By the narrowest of margins, Congress passed a budget plan designed to save the federal budget 40 billion dollars over the succeeding five years. Former President Bush signed this bill (named the Deficit Reduction Act) into law on February 8, 2006. Unfortunately, the effect of the law has been to severely threaten our nation's most vulnerable older adults and individuals with disabilities who need long-term care.
The law contains provisions aimed at making it even more difficult for middle-class seniors to receive long-term care coverage. The measure extends Medicaid's "lookback" period for all asset transfers (made on February 8th or thereafter) from three to five years and changes the start of the penalty period for transferred assets from the date of transfer to the date of Medicaid application and eligibility. Accordingly, whereas previously, a widow who gave twenty-five thousand dollars to her grandchild for college or to her church and four years later entered a nursing home and applied for Medicaid could be eligible for assistance, the new law would deny her benefits to provide for her care for over four months, even if she has no means to pay for her care.
The Deficit Reduction Act also:
- Codifies the income-first rule, meaning that a healthy spouse at home no longer is given the option to keep extra assets above the basic threshold in lieu of some of the Medicaid recipient spouse's income.
- Makes any individual with home equity above a certain limit ineligible for Medicaid nursing home care.
- Establishes new rules for the treatment of annuities, including a requirement that the state be named as the remainder beneficiary.
- Requires Medicaid applicants to provide "full information . . . concerning any transaction involving the transfer or disposal of assets during the previous period of 60 months, if the transaction exceeded $100,000, without regard to whether the transfer or disposal was for fair market value." (See note 1 below)
- Allows Continuing Care Retirement Communities (CCRCs) to require residents to spend down their declared resources before applying for medical assistance.
- Sets forth rules under which an individual's CCRC entrance fee is considered an available resource.
- Extends long-term care partnership programs to any state which elects to participate.
- Creates new and increases existing co-payments and deductibles for Medicaid recipients, including for prescription drugs.
The Senate approved the reconciled bill by the tie-breaker vote of then Vice-President Dick Cheney. The House subsequently passed the bill by a vote of 216-214.
Meanwhile, a survey for the National Academy of Social Insurance finds that 7 in 10 Americans age 40 and over think the federal government should do more to help people meet the cost of long-term care.
AARP, the Alzheimer's Association, the Leadership Council of Aging Organizations, and more than thirty-five other national organizations strongly opposed these provisions in the bill.
Congressional Budget Office documents estimate that the Medicaid changes will impose new costs on 13 million poor recipients and end insurance coverage for 65,000 Medicaid enrollees, that cuts to the federal child-support enforcement funds will shift costs to the states and eliminate billions of dollars in child-support payments, and that changes made to the Senate-passed budget package saved private Medicare insurers $22 billion over 10 years.
Critics of the bill charge that it exemplifies a Congressional culture that protects moneyed interests and their well-connected lobbyists at the expense of the unrepresented poor.
Proponents of the bill point to the need to attempt to get a handle on out of control budgets and skyrocketing deficits. However, the forty billion dollars projected to be saved over the succeeding five years accounts for less than one-half of one percent of the estimated $14.3 trillion in federal spending over that. More distressing to long-term care advocates is the fact that while Congress was passing this bill affecting the most vulnerable in society, it began final negotiations on a package of tax cuts and extension of expiring tax cuts for the wealthy that would increase the federal budget up to sixty billion over five years, more than negating the savings from the budget bill.
Senator George V. Voinovich (R-Ohio) stated at the commencement of these negotiation for tax cuts: "I do not know anyone can say with a straight face that when we voted to cut spending in December to help achieve deficit reductions, we can now turn around a short while later to provide tax cuts that exceed or cancel out the reduction in spending."
Proponents of the bill also charged that the changes were needed to prevent the affluent from giving away their assets and qualifying for public benefits. Of course, this bill does not prevent the "affluent" who can afford five years of private pay from doing just this, nor does it address the fundamental issue of the high cost of health care and long-term care. Rather, what it does do is create fear in those other than the affluent that any generosity with one's life savings will result in a deprivation of care. Alternatively, it will cause some individuals to divest themselves of all assets to their potential detriment. (See note 2 below)
A few of the likely victims of such measures are: the grandparent caring for a grandchild who provides savings to help pay for the grandchild’s education; the devoted church supporter who donates personal assets to the church; the family farmer or small business owner who passes on the farm or business to the next generation; the widow who lacks records of her now deceased husband’s spending; the caring sister who uses savings to help a needy sister remain in her home. Under the proposals to tighten transfer of asset rules, each of these individuals may be denied Medicaid if they subsequently get sick and need long-term care.
Further problems with the law include:
- All of those affected by these provisions will unquestionably need long-term nursing home or home health care, yet be unable to pay for that care, placing them in serious jeopardy.
- Those who need nursing home care may not be able to gain entry. State law often allows facilities to deny admission when there is no payment source.
- In cases where nursing home admission has already occurred and the penalty is applied, nursing homes will be required to provide uncompensated care for the duration of the penalty period or until hospitalization.
- Those in a hospital at the time of denial would be unable to leave since nursing homes and home care agencies will deny admission if there is no payment source. Hospitals will become the default providers as access to nursing homes is barred during the penalty period.
- These provisions suggest that the elderly can predict their medical and financial circumstances five years into the future. It punishes unwitting elders who have helped their families with commonly made gifts and then experience medical events.
- Some incorrectly claim that these changes will expand the use of long-term care insurance. The cost of long-term care insurance is not affordable for many elders. It is definitely not available for many individuals who already have serious chronic illnesses.
- The harsh penalty will be applied to all those who are unable to immediately recover the funds or the value of property alleged to have been “improperly” transferred up to five years prior to the Medicaid application. Most transferees will have no legal obligation to refund the transfer (e.g., charitable and religious donations, campaign contributions, etc.).
- These provisions will create unacceptable new obstacles to nursing home admission for vulnerable, frail elderly and disabled persons to get care, by requiring record keeping and documentation that is far beyond the normal practices of the elderly, especially the poor and chronically ill, and those with Alzheimer’s disease.
- The proposals will generate unintended consequences. Rather than stopping asset transfers and encouraging the purchase of long-term care insurance, the proposal will encourage earlier and larger asset transfers by the elderly, and discourage responsible decision-making.
Despite the passage of the Deficit Reduction Act, it will still be possible through careful planning (and to a lesser degree even in the event of a crisis where no pre-planning has occurred) to maximize care and the utilization of one's assets to achieve one's goals, including maximizing the healthy spouse's assets and income, and protecting a single person's assets to augment the care of the individual receiving Medicaid while preserving any unused portion for family and charitable causes upon death. This will not be possible, however, without the utilization of knowledgeable and experienced advocates in the field of Elder Law.
1. Pursuant to Ohio's Medicaid changes passed in the Ohio Budget bill of 2005, failure to disclose assets of $500 or more is a felony.
2. A study examining new Medicaid recipients over a ten year period found that 17.9% transferred assets, with an average amount of $8,507 during the two years prior to receiving benefits; as to new Medicaid recipient's receiving nursing home care, 12.6% transferred assets in the mean amount of $4,112. The Gerontologist 46:6-13 (2006).