Elder Law Update – May 2009 (Health Professionals Edition)

Pending Medicaid Law Changes Pose Risk to

Nursing Homes and Residents

In prior issues, we wrote about the new pending Medicaid law changes (the Deficit Reduction Act of 2005) as they relate to gifts or asset transfers. Illinois has not yet adopted the new law but may have to.

Under the current Illinois law, a gift creates a period of ineligibility beginning on the date of the transfer. Thus, a $30,000 gift in Illinois would create a 5 month penalty from the date the gift was made if the nursing home monthly cost is, for example, $6,000 a month. So, if the gift was made 12 months ago, the penalty would have already expired.

Under the pending law, for gifts made after February 8, 2006, the penalty period will not begin until the person is in a nursing home and has spent down to $2,000 in Illinois!! Only at that time will the penalty period start.

In other words, if the same $30,000 gift was made after February 8, 2006 but the new law is finally adopted in Illinois, then, the person making the gift must spend his or her assets down to $2,000 and be in a nursing home. Only at that time would the penalty period begin tolling. In that case, the gifted funds would have to then be used for the cost of care to get through the penalty period. But what if the funds are no longer available…for instance if they were paid for college tuition or given to charity or to an individual who simply no longer has them? What will happen then?

This is a major problem and one that nursing homes will have to face in the coming months. Prior to this law, minor asset transfers would not cause major problems for the nursing homes, since the penalties would have expired by the time the applicant was spent down. Under the new law, however, every transaction will have to be scrutinized. Even small gifts or transfers will cause penalty period which won’t even being to expire until the person is otherwise spent down.

It has been common practice to have the nursing home help the potential Medicaid applicant apply in the past. This was probably not a huge risk under the previous laws. The new laws, however, will make this very risky from both a legal and cash flow perspectives. That’s because it will now be much more important to verify exactly what has been spent and given away, as the law will have no “grace period” for asset transfers.

The following example, assuming the new law has passed, will suffice to show where the problem lies:

Mrs. Jones is a resident of Shady Acres Nursing Home in Cook County, Illinois. Let’s say that, a few months from now, she has spent down and is applying for Medicaid. But in March of 2010, assuming the new law was passed; let’s say she has made a gift to her granddaughter for tuition at Rockhurst College. Assume that the amount of the tuition payment was $6,000. Under the old law that would have meant there would be a penalty of 1 month (i.e. the $6,000 gift divided by $6,000, assuming 6,000 is the average cost of a nursing home in Illinois.) Under the old law there would have been a 1 month penalty from the date of the transfer. Under the new laws, however, the penalty won’t start until her assets are spent down to $2,000.

Now if the social worker at the nursing home fills out the application and doesn’t realize how the new law will affect these situations, then the application will be filed in anticipation of the receipt of Medicaid benefits. Imagine the shock of the nursing home administrator when he or she later finds out (usually some 30 to 45 days after filing the application) that the application was correctly denied according to the new rules now in effect.

What will the nursing home do in this case? Well, their recourse is to file a request for a hardship waiver. The new rule provides for this. The problem is that, in the past, the granting of hardship waivers have been few and far between. What’s more…the hardship is for the resident in that he or she will be denied needed care if the application is approved. The hardship is not, however, for the nursing home to help their cash flow.

You can imagine the issue this will cause in the coming months when nursing homes begin to deal with the documentation required for their residents who may or may not have the ability to reconstruct their financial records to the extent called for by the new law. In addition, the granting of hardship waivers is a process that has been very tedious and will certainly serve to slow down the approval of the Medicaid application. All of these reasons have led some commentators to call the new law “The Nursing Home Bankruptcy Act of 2006.”

While we’re not sure it’s that dire…we are sure that it will cause challenges fornursing homes and their residents. That’s also why Medicaid applications should no longer be viewed as simple. The services of an elder law attorney who thoroughly understands the new rules regarding the Medicaid changes is recommended.

P.S. Also, don’t miss our workshop: “The Elder Care Journey” set for the following dates. Please contact our office at (847) 563-4887 to register.

May 18, 2009 at 6:30 PM

June 11, 2009 at 4:00 PM

June 23, 2009 at 6:30 PM

July 9, 2009 at 4:00 PM

Call (847) 563-4887 to make a reservation in our training room.

You don’t want to miss this workshop!

Long Term Care Planning Attorneys

The “3 Phase” Lawyers

Legal Counsel Assisting You in the 3 Phases of Your Life:

– Maturing Years – Will, Trust, Taxes, and Asset Protection

– Senior Years – Long Term Care and Nursing Home Protection

– Post Death Years – Estate, Probate, and Trust Administration

“Educate to Motivate”

Anthony B. Ferraro

Attorney-CPA

The Law Offices of Anthony B. Ferraro, LLC

The Estate & Trust, Elder and Asset Protection Law Firm

Columbia Centre I

5600 N. River Road, Suite 764

Rosemont, IL 60018

PH (847) 563-4887

FAX (847) 292-1221

Websitehttp://abferrarolaw.com/

Emailabferraro@abferrarolaw.com

Pursuant to federal regulations imposed on practitioners who render tax advice (“Circular 230”), we are required to advise you that any tax advice contained herein is not intended or written to be used for the purpose of avoiding tax penalties that may be imposed by the Internal Revenue Service.

This document is for discussion purposes only and is not intended to be, nor should it be, considered as legal advice. You should never attempt Medicaid planning, Estate Planning, Probate, or Estate and Trust Administration without the advice of competent legal counsel.