The Deficit Reduction Act of 2005: New Restrictions on Medicaid Planning

By Donald D. Vanarelli, Esq.

On February 8, 2006, as part of the Deficit Reduction Act of 2005 (“DRA”), the federal government imposed new, and significant, restrictions on an elder’s ability to qualify for Medicaid coverage of nursing care.

Among other changes, the Act extends the Medicaid “look-back period” and postpones the start date of the Medicaid “penalty period” for Medicaid applicants. The “look-back period” is the period of time within which Medicaid officials will “look back” from a Medicaid application date to analyze asset transfers made by the applicant. If the applicant transferred assets for less than fair market value (e.g., made gifts of assets) during the “look-back period” in an attempt to render himself eligible for Medicaid, the applicant will be subject to a period of Medicaid ineligibility (called the “penalty period”).

Prior legislation had imposed a 36-month “look-back period” to analyze asset transfers by the Medicaid applicant. Any resulting penalty period would begin at the date of the transfer.

Under the DRA, however, the “look-back period” has been extended from three to five years. Moreover, unlike the prior legislation, under which the “penalty period” for a transfer began at the date of the transfer, the DRA delays the start of the “penalty period” to the date when the individual enters a nursing home and would otherwise be eligible for Medicaid. This change is critical because it causes the penalty period to commence after the elder has disposed of his resources and would be otherwise Medicaid-eligible.

Other significant changes include new rules for the treatment of annuities; spend-down requirements for Continuing Care Retirement Community (“CCRC”) residents; mandatory application of the “income first” rule for all states; and ineligibility for those with home equity in excess of $500,000 (with this equity threshold subject to increase by individual states up to $750,000).

In light of these new rules, elders are urged to consult with their elder law attorney and to adjust their estate/asset protection plans as necessary. 

For additional information regarding New Jersey Elder Law, Probate, Estate and Special Needs Planning, Mediation and Collaborative Family Law, call us at 908-232-7400 or click here to contact us online.