On February 8, 2006, President Bush signed the Deficit Reduction Act. This federal law made big changes to Medicaid for nursing home costs. Important parts of the new law were supposed to be effective from February 8, 2006. However, the Hawaii Department of Human Services only recently announced Hawaii’s proposed new rules based on the federal law. The public hearing on the new rules will be held on July 28, 2009.
One of the big changes involves the home. Under the old law the home was an exempt asset. A single person in a nursing home could own a home worth millions of dollars, and still qualify for Medicaid if he had $2,000 or less. The new proposed rule is that a person cannot get Medicaid help for nursing home costs if the home equity interest exceeds $750,000. For example, if the home is worth $800,000 and there is no mortgage on it, the person cannot qualify for Medicaid. If the home is worth $800,000, and there is a $100,000 mortgage on it, then the equity is $700,000, so the person could qualify for Medicaid if he has $2,000 or less.
Another change is the “look back” period. Under the old law, there was a 3 year look back for gifts to individuals and a 5 year look back for gifts to an irrevocable trust. This does not mean that if you gave anything away there would be a 3 year wait before Medicaid would help you. The 3 year look back meant that when a person applied for Medicaid for nursing home costs, the government would look back in time to see if the person gave anything away during the last 3 years. If something of value (such as money or property) was given away during the last 3 years, then a penalty would be calculated. The penalty is a number of months during which Medicaid will not pay the nursing home costs. The idea is that Medicaid will not pay for nursing home costs for the period of time during which the person could have paid his own nursing home costs with the assets he gave away.
Under the new law, the look back period is 5 years for gifts made on or after February 8, 2006. This means that when a person applies for Medicaid for nursing home costs, if anything was given away during the last 5 years, a penalty will be calculated.
A more serious change under the new law is the time when the penalty period begins. Under the old law the penalty began in the month that assets were given away. Under the new law, the penalty begins after the person already requires nursing home level of care and has $2,000 or less ($111,560 or less for a married couple). For example, suppose that a person gave away enough assets to create a 1 year penalty. Under the old law, if a person gave away the assets on February 7, 2006, and had to enter a nursing home in July 2009, the penalty period would have begun in February 2006, and would have ended on January 31, 2007. If the person has less than $2,000 in July 2009, he would qualify for Medicaid immediately. However, if the person gave away the assets on February 8, 2006 or later, the new law applies, and the penalty period begins when he enters the nursing home in July 2009, and continues for 1 year. Medicaid will not pay for his nursing home costs for 1 year!
With the new rules, advance planning should begin earlier, preferably more than 5 years before the person has to go into a nursing home. If advance planning is not done and someone ends up in a nursing home, be sure to consult a specialist in Medicaid Planning. There still may be ways assets can be protected without spending all of it.