On February 8, 2006, President Bush signed the Deficit Reduction Act of 2005. This statute included the most sweeping changes to Federal Medicaid Law since 1993. These changes have potentially huge impact on seniors needing long term care services, either at home or in the nursing home. We do not yet know how Wisconsin will implement these changes or when. We anticipate that the modifications will be in the 2007-2008 Budget bill which will be introduced in January or February and hopefully acted upon by the Legislature by July 1, 2007, start of the state biennium. Some of the most significant changes are listed below:

Transfer of Asset (Divestment) Changes.

The lookback period for divestments (gifts) is extended to 60 months from the current 36. That means that any gifts made less than 60 months before you apply for Medical Assistance will have to be reported and these gifts may create a period of time when one would be ineligible to receive Medical Assistance (called the "penalty period). This new rule applies only to gifts made on or after February 8, 2006. The old rules (36 month lookback) applies for gifts before February 8, 2006.

The basic calculation of the penalty period remains the same–you divide the total amount of the gifts by the average monthly cost of nursing home care (currently $5,584) to arrive at the number of months of ineligibility. However, under the new rules, if there is a fractional month, that is included in the penalty period (no more "rounding down"). This means that even gifts of less than $5,584 will create some ineligibility, unlike prior law.

All countable gifts in the 60 month period are added together, no matter when they were made or in what amount. There is a question of whether gifts made for purposes other than getting Medical Assistance (holiday, birthday, graduation, wedding, etc. gifts) will be counted. At this point, we don’t know, so you should keep careful records.

The biggest change involves when the penalty period will start to run. Under the old law (pre-February 8, 2006), the penalty started when you made the gift. So, for example, if you gave away $30,000 in October, the penalty period would be 5.37 months ($30,000 divided by $5,584=5.37) and the period would begin in the month of the gift. This rule still applies for pre-February 8, 2006 gifts. Under the new rule, the period doesn’t start t run until (1) you’re asset eligible; (2) you are getting institutional level care; and (3) an application is filed. Simply put, for a single person, that means they have $2,000 or less, are in a nursing home and have applied for Medical Assistance. (Different rules may apply for folks who are at home.) This means if you give money away and go to a nursing home, you may not be able to privately pay for care and still not be able to get Medical Assistance.

Home Equity. Under the old rules, all equity in a personal residence did not count for Medical Assistance eligibility purposes. Now there is a $500,000 limit (which the state could raise to $750,000, but hasn’t so far). While this will not create too many problems for homes, there could be problems for family farms. If the family farm is also a home for the Medical Assistance recipient, all contiguous acreage is included in the exempt home. However, if the value is more than $500,000, the excess will count. Note: this rule does not apply to married couples, where one of them is living in the home.

Long Term Care Insurance. The Act added incentives for the purchase of long term care insurance, essentially permitting states to adopt provisions that would allow one to protect $1 of assets for every $1 of care paid for by the long term care insurance. Note that these provisions, if adopted by Wisconsin, can only apply to policies purchased after the incentive is adopted by the State. Thus, if you are looking at Long Term Care Insurance and you want to take advantage of this incentive, check on its status at the state level.

Other Provisions. There are other provisions affecting Continuing Care Retirement Communities, notes and loans and procedures to increase the amount of money that a community spouse can keep.

Effective Dates. As noted above, the general federal effective date is February 8, 2006. The rule applying to home equity is effective January 1, 2006. Since almost all of the federal changes have corresponding provisions in state law, there will need to be changes to Wisconsin statutes. It is possible that the state changes will be retroactive to February 8, 2006 but they could also have later effective dates. At this point we don’t know.

What do we do now? For now, it appears that the state is applying the old rules. However, that could change any day. You should consult with a knowledgeable elder law attorney to determine what are your best options today. Be especially careful before you make gifts, since the divestment penalties are much more strict than previously. We would be glad to assist you.

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