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Deficit Reduction Act toughens Medicaid eligibility criteria

02-01-2007 - Medicaid look-back periods, exempt asset criteria and other requirements for Medicaid eligibility for long-term nursing home care have been toughened. The new criteria, a result of the Deficit Reduction Act of 2005, means planning must begin farther in advance. If you have a loved one who may need nursing home care in the future, you should consult a certified elder law attorney without delay.

Some of the most important changes to Medicaid planning are listed below. 

  • Medicaid Transfers - Look Back Period

For all transfers made after Feb. 8, 2006, the look back period is increased from three to five years. Thus, any asset transfer made within five years prior to the date an individual applies for Medicaid, will disqualify the applicant from receiving benefits for a certain penalty period.

  • Beginning of Penalty Period

The penalty period for transfers now starts on the date one applies for Medicaid benefits, not on the date the gift is made, thereby creating even more financial peril for families. The following example illustrates: Let’s say in March 2006 John Doe gives his son $33,000 to help him purchase a home. In March 2007 Mr. Doe suffers a severe stroke and enters a nursing home; with no more assets to his name at that time, he applies for Medicaid. Because Mr. Doe transferred assets within the lookback period, he is ineligible to receive benefits for a penalty period that begins running the date of application. In Florida the penalty period is determined by dividing the amount of the asset transfer by $3300 (the average monthly cost of a Florida nursing home, and an unrealistically low figure.) Thus, Mr. Doe will not be eligible to receive benefits for 10 months ($33,000 divided by $3300), or not until January 2008. With no way to pay the nursing home, the burden is going to fall on Mr. Doe’s family members, who are going to have to come up a way to deal with this financial dilemma.

  • Asset Status of Home

The applicant’s home is no longer considered an exempt asset for the purpose of Medicaid eligibility. Only $500,000 in equity is exempt; any excess equity counts as an asset from the point of view of asset spend-down. An exception is made if the spouse, or a child who is under 21 or disabled, lives in the home. States have the option of raising the exemption to $750,000, but Florida has yet to make a decision about this. The use of a reverse mortgage may help those seeking benefits whose homes exceed the maximum equity level.

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