New Medicaid Rules
On November 1, 2009, the Family and Social Services Administration (FSSA) implemented the most significant changes to the Medicaid program since 1993. These complex, illogical rule changes threaten every elderly and disabled person who may at some time need nursing home care or waiver services. These changes are required by the provisions of a bad federal law - the Deficit Reduction Act of 2005.
No one wants to go to a nursing home. I have never had a client in my office looking forward to a nursing home stay. The sad fact is some folks eventually do need nursing home care.
While folks do not want to go to nursing homes, when they do go they want the best possible care. The sweeping new Medicaid rules announced by the FSSA may significantly impact the care provided at nursing homes. This is through no fault of the wonderful folks in the nursing home industry who work very hard every day to care for our loved ones.
Annuities
The new rules are particularly harsh for owners/purchasers of non-qualified annuities. The term non-qualified simply means you did not use pre-tax funds such as money in an IRA or 401K to buy the annuity.
You must now name the State of Indiana as the primary beneficiary of any non-qualified annuity purchased after November 1st unless you have a spouse, a minor child, or disabled child. In these situations, you must name the State of Indiana as the contingent beneficiary for any medical expenses the State pays for you or your spouse. Who is going to buy an annuity when Governor Daniels is named before your children? If you do not properly name the State as a beneficiary, you are considered to have transferred the entire purchase price of the annuity. This transfer will make you and/or your spouse ineligible for Medicaid for nursing home care or waiver service for years into the future.
These same rules apply to non-qualified annuities purchased before November 1st if you engage in certain transactions! What is a transaction? You put more money into the annuity; you take some money out of the annuity; you change the beneficiary of the annuity; or you annuitize it, etc. All Indiana residents who have existing non-qualified annuities should immediately change the beneficiary of existing non-qualified annuities to comply with this rule before engaging in any “transaction”. Proper beneficiary designations are available at our website at www.dhblaw.com.
Look Back Period
Medicaid historically has looked back for 36 months (60 months if you have a trust) to see if you have transferred property improperly to qualify for benefits. This look back period will incrementally be expanded to 60 months, whether or not you have a trust. This phase in period will result in a 37-month look back period in November, 38 months in December, and so on.
Gifts/Penalty Period
The new rules require the State to analyze all gifts a person makes within 5 years of applying for Medicaid for nursing home care or waiver services. The first $1,200 of gifts made to family members or charities in a year will be ignored. This includes gifts for birthdays, anniversaries, Christmas, etc., unless you can prove the reason for making the gifts was for a purpose other than to qualify for Medicaid. How do you prove a negative?
The State has the right, but is not required, to ignore gifts to charities or to a church if you have a historical pattern of gifting for at least one year.
Family Loans
Almost every family has a child that borrows money from Mom or Dad for any number of reasons. The loan may be for college, the purchase of a new home, etc. Mom or Dad never considered the loan would be viewed as a transfer of assets should they ever need nursing home care in the future.
The FSSA rules state the loan will be considered a transfer of assets unless all the following criteria are met in the terms of the promissory note:
- The loan repayment schedule must be actuarially sound.
- The loan must have periodic payments with no balloon payments.
- The loan document must prohibit cancellation at the death of lender.
I have yet to see a promissory note that contains all of these terms unless prepared by an elder law attorney.
These new rules should be changed. The change must come at the federal level. I urge each of you to contact your congressman and senators to voice your opinion on the harsh terms imposed on the disabled and elderly contained in the Deficit Reduction Act of 2005. We can, and should, treat our parents better than this.
Keith P. Huffman
November 2009
(Revised March 2010)
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