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December 29, 2005
SENATE APPROVES MEDICAID CUTS
On Wednesday, December 21, 2005 the U.S. Senate approved the budget, making vast changes to the Medicaid system. The vote was tied 50-50 and Vice President Cheney returned from a trip in the Middle East to cast the deciding vote. This budget is expected to save $4.8 billion dollars from Medicaid over the next five years.
Even though the House and Senate have both approved the budget, it cannot be enacted into law until the House returns from vacation. It is expected that they will return on January 4 to Washington. The Senate version that was approved was slightly different than the House version and this means that the House must once again vote on the budget before it becomes law.
The two major changes to the Medicaid rules are the increase in the look-back period and the delay of the start date for gifts. Here is what they mean in plain english:
DELAY IN DISQUALIFICATION PERIOD START DATE: Under our present rules, whenever anyone makes a gift, they become ineligible for MassHealth (Medicaid) to pay for their nursing home care for a certain period of time. The disqualification period starts when the gift is made, and depending upon the amount of the gift, could be as long as 3 years or 5 years if a trust is used. We determine the length of the disqualification period by dividing the amount of the gift by $232. The $232 amount is an annually revised average daily nursing home cost in Massachusetts. Once the disqualification period has run, you no longer need to be concerned about the gift if you need nursing home care.
Under the proposed new rules, the disqualification period does not start to run when you make the gift. The disqualification period only begins when you are in the nursing home and have less than $2,000 in assets. Now you can see that if the disqualification period begins at a time that you have less than $2,000 in assets, you have a problem. How are you going to pay for the nursing home? The only answer is that you are going to have to ask for the gift back so that you can pay it to the nursing home. And what if you can’t get the money back? If you cannot get the money back you will not be eligible for benefits. This is a major problem for you and the nursing home.
The goal of this legislation is to stop seniors from making gifts within five years of needing nursing home care. Unfortunately, they are not providing crystal balls to seniors to allow them to see into the future as to whether they will be the one who needs long term nursing home care.
Example: Betty sold her home and now lives at a senior housing complex. She has $300,000 from the sale of her home. She decides to pay for the first year of her granddaughter’s college tuition at Northeastern University. The cost is $45,000. Two years later Betty has a stroke and needs nursing home care. Does Betty have a problem?
You bet she does! Betty will pay the nursing home all of her $255,000 that is remaining. That will pay for just over 2 years of nursing home care (nursing homes are now getting over $300 per day). So now Betty has no money left. At this point the disqualification period will start on the $45,000 gift she made to her granddaughter. She is not eligible for MassHealth. The nursing home will attempt to evict her unless her granddaughter is able to return the $45,000 and have Betty pay it over to the nursing home.
Example $2: Sally’s husband died two years ago. He had been caring for Sally who has had Alzheimer’s for several years. Sally is now nearing the time that she can no longer live in the community and needs nursing home care. 4 years ago her deceased husband made some expenditures that she cannot explain. Does Sally have a problem?
You bet she does! Sally can’t explain what happened 5 minutes ago, never mind 4 years ago. If Sally cannot explain what these expenditures were for, they will be treated as gifts and cause her to be ineligible for MassHealth. Her disqualification period will begin on the date she enters the nursing home or when her assets are below $2,000, whichever is later. Under the old rules, unexplained expenditures by her husband would have caused a disqualification period and that period would have started upon the date of the gift and would no longer be an issue for her.
Is this bill a done deal? Not necessarily. The voting goes back to the House of Representatives that approved it 212-206 on the first time around. At that vote 6 Democratic House members were not present. Come January, there is a slight, very slight chance that it will be voted down. AARP along with 35 other senior advocacy groups have been advertising heavily in certain parts of the country to overturn this law.
Oh, I almost forgot. This $4.8 billion Medicaid cut in the budget has allowed our United States Congressmen to give all of the rich people a Christmas present. Last month you received a $60 billion cut on the tax on capital gains, dividends and interest. And for you mulit-millionaires and billionaires, our U.S. Congress wants to eliminate the estate tax. And who says our president isn’t caring and compassionate?
This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).
Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org