Introduction

Medicaid has long served as financial aid for seniors struggling to meet long-term care needs while trying to stay financially afloat. With health care costs on the rise the Medicaid program has itself been challenged to continue providing seniors the health care coverage they need while remaining economically viable. Congress in an effort to confront that challenge signed into law the Deficit Reduction Act of 2005 (the “DRA”) with provisions that effectively shift the financial burden of long-term health care costs and the DRA adds an additional layer of complexity to the already complicated Medicaid program, it is important to understand how the DRA has altered the Medicaid landscape in Massachusetts. [1]

Background: Medicaid, MassHealth & Long-Term Care Costs

Medicaid is a means-tested, jointly-funded, federal-state entitlement program created by Congress in 1965. States administer the program and set rules for eligibility and benefits within broad federal guidelines. As a result, from state to state, there are wide variations in the Medicaid program. Massachusetts’ MassHealth program is one of the country’s most highly customized Medicaid programs. Massachusetts also consistently has the highest health expenditures per resident of any state in the nation. Fortunately, long-term health care facility costs only account for a small fraction of Massachusetts’ overall health care expenditure. Notwithstanding, for Massachusetts seniors with health care needs that require them to live in long-term care facilities, small fractions can have large monetary consequences. Nursing home care, for example, can cost somewhere in the ballpark of $120,000.00 per person, per year.

Medicaid Eligibility Changes Under the DRA

Congress was particularly concerned about people exploiting the Medicaid program by giving away assets and resources to render themselves needy enough to qualify. Thus, the DRA contains a number of provisions affecting asset transfer rules, and requires states to impose penalties on seniors giving away resources or transferring assets for less than fair market value during what’s called a "look-back" period. This is the period of financial history that Medicaid looks at to determine what other assets and resources seniors could draw upon, besides Medicaid, to finance their healthcare needs. Transfers during the "look-back" period for fair market value, for a purpose other than creating Medicaid eligibility, or for the sole benefit of the institutionalized person’s spouse, permanently disabled or blind child, do not affect Medicaid eligibility.

Prior to the DRA’s enactment on February 8, 2006, the "look-back" period was 36 months for income and most assets, and 60 months for certain trusts. Pre-DRA, Medicaid looked at Seniors’ financial history for the 36 months before the date of their MassHealth application. Post-DRA, Medicaid requires states to look at the 60 months before a senior enters a nursing home or becomes eligible for Medicaid, whichever is later. The DRA, therefore, lengthened the "look-back" period to 60 months for all income and assets transferred after February 8, 2006.

Probably the best way to understand how the "look-back" asset/resource transfer rules work is by using examples:

The change in the "look-back" period is regarded as the most troublesome provision of the new rules because seniors who give gifts to family members fewer than five years ago may be unable to use Medicaid to pay for their long-term care. Or worse, if they’re already in a nursing home and transferred assets after February 8, 2006, they may be immediately ineligible for Medicaid. And since Massachusetts has a "filial responsibility" law, which holds adult offspring responsible for the support of their indigent parents, the "look-back" rules are even more worrisome because adult children of seniors currently in long-term health care facilities who become ineligible for MassHealth may have to pay their parent’s outstanding bills. Presumably then, these laws could lead to litigation between long-term care facilities, and the children of residents in those facilities. Nursing homes might sue children who could then counter-sue for sub-standard care with the costs of litigation adding to both parties’ woes.

Many seniors enter into contracts with life-care communities or continuing care retirement providers where they can live in the same community while they’re healthy and receive nursing care should this become necessary. The DRA places restrictions on deposits or entrance fees paid to these sorts of facilities. Seniors who have the means to afford this option should work with their legal and financial professionals to structure deposits or any fees that they pay in a way this is "MassHealth friendly."

The DRA also affects the way homes, as assets, will be treated. Beginning on January 1, 2006, MassHealth applicants will be denied payment of long-term care benefits outright if the equity in their homes exceeds $750,000[2] unless they have spouses, minor children, or blind or permanently disabled children living in the home. Seniors with $750,000 or more equity in their homes could obtain a reverse mortgage loan to shelter them from disqualification as long as they’re careful not to make it seem like the loan was taken out for the sole purpose of qualifying for MassHealth.

While the existing rules about the countability of annuities have not been changed, the DRA requires states to treat annuity transfers differently. The purchase of an annuity during the "look-back" period will be treated as a disqualifying transfer if the type of annuity, as well as its terms, does not comply with certain Internal Revenue Service regulations, with the Social Security Administration’s actuarial tables, and with certain probate/estate planning restrictions. For example, the Commonwealth of Massachusetts must be named as primary remainder beneficiary. Likewise, promissory notes, loans and mortgages must contain certain restrictions or else they will be considered resources that seniors could use to pay for their long-term care. And purchases of life estate interests in another’s home are, per se, considered disqualifying transfers unless the purchaser resided in the home for at least one year after the date of such purchase.

In theory, Medicaid applicants can cure disqualifying transfers by recovering them. But in practice, getting gifts back or having otherwise transferred assets returned may not be possible so, thankfully, MassHealth regulations allow seniors (or long-term care facilities with permission from the affected residents) to appeal decisions denying them MassHealth coverage by applying for waivers from the local MassHealth Enrollment Center. In appealing decisions denying them MassHealth coverage, seniors should hire legal counsel.

Long-Term Care Insurance & the Long-Term Care Insurance Partnership

With the new rules under the DRA making it harder to be eligible for Medicaid, seniors may want to consider purchasing long-term care insurance coverage. Most financial planners recommend that clients purchase long-term care insurance in their late 50s or early 60s. In this age range the cost is quite affordable. But keep in mind that the cost of premiums increase with age and that eligibility is based on seniors’ health at the time of purchase; therefore, if seniors are already ill they may not be able to apply.

The DRA extended eligibility for the federal Long-Term Care Insurance Partnership program to all the states, permitting individuals who purchase state-certified, long-term care insurance to become eligible for Medicaid after all the benefits under the policy have been paid. The details vary by state but such programs all require policyholders to have long-term care insurance that meets certain requirements laid out by the IRS and the NAIC (the National Association of Insurance Commissioners).

"Equal Choice" Legislation

Taking advantage of the latitude given to states by the DRA to enact legislation protecting some asset transfers, Massachusetts has enacted landmark legislation. An Act Relative to Choice of Long-Term Care, known more familiarly as the “Equal Choice” provides thousands of Massachusetts seniors the option of receiving care at home; thereby giving them more choices and creating considerable savings because home care is a less costly option. In addition, the law offers seniors seeking care in long-term facilities, pre-admission counseling through the Executive Office of Health and Human Services, the Executive Office of Elder Affairs or subcontractors of these state agencies.

Conclusion

Seniors who expected to need long-term care used to give away assets in order to create Medicaid eligibility. However, the DRA now mandates that states impose a period of ineligibility gifted assets. Massachusetts’ newly enacted "Equal Choice" law reflects the state’s ongoing commitment to providing medical care to everyone regardless of their economic circumstances. But even is a progressive and benefit-rich state like Massachusetts, the new DRA rules highlight why it is important for seniors to consult with a legal and financial professional about long-term care insurance and other ways to finance their healthcare. Moreover, because of the newness and complexity of the DRA and MassHealth laws, in general, seniors should seek professional advice when applying for MassHealth or planning for their long-term healthcare in general.