Congress has passed and the President has signed a bill-the Deficit Reduction Act( DRA )of 2005- which will impact elders as they plan for a time when they will need community or institutional based service(particularly those funded by Medicaid).

It includes the following changes:

1. Look- Back Period for Transfers

Prior to the DRA a person applying for Medicaid would have to submit information about any transfers of assets during the previous three(3) year period. Transfers which were not allowed(ex.- gifts to family or friends, charitable contributions, etc.)would make the person ineligible for Medicaid. Transfers of funds for legitimate expenses were allowed.

With the DRA the look-back period will be five(5) years.This will require a tremendous amount of planning and record keeping by people who might be forgetful and by family members.The rules about the transfer of funds which are allowable and not allowable(as above) are the same as before.

  • . Mr Smith now needs nursing home care and is otherwise eligible for Medicaid..
  • . He gave away $ 50,000 as a gift during the last 5 years.
  • . Nursing homes in his area cost on average about $ 5,000 a month.
  • . Mr. Smith would be ineligible for nursing home care funded by Medicaid for 10 months.


2. Penalty Period

The penalty period ( or the time during which anyone would be disqualified for Medicaid) used to begin the date when the transfer or gift was made.

With the new law the penalty period begins at the point of admission to a nursing home or application for Mediciad9whichever is later).

In the above example Mr Smith would be ineligible for nursing home care under Medicaid at the point he entered a nursing home even if the gift was made 4 or 5 years ago.


3. Impact on Some Home Care Services

The new law will now be applied to home based services if they are part of the home and community based waiver.These individuals qualify for nursing home care but are receiving home and community based services funded by Medicaid.

4. Equity in the House

The value of the house has never been included as a countable asset for Medicaid applicants. With the new law equity in the house between $ 500,00 and $ 750,000 will continue to not be counted. However, if someone owns a house valued at more than that amount that individual will be ineligible for Medicaid. Each State may decide on a dollar amount between $ 500,000 and $ 750,000.

All this remains true as long as the house is not sold.

In the case of Mr. Smith if his State set the limit at $ 500,00 and his house was valued at $ 450,000 there would be no impact on his eligibility for Medicaid.

If his house was valued at $ 525,000 he would be ineligible for Medicaid.

5. Income First

Previously, if an individual who entered a nursing home had a spouse living in the community the spouse could keep her income and prehaps some of their joint assets. This would be based on her( the community spouse) income.

Under the new law both the institutionalized spouse's and the community spouse's income are counted.. All of the institutionalized spouse's monthly income must to to the nursing home(is not available for the community spouse) but is now included in order to determine how much the community spouse may keep. Financial resources for the community spouse will be severely limited.