The New Landscape
In February of 2006, due to changes brought about by Congress through the federal Deficit Reduction Act of 2005 (DRA), there were
massive changes in the federal Medicaid law as it relates to the gifts or asset transfers.
Now, on January 1, 2012, Illinois will finally adopt those provisions of the DRA and, thus change Illinois Medicaid law for long-term care forever.
You may recall that under the old Medicaid law (expiring on December 31, 2011), a gift or other uncompensated transfer created a period of ineligibility
starting on the date of transfer.
- For example: Prior to January 1, 2012, a $70,000 gift made by someone in Chicago, Illinois would create a 10 month penalty from the date the gift was made. (Assume Skilled Nursing Facility (“SNF”) cost of $7,000 a month. $70,000 divided by $7,000 = 10 months). Thus, if the gift were made 12 months prior, the penalties would have already expired.
- Under the new Illinois DRA law for Medicaid, for gifts made after January 1, 2012, the same 10 month penalty period will not begin until the following
requirements are all met:
1. The person is in the nursing home,
2. Assets are spent down to $2,000
and
3. An application for Medicaid is filed.
Only at that time will the penalty period start!
In such a case any gifted funds would then have to be used for the cost of care to get through the penalty period. But there will be many
circumstances in which the gifted funds are no longer available. If, for example, one of the gifts were made by an Alzheimer’s patient to fund college
tuition or given to an individual in the family who simply no longer has the gifts.
What will happen in that case?
This is a major pitfall brought about by the new Medicaid law and one with which nursing homes will have to deal in the days that are
coming. In other words, prior to the passage of this new Illinois law, various asset transfers would not cause major problems for nursing homes since the penalties associated with the prior transfers were
self-correcting, in that the penalty would have expired by the time the applicant was spent down.
But now, under the new Illinois law, every transaction will be examined. All small transfers will be accumulated and added together and
they will cause penalties which won’t even begin to run until the person is otherwise spent down, in the nursing home, and the Medicaid application is
filed.
Nursing Homes Need to Change Procedure
In the past, it has been very common to see nursing homes kindly helping residents with Medicaid applications. There was not a lot of
risk associated with this under prior law. That has now all changed.
Under the new laws, the same practice may be very risky from a legal and cash flow perspective. That is because it will be now be essential
to verify exactly what assets have been spent and transferred without value received in exchange, because the new law will have no safe harbor for prior
asset transfers without adequate compensation.
- So let’s review another example: Assume Mr. Applicant is a resident of the Gracious Nursing Facility located in Chicago, Illinois and that he has been paying the Gracious Nursing Facility privately for some months. He will be ready to apply for Medicaid in September, 2012 because at that time he will be spent down.
- However, in January, 2012, after the new law came into effect, Mr. Applicant made a gift to his granddaughter for tuition at a local college.
- Assume that the amount of tuition payment was $70,000. Under the old law, that would have meant that there would
be a penalty of 10 months ($70,000 gift divided by $7,000, which is the cost for a semi private room on a private pay basis at Gracious Nursing Facility=10 month penalty). Under the old laws, the 10 month penalty calculation would begin on the date of the transfer. Thus,
the penalty would have ended by August, 2012.
- However, under the new laws, the penalty won’t start until September, 2011, when Mr. Applicant is spent down
to $2000. This means he may not be eligible until the same 10 month penalty period ends in June, 2013!
How is Mr Applicant going to pay from September of 2012 to June of 2013, after he has already spent down?
Now if the social worker at the nursing home kindly tries to assist the family by filling out the application and doesn’t understand how the
new law will affect Mr. Applicant’s situation, then the application will be filed with an expectation that Medicaid will be approved. However, you can
imagine the disappointment of the nursing home administrator and the family when they later find out (usually some 90 to 120 days after the submission of
the application) that the application was properly denied because the new rules are in effect.
What will the nursing home do a case like this?
What will the family of Mr. Applicant do in such a case?
The proper recourse could consist of filing a request for hardship exception. Illinois, however, has not had a great history of granting
hardship exceptions. Furthermore the granting of hardship exceptions is for the benefit of the resident. The hardship exception is not designed to make sure
that the nursing home can maintain its cash flow for properly serving a resident.
Thus you can see that these issues will, in the coming days, be very difficult for nursing homes and families dealing with the documentation
required for the resident. Many residents will not have the ability to reconstruct the financial history to the extent required by law (60 months). In addition, seeking hardship waivers is a very difficult process and will require proving up certain pleadings.
For these reasons this new Illinois law is something that the commentators have called
“The Nursing Home Bankruptcy Act of 2006.” HARSH
BUT TRUE!
While I’m not suggesting that the world is ending, I am sure that this new law will cause enormous hurdles for nursing homes and their
residents to overcome.
What was at one time a simple Medicaid application should no longer be viewed that way.
The services of an elder law attorney who thoroughly understands the new rules and Medicaid changes as well how to deal with asset issues, property transfers and Medicaid denials will become more important now and in the days ahead.
Anthony B. Ferraro
Attorney – CPA
