Navigating the Deficit Reduction Act

Effective February 8, 2006, the Deficit Reduction Act of 2005 made significant changes in the rules governing Medicaid eligibility. The DRA cuts nearly $40 billion over five years from Medicare, Medicaid and other programs. Of greatest interest to the elderly and their families, the new law places severe new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care.

The DRA made significant changes to Medicaid’s long-term care rules, including the look-back period; the transfer for penalty start date; the undue hardship exception; the treatment of annuities; community spouse income rules; home equity limits; the treatment of investments in continuing care retirement communities; promissory notes and life estates; and state long-term care partnership programs.

While the new law applies to all transfers made after the date of enactment, it gives the states a grace period to become compliant if state legislation is required to put the new rules into effect. In most states, the old rules will likely apply to transfers if the Medicaid application is filed before the state passes the complying legislation. So it may not be too late to plan, and in many cases not too late to transfer assets.

Medicaid Services
The federal government establishes broad guidelines for Medicaid eligibility and then each state is responsible for administering its own program. This creates a minimum level of services. As long as the state offers services the Federal government requires, it has the discretion to offer additional services. States have discretion to vary the amount, duration, or scope of the services they cover, but in all cases the service must be “sufficient in amount, duration, and scope to reasonably achieve its purpose.”