Punishment For The Procrastinators: The Deficit Reduction Act of 2005
By: Anthony J. Enea, Esq.*
As I reported in the February 2006 Edition of the WCBA Newsletter, as of late January 2006 the Deficit Reduction Act of 2005 (“DRA”) with its significant changes to the transfer of asset rules for Medicaid eligibility, was on its way back to the House of Representatives from the Senate for a final vote because of language differences in the Senate and House versions. On February 1, 2006, by a vote of 216 to 214, the House of Representatives approved the DRA. On February 8, 2006, President Bush signed the DRA into law. It is now anticipated that the New York Department of Health may adopt the provisions of the DRA without any enabling legislation being enacted.
I would be remiss if I didn’t inform you that because of a typographical error contained in the DRA that was signed by President Bush there still exists the possibility, although unlikely, that Congressional Democrats could block an attempt by Republicans to correct the typographical error. In spite of this potentially occurring, I believe it is a much more prudent course of conduct to advise our clients to plan in accordance with the provisions of the DRA as enacted.
For those of you who have not seen the February 2006 Newsletter, the following is a summary of the most important provisions of the DRA.
1. Creation of a sixty (60) month look back period for all transfers of assets, irrespective of whether they are outright transfers or transfers to certain trusts. Under the current law, there is a sixty (60) month look back period for transfers to certain trusts (i.e., Irrevocable Income Only Trust) and a thirty-six (36) month look back for all other transfers. Thus, under the new DRA, an applicant for Medicaid will be required to inform Medicaid of all transfers made for the five (5) years preceding the date Medicaid is requested.
2. The penalty period (period of disqualification for Medicaid) created by a non-exempt transfer of assets will commence on the later of (a) the month following the month in which the transfer is made (existing law), or (b) the date on which an individual is both receiving institutional level of care (i.e., is in a nursing home or receiving care at home under the Lombardi program) and whose application for Medicaid would be approved, but for the imposition of a penalty period at that time. Therefore, under the draft, the penalty period for a non-exempt transfer of assets made within the sixty (60) month look back period will commence when the applicant has $4,150 or less at the time the applicant is receiving institutional care (in a nursing home or under Lombardi program) and applies to Medicaid for assistance. In my opinion, this is the most onerous measure contained in the DRA.
It should be noted that, pursuant to the provisions of the DRA and as under the current rule, no penalty period is imposed for transfers made by an applicant requesting non-waivered community Medicaid.
3. An applicant’s Homestead (house, condo, co-op) with equity above $500,000 will render an applicant ineligible for Medicaid. This provision does not apply if a spouse, child under age of 21, or a blind or disabled child resides in the house. Each state, however, is given the ability to increase the amount of permitted home equity to an amount not in excess of $750,000. Additionally, homeowners will have the ability to reduce their equity through a reverse mortgage or home equity loan.
In conclusion, the DRA is significantly punitive of those who wait to engage in long term care and medicaid planning. Those who take the initiative to undertake the planning necessary to shelter their life savings from the cost of long term care at an age when the likelihood of needing Medicaid within the next five years is unlikely, will be able to avoid the DRA’s most onerous provisions. In the simplest of terms, the procrastinators pay the most.