What Do the New Medicaid Transfer Rules Mean to You?

The Deficit Reduction Act of 2005 (DRA) places new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care. This means it could be more difficult to qualify for Medicaid benefits.

The law extends Medicaid's "lookback" period for all asset transfers from three to five years and changes the start of the penalty period for transferred assets from the date of transfer to the date when the individual transferring the assets enters a nursing home and would otherwise be eligible for Medicaid coverage. In other words, the penalty period does not begin until the nursing home resident is out of funds, meaning she cannot afford to pay the nursing home.

The law also makes any individual with home equity above $500,000 ineligible for Medicaid nursing home care, although states may raise this threshold as high as $750,000. For more on the provisions of the new law, click here.

The new federal law applies to all transfers made on or after the date of enactment, February 8, 2006. However, the law gives states that must pass legislation to meet the new requirements more time to come into compliance. This gives many people in most states a little time to plan. The deadline for states to enact their own laws varies from state to state, but generally it is the first day of the first calendar quarter beginning after the end of the next full legislative session.

Any asset transfer made before February 8 falls under the old transfer rules. But what about someone who transfers assets after that date but before his or her state comes into compliance with it? In all probability, this will depend on the date of the application for Medicaid. If the application is filed before enactment of the state law, it will probably come under the old transfer rules. If it is filed after the enactment of the state law, it will come under the new transfer rules. But to be sure, check with an elder law attorney in your state.

Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year lookback period elapses without first consulting with an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.

For more information on Medicaid, click here.

For more information on Medicaid Planning, click here.