Federal Medicaid Changes Feb. 2006


The federal government enacted new legislation in February 2006 creating significant changes to the national Medicaid law, especially in the area of assets transfers. Gifting of assets always has been the most used planning tool for Medicaid qualification. The new law attempts to prevent seniors from using assets transfers to protect life savings for themselves, their spouse and their family.

The Medicaid law has historically allowed gifts of assets to be made to family members, albeit with the presumption that the gift was made for the purpose of receiving Medicaid benefits. As a result, any gift of assets you make during a "look back period" prior to the Medicaid application creates a "penalty period" during which no Medicaid eligibility exists. The penalty period is designed to be equivalent to the number of months that you could have paid for nursing home care if you had kept the gifted asset rather then give it away. The penalty period is calculated by dividing the value of the gift by an amount that Medicaid says is the average monthly nursing home cost in Ohio. The current amount is $5247. For example, if you make a gift of $10,000, the penalty period is 1.9 months ($10,000/$5247 = 1.9).

The calculation of the number of penalty months remains essentially the same under the new federal law. The application of the penalty period has changed dramatically, however. Under the old law, there was a 3 year look back period that began the date you applied for Medicaid. If any gifts were made during that 3 years, the penalty period was calculated and the penalty started THE MONTH IN WHICH THE GIFT WAS MADE. Therefore, there could be time for the penalty period to run out before you ever applied for Medicaid.

Now, there is a 5 year look back period beginning the date you apply for Medicaid. If any gifts were made during that 5 years, the number of months is still calculated the same way. But now, the penalty period does not begin when the gift was made. IT BEGINS WHEN YOUR MONEY IS ALL GONE AND YOU WOULD OTHERWISE BE ELIGIBLE FOR MEDICAID AND YOU HAVE APPLIED FOR BENEFITS! As an example, suppose you gave away $10,000 four years ago to help a grandson complete his college education. You became ill and had to enter a nursing home and you spent all of the rest of your money paying for your care. When you applied for Medicaid, you would be ineligible for 1.9 more months, and would have no money to pay for your care. The nursing home would be able to discharge you for non-payment! This could be disastrous!

You need professional guidance to avoid the pitfalls of the federal law. Planning tools still exist, but the process is much more complicated and the result of improper planning much harsher.