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A Tale of Two Bills: How the House's Changes to Medicaid Rules Will Harm Seniors

  • November 15th, 2005

As many regular visitors to our Web site know, the U.S. Congress is currently wrestling with how to cut at least $10 billion from the Medicaid program, as called for in the 2006 budget bill passed earlier this year. Changes to Medicaid's asset transfer rules is seen as one area of possible budget savings.

Two competing proposals for changing the asset transfer rules have emerged. One, passed by the Senate Nov. 3, calls for only modest changes to the rules, closing loopholes to curb abusive Medicaid planning. The other proposal, part of a bill currently being debated in the House, would impose punitive new restrictions on Medicaid asset transfers. The two worst changes being proposed will punish unwitting elders who have given their families modest gifts, and force many middle-income elderly to sell their homes and spend down the proceeds.

Under the first rule change, the penalty for transferring assets will begin on the later of the date of the transfer or the date the individual would qualify for Medicaid coverage of nursing home care if not for the transfer. An example will explain the problem with this proposal. If a grandmother gives each of her four grandchildren $10,000 on December 1st of this year, in a state with an average monthly nursing home expense of $5,000, this will cause eight months of ineligibility. Under current law, the penalty period begins on the date of transfer, so it will commence on December 1st and expire after eight months.

Let's assume that in one year, in December 2006, the grandmother has a stroke and moves to a nursing home and that she spends down her savings paying for her care over the following year. This would mean that under current law, she would be eligible for Medicaid on December 1, 2007. But under the House's proposal, if she applied for Medicaid on that date, her eight-month penalty period would not begin until then, leaving her ineligible for benefits for eight months. Who would pay for her care during that time? Probably not the grandchildren, who may have used the funds for their college tuition or for other purposes. The answer is likely that it will be the nursing home that will have to front the cost.

The second egregious House proposal is to limit the equity in a home that may be protected to $500,000. Those with homes of greater value would be ineligible for Medicaid coverage of long-term care. The problem with this proposal is that it is inequitable. In some parts of the country a $500,000 home is a mansion. In others, very modest homes have market values exceeding this amount.

The Senate bill makes appropriate changes to the Medicaid eligibility rules that prevent practices seen as loopholes by most observers. The House bill, on the other hand, intends to punish seniors and their families. The irony is that the result will be that the seniors most severely punished will be those who don't avail themselves of elder law counsel.

Local Elder Law Attorneys in Ashburn, VA

Jean Ball

Hale Ball Carlson Baumgartner Murphy PLC
Fairfax, VA

Samantha Fredieu

Hale Ball Carlson Baumgartner Murphy PLC
Fairfax, VA

Jeffrey Hammond

Hammond and Associates, LLC, Elder Law, Estate Planning, Wills, Trusts, Probate
Bethesda, MD


Last Modified: 11/15/2005

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