By David R. Okrent // Managing Attorney
and Claudia T. Salazar // Second-Year Associate

On February 1st, Congress passed draconian Medicaid cuts, as part of the 2005 Budget Reconciliation Act, designed to cut the federal budget deficit by $39.7 billion. The changes to Medicaid eligibility, which went into effect on February 8th, will have a significant impact on Long Island’s aging population.

Medicaid is federal-state program providing health care benefits to the poor, as defined by statute. It differs from Medicare in that Medicare is an insurance program funded by employer/employee contributions, similar to Social Security. Eligible seniors, the disabled, and dependents of the disabled may receive Medicare. Medicare is funded totally by the federal government through the Medicare Trust Fund, whereas Medicaid is funded through regular appropriations with 50% of the funds coming from the federal government and the other 50% by the states (In New York State, counties are responsible for 50% of the state cost or 25% of the total cost), generally.

One of the most significant differences in the programs is that Medicare does not pay for custodial home care or custodial nursing home care, while Medicaid does if you qualify. However, Medicaid is restricted to the poorest of Americans. You must have less than $4,150 in assets to be eligible under current guidelines. Considering that nursing home care can cost as much as $10,000 per month, it is not uncommon as part of estate planning, for the elderly, in order to protect their independence, dignity and control to be forced to protect their assets through property transfers, such as gifts, life estates, annuities, and trusts to ensure that they could be eligible for Medicaid should the need arise. It is easy to see how the need for long-term care could wipe out a lifetime of hard work and savings in just a few short years.

In an effort to trim the budget deficit and fund new tax break provisions, the 2005 Budget Reconciliation Act took aim at Medicaid, one of the fastest growing entitlement programs. The Act alters the homestead exemption for Medicaid, replaces a three-year look-back period with a five-year look back for asset transfers, and now makes annuities vulnerable. It also makes changes to the transfer penalty so that it if a person needs institutional Medicaid within five years of a transfer, they will then become Medicaid ineligible for a period of time.

Under the previous law, any asset transfers made within three years of a person applying for Medicaid and seeking coverage for nursing home care would make that person ineligible at a rate of approximately $10,000 per month (varying depending on the average cost of nursing home care in a region). This eligibility would extend from the time the transfer was made. For example, if someone made 3 simultaneous gifts during the previous three years at $10,000, they would be ineligible for Medicaid benefits for 3 months from the time the transfer was made and would be responsible for nursing home costs for this period. If they applied for Medicaid 3 months after the transfers were made and otherwise met the eligibility requirements, then the transfers would not make them ineligible. A 5-year look back period applied for transfers into a trust. Under the new law, the 3-year look back is replaced with a five year look back. Under the new law, if you do not need institutional care within 5 years of a transfer, the transfer will not affect your eligibility. However, if you need institutional care within 5 years of a transfer, the penalty begins to run at the time the need arises and you have applied for and been denied benefits solely because of the transfer penalty. So for instance, if the same person described above applied for Medicaid within five years of the transfer, they would ineligible for about three months from the time they applied for Medicaid and needed institutional level of care, whether at home or in a nursing home, even though they met the income and resource requirements. This will force middle class families to exhaust most of their resources on their medical care as well as cause nursing homes to be more hesitant to admit patients without first verifying five years of the patient’s records to determine Medicaid eligibility.

Another important provision involves the alteration of the homestead exemption. Under the previous law, a person could qualify for Medicaid while remaining in their home, or if their spouse or disabled child remained in the home. The new law exempts only the first $500,000 of a home’s value (a state can increase this to $750,000). With median home prices already at $400,000 to $500,000, many Long Island homes will be vulnerable. As a result, with their high cost of living, Long Islanders will be responsible for a disproportionate share of the alleged savings created by these provisions. The new law will have its greatest impact on Long Island’s middle class, who in many cases have struggled to make mortgage and tax payments and look upon their home as their most valuable asset. Wealthier Long Islanders are more likely to have planned ahead or have the necessary assets to expend on long-term nursing care, without affecting the future well-being of their families. Those without assets will be eligible outright. Once again, Long Island’s middle class will shoulder the burden of Washington’s ‘one size fits all’ fix for bad fiscal policies.

The Act also seriously affects the viability of nursing home care, as nursing homes fear they will be unable to determine a person’s eligibility in an appropriate time frame, resulting in either not admitting persons or admitting patients without payment sources. The changes will also affect home health agencies and all those who provide services to Medicaid recipients.

Over the next year, New York State will be considering local eligibility rules. With eligibility requirements tightened and uncertainty abound, long-term planning has never been more imperative, especially for Long Islanders.

For more information about this or other estate planning, elder law and special needs issues, contact the Law Offices of David Okrent at (631) 427-4600.