Significant changes to Medicaid are in the offing.  The 2005 Budget Reconciliation Act contains provisions which, if enacted, will significantly alter the Medicaid planning landscape for future years.  Currently bills have been passed by both houses of Congress in slightly different form.  When the House of Representatives returns from it's holiday break, it is expected to act on the revised legislation.  While advocates are still trying to get some changes in the Medicaid provisions, any changes will be an uphill fight.  The proposed changes will severely restrict the ability to transfer assets (divest) to hasten Medicaid eligibility.  If you are considering asset transfers, you should act as soon as possible (we don't know when the Congress will finally approve these changes but it could be any day.) They include the following:

• The "lookback period" for calculating divestments will be increased from three years to five years (meaning that any gifts made within five years before an application for Medicaid will have to be reported and may be subject to a penalty.



• All divestments within the five year period will be added together for purposes of the penalty computation (currently, only certain gifts are required to be added together).
  
  
• The penalty will be calculated by dividing the total gifts in the five year period by the average monthly nursing home cost factor (currently $5,096 in Wisconsin).  The result of that division will be the number of months of ineligibility ( the "penalty period).  This period will include fractional months (under current practice we "round down" to the nearest whole month).
  
  
• Under current law, the period of ineligibility starts to run in the month the gift is made.  Under the proposed changes, the period of ineligibility will not start to run until the applicant is otherwise eligible for Medicaid (meaning he or she is down to the requisite asset level–$2,000 for a single person and the spousal allowance for a married couple) and in a nursing home.  Once those conditions are met, then penalty period will then start to run.
  
  
• Comprehensive Example: Between March 2006 and January, 2011, Molly Maguire makes total gifts of $75,000 to her nieces and nephews.  On February 1, 2011, she is placed in a nursing home due to advanced Alzheimer's disease.  At that time, she has only $1,500 of assets.  Her niece, Melanie, applies for Medicaid on Molly's behalf. (Assume that the new Medicaid law passes in February, 2006.)  At this time the average monthly nursing home cost is $7,300 per month. Melanie would be required to report the entire $75,000 of gifts.  The Medicaid worker would divide the $75,000 of total gifts by $7,300 per month.  The result of the division would be 10.27.  Therefore, Molly would be ineligible for Medicaid for 10.27 months beginning February 1, 2011 when she no longer has any money.  If Melanie can prove that the gifts were not for the purpose of obtaining Medicaid (say she was helping her nieces and nephews with college expenses) she might have an argument that there would be no penalty.  However, this could require an administrative hearing to prove Molly's intent and Molly will not be able to testify because of her Alzheimer's disease.
  
  
• There are other changes as well:
  • Exempt homesteads will be limited to $500,000 in value (unless the state adopts a higher–$750,000–level).
  
  
  
  • There will be changes in the Federal annuity rules–it is unclear how this will affect Wisconsin's more restrictive annuity rules.
  
  
  
  • States will be able to institute programs to grant more liberal divestment rules in exchange for the use of long term care insurance.
  
  
  
  • Treatment of amounts paid to "continuing care retirement communities" will be changed.

     For more information, please contact James Jaeger: jjaeger@hill-law-firm.com or call 608-244-1534.