By: Bernard A. Krooks, Certified Elder Law Attorney®
Unfortunately, Medicare coverage of long-term care is extremely limited and subject to significant restrictions. Thus, if one of us or a loved one gets sick and requires long-term care we must either pay out-of-pocket or rely on Medicaid. One way to minimize the burden of paying out-of-pocket is to purchase long-term care insurance. This can help assist with the cost of care at home, in assisted living or in a nursing home. However, this type of insurance must be purchased in advance and many seniors do not qualify due to pre-existing conditions. Of course, those of us who are healthy enough and who can afford long-term care insurance should certainly consider this when doing our own estate planning.
Thus, seniors are often forced to rely on Medicaid to pay for long-term care. However, Medicaid has its own set of complicated rules and regulations which Congress recently tightened in the Deficit Reduction Act of 2005 (the “DRA”). To qualify, an applicant can have no more than $4,350 in non-exempt assets. As part of their Medicaid planning individuals sometimes transfer or gift assets to family members in order to reduce their assets to the Medicaid allowable amount. As a result of the gift, a period of ineligibility, commonly referred to as a “penalty period,” is imposed. Under the DRA, the penalty period now begins when an individual goes into a nursing home (if it is within 5 years of the transfer), applies for Medicaid benefits and has assets below allowable levels. The length of the penalty period is determined by dividing the amount gifted by the regional nursing home rate, i.e. the rate for the nursing home in the county in which the individual is institutionalized. The 2008 regional rates are as follows: Northern Metropolitan (including Westchester, Dutchess and Rockland) – $9,316; New York City – $9,636; and Long Island – $10,555. For example, if a Westchester nursing home Medicaid applicant gifts $93,160, he will be ineligible for Medicaid nursing home benefits for 10 months commencing when the applicant is in a nursing home, has non-exempt assets of no more than $4,350 and has applied for Medicaid nursing home benefits. If the individual gifts assets in March 2008, but doesn’t go into a nursing home and apply for Medicaid until February 2009, the period of ineligibility will run from March 2009 until January 2010.
When calculating a penalty period, the Medicaid agency must use the rates in effect for the year in which the individual applies for Medicaid. The regional rates change each year and are updated annually, effective January 1. As such, an increase in the regional nursing home rate creates a shorter penalty period. Thus, even if the gifts were made in 2007, the 2008 regional rates would be used if that is when the person applies for nursing home Medicaid. Gifts made prior to February 8, 2006, are not subject to the DRA rules and the penalty period starts in the month after the transfer. For example, if an individual gifted $93,160 in December 2005, he was ineligible for Medicaid for 10 months from January 2006 until November 2006.
The DRA also increased the “look-back” period, the period during which Medicaid looks back at one’s financial history, from 3 years to 5 years. Therefore, if an individual goes into a nursing home within 5 years of transferring assets, a penalty period will be imposed.
The Medicaid asset transfer rules are fraught with traps for the unwary. Be careful as you navigate these waters.