior to the 60-month look back period will not be
considered a transfer for Medicaid purposes. The DRA has expanded the use of annuities,
but Alabama law currently does not exempt annuities unless they are actuarially sound. If
Alabama revises its position on this, it could have a significant impact on the use of
annuities here. Currently, where one spouse is in a nursing home and the other is in the
community, they may try to get more income to the community spouse by taking assets in
excess of the community spouse’s resource allowance (between $25,000 and $99,540
depending on total assets) to purchase an annuity for the community spouse. Such an
annuity cannot exceed the life expectancy of the individual; you cannot use deferred
annuities; and the annuity terms cannot provide that it can be surrendered for its cash
ANNE R. MOSES