DON’T SHOOT THE MESSENGER
Part One

I recently attended a seminar dealing with the many changes to the Medicaid law. That is the law that controls the ways and means of paying for long-term care for the indigent elderly. The number of nursing home residents has increased, and the cost of their care has skyrocketed. These two forces have converged to create a perfect storm, where the government that requires these people to be cared for has run out of money to care for them.

For years Elder Law attorneys such as I have advised clients who wanted to qualify for Medicaid. Such planning devices as gifting of money or property, funding children’s home purchases or IRA contributions, helping to pay for grandchildren’s college costs, and other creative planning techniques were used. In many cases, the savings to the families resulted in tens or even hundreds of thousands of dollars.

Of course, making someone Medicaid eligible made the cost of their nursing home fall on the government, i.e., the taxpayers. In an effort to make more citizens responsible for their own care, both the state and the federal governments studied ways to shift the burden back onto the shoulders of those who need the services. The playing field for nursing home care has been dramatically changed by the passage of two laws.

Pennsylvania’s Act 42 became effective July 7, 2005. The state is required by the federal government to fund the long-term care of its indigent citizens through Medical Assistance, a program run by the PA Department of Public Welfare (DPW). The new law made several changes to the program, most notably changing the system of qualification from an asset or resource-first rule to an income-first rule. The state now looks at all sources of income as the first calculation to see how much the family has to pay. Then they analyze the resources to see how much of that money needs to be spent down before the applicant becomes eligible.

This approach is designed to prevent the spouse who is not in the nursing home from being impoverished, but the early analysis of the calculations shows that in many examples, the opposite result occurs. No doubt as this new system is implemented, appeals will occur that will help the legal community understand the law and refine its impact. That means that there are no clear answers yet.

The next change is the calculation of the penalty period of ineligibility for asset transfers by a Medicaid applicant. Previously, if there was a partial month of ineligibility called for by the calculations, it was dismissed as inconsequential. Now, however, with the average daily cost of nursing home care set at $222, each day of ineligibility is counted. The result of this is that families are now being asked to pay much more of the cost, and wait far longer for the applicant to be picked up by Medicaid.

The law eliminates the use of life estate deeds with retained powers (often called “Lady Bird Deeds”). Many planners used a method of having the elderly person create a life estate deed that permitted them to reside in their home for life, even though they were deeding the house over to their children. These planners would add special language to these deeds that would give the elderly person various rights, including the right to revoke the deed. Now, those powers must be exercised only at the direction of and with the permission of the DPW, which effectively means that no benefits will be paid out until the house is sold for fair market value, and those proceeds spent down for the applicant’s nursing home costs.

Annuities are covered, and many changes are dictated to the way they are used. If a Medicaid applicant or spouse already owns an annuity that limits the right of the owner to sell, transfer or assign the right to receive payments, or restrict the right to change the designated beneficiary, those provisions are now void. These annuities are now presumed to be marketable, and therefore they become countable resources. It is important to understand that there are many annuities already in place, with special provisions in them that attempt to keep them from being countable resources.

There is also a new set of rules for annuities purchased from now on that require that the Commonwealth of Pennsylvania Department of Public Welfare be named as the residual beneficiary of the annuity, not to exceed the amount of medical assistance expended on the individual during his or her lifetime. These annuities must be commercial (meaning they must be issued by an insurance company licensed to do business in Pa.), irrevocable and guaranteed, and must pay out in equal monthly installments (no more low monthly payments followed by a big balloon payment after the applicant’s death). If those conditions are met, then the value of the annuity will not be considered available for purposes of qualifying for Medicaid.

There is so much information in these two new laws that I will have to postpone the rest of the article until next month, when I discuss the new federal law and its impact on long-term care. Suffice it to say that there is a new sheriff in town, and he has laid down the law. The old game of getting wealthy people onto the roles of the DPW are over, for now.

Christopher M. Abernethy has been practicing law in Hampton Township since 1976. He focuses on elder law, which includes wills, trusts, powers of attorney, living wills, and probate matters. He also is proficient in all aspects of real estate law and business law. He is a member of the National Association of Elder Law Attorneys, and the AARP Legal Services Network. He can be reached at 412-486-6624 or by email at cabernethy@aaylaw.com.