Editorial Medicaid Measure Will Produce Some Long-term Problems

We fully understand the Bush administration’s desire to reduce the deficit. We also understand that reducing Medicaid expenditures is certainly one way to address that assignment — Medicaid costs have exploded in recent years.

But the legislation signed into law on Feb. 8 — known as the Deficit Reduction Act of 2005, or the DRA, seems terribly short-sighted, and could have some disastrous consequences for seniors, the disabled, and the providers of long-term care. In short, the bill has good intentions: making sure that those who have the wherewithal to pay for nursing home care do so, and not let Medicaid (the taxpayers) pick up the tab.

But the measure, with its extended look-back period, changes in the penalty period for asset transfers, new provisions for annuties, and other steps, goes too far in its efforts to cut Medicaid costs. It is our hope that some of the more draconian steps can be removed or amended before some real damage is done.

The DRA passed by an extremely narrow margin — 216-214 in the House and 51-50 in the Senate, with Vice President Cheney called upon to break the tie. That close vote would indicate that many lawmakers had some misgivings about the measure — and with good reason. The provisions regarding Medicaid eligibility could lead to severe hardship, and will likely have a negative impact on constituencies ranging from elderly couples to the churches and charities that have historically benefited from philanthropy.

For starters, the longer look-back period, extended from three years to five, will serve as a disincentive for gifting, while also adding more complexity to the Medicaid application process. It will require elderly individuals to keep organized financial record and account for transactions several years in the past. For many, this will be a severe challenge, and it may well lead to delays in eligibility or ineligibility.

But the impact of the DRA goes well beyond simple book-keeping. The changes in the penalty period for transfers, for example, could have a negative impact or the elderly, the disabled, the family members of those entering long-term facilities, and the providers of that care.

The measure changes the date on which the penalty — in the form of months of Medicaid coverage (roughly $7,000 per month) — is enforced. Under the current law, the penalty kicks in from the date of the asset transfer. Under the new measure, however, it will start after the person is in the nursing home and after they have spent their assets down to $2,000, the threshold for Medicaid eligibility.

In this scenario, there will be many instances when individuals and their families will be faced with paying for several months of nursing home care, and the person in the nursing home will have no assets to pay such a bill.

Thus, the big losers will likely be nursing homes, which could be faced with evicting residents — which none of them prefer to do — or eating the cost of months of care, which would be extremely difficult at a time when many are facing extreme financial hardship.

This seems like a no-win situation, so much so that one estate planning attorney said some in his specialty have termed the DRA the “nursing home bankruptcy bill.”
While the DRA was passed on Feb. 8, it will take several months for individual states to come into compliance. In Massachusetts, that date is likely to come in late summer. That gives individuals several months to operate under the current rules, and we urge them to take every advantage of that opportunity.

Meanwhile, we urge lawmakers to take a close look at the legislation now on the books and carefully assess if this is what they really want to do.

The purpose behind the Deficit Reduction Act of 2005 is simple — to make it more difficult for individuals to qualify for Medicaid coverage. It was intended to close the loopholes for those who would use whatever means they could to get Medicaid to pay for their long-term care and enable them to pass on their assets to their children.

But while the resulting piece of legislation may solve or mitigate that problem, it is very likely to create a new set of problems that could have dire consequences.