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The United States House of Representatives passed the Deficit Reduction Act of 2005 on December 19, 2005. The United States Senate passed the Act with slight modifications shortly thereafter by a vote of 51-50 with Vice President Cheney casting the tie-breaking vote.
The House of Representatives now has to return to approve the slightly revised Bill after their return into session on January 31, 2006. President Bush is expected to sign the Bill into law immediately after it has passed.
The current maximum "look back period" for Medical Assistance transfer purposes is 36 months except for Trusts, which is a 60 month look back penalty period. The proposed law has a 60 month (five year) period for all transfers.
Under current law, the period of ineligibility is determined by dividing the value of any gifts by the factor which is the average nursing home cost in the State of Minnesota, which currently is $4,198.00. The number of months of ineligibility start with the month of the gift and expire after the number of the months determined from this calculation. The new law, which will probably take effect in February, establishes a period of ineligibility either 1) in the month during which the gift is made or 2) after all of the assets are spent down and the individual is eligible for Medical Assistance, except for the penalty period. For example, if a $100,000.00 gift is made under the current law, you cannot apply for Medical Assistance for 25 months from the date of the gift, if the patient otherwise qualifies. Under the new law, the 25 month period will begin to run from the date the patient qualifies for Medical Assistance, after they have used up all of their other funds.
Transfers made prior to the effective date of this new law will be treated under the current law. Transfers after the effective date of the new law will be computed under the new law. Thus, if an individual is intending to make transfers, it is advantageous to do so prior to the effective date of the new statute.
The new law proposes to limit the equity in a principal residence at $500,000.00 for a spouse living in the home, although individual states can increase that exemption up to $750,000.00. A reverse mortgage to reduce home equity will be permitted.
There is a new provision for annuities requiring disclosure of any interest in any annuity and requiring that the State of residence become the beneficiary in the first position under the annuity after the death of the annuitant.
There are other details in the Statute which are yet to be fully discussed, but it is clear that it is going to be much more difficult to make gifts in the future and qualify for Medical Assistance. This may be an incentive to purchase long-term care insurance and preferably for a minimum five year period rather than a three year period. If there is no other source of funds to pay nursing home bills during the penalty period as a result of charitable contributions, gifts to children or others, there may be patients who simply cannot pay, resulting in nursing homes having patients without any source of payments.
Medical Assistance Liens
Life estates created prior to August 1, 2003 are no longer subject to a lien on the value of the life estate at the time of the life tenant's death. Life estates created after August 1, 2003 are subject to this lien. If property is sold during the lifetime of the life tenant, the share of sale proceeds allocable to the life tenant are available to pay nursing home costs regardless of when the life estate was created.
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