|
|
 |
New Rules Criminalize Medicaid
Planning
Granny could go to jail….along with her lawyer. New rules under the Health Insurance
Portability and Accountability Act passed in August of 1996 make it a crime under certain
circumstances to transfer assets to family or friends and then apply to Medicaid for
financial assistance to pay for nursing home care. |
The penalty can be up to one year in jail and a
$10,000 fine. Medicaid is a joint federal and state health-care program designed to
provide assistance to those in financial need. Because of the high cost of nursing home
care, a majority of the patients depend on Medicaid to pay the bills. But to qualify for
Medicaid, the person must basically be destitute. Generally, the person can have only
$2,000 or less in savings, not counting the value of his or her home (assuming the spouse
still lives in it). The spouse can keep up to $76,740 in savings, depending on state law,
and some states set income caps. That's where Medicaid planning comes in. It involves the
shifting of assets from the person looking for Medicaid support to other relatives or
friends, known as "spending down." For example, grandma might gift $50,000 in
stock to her granddaughter, then apply for Medicaid. At least one state study found that
over half of Medicaid nursing home applicants had shifted some assets shortly before
applying. In 1993, Congress tightened several rules in this area in an attempt to stop
such transfers. One of the rules is that when a person applies for Medicaid, the state
must "look back" to see if any assets were transferred within the last 36 months
(or 60 months if a trust was involved). If transfers were made, the applicant may have to
wait up to 36 months to become eligible for Medicaid. The ineligibility period depends on
the amount of the gift and the amount of the transfer. For example, if Granny transfers
$40,000 and the average monthly cost of nursing home care in the state where she lives is
$4,000, then Granny will have to wait ten months before Medicaid starts to provide
assistance. MEDICAID PLANNING/2 There are exceptions to the transfer rules. Transfers can
be made for purposes other than to obtain Medicaid. For example, one might gift $10,000
annually to individuals in order to reduce future estate taxes. Or transfers can be made
for the sole benefit of a spouse or to assist a disabled child. In some states, certain
types of Medicaid assistance don't fall under a "look back" period, such as
community-based Medicaid in New York. Granny can shift assets in other ways, as well, such
as buying an annuity, paying off old debts, or prepaying funeral expenses. Under the new
law, the act of transferring assets is not illegal. But the act of applying for Medicaid
assistance during that applicable "look back" period (those 10 months in the
above example) can result not merely in a delay of eligibility but in a fine and even
imprisonment. Part of the thrust of this action by Congress was not only to stem what it
viewed as an abuse by middle- and upper-class people to go on the public dole (the wealthy
are more likely to pay their own nursing home bills because they can afford it), but to
encourage the purchase of private long-term care insurance. Part of the same Health Act
included tax breaks for people buying long-term care insurance. As might be expected,
estate planners are in an uproar about the provisions, arguing that there was little
public debate and it wasn't right to criminalize something that was already prevented by
the use of the look back rules. The statute is also somewhat vague. There are questions
among estate planners about who might be held as criminal under the act (though Granny and
her lawyer are most certainly included) and exactly what transfers do or don't fall under
the statute (transfers made before January 1, 1997, are apparently safe). So before you or
a family member try to shift assets to help qualify for Medicaid assistance, consult with
your Certified Financial Planner professional and a qualified estate planning attorney.
-30-
This column is produced by the Institute of Certified Financial Planners.
MEDICAID PLANNING/2
There are exceptions to the transfer rules. Transfers can be made for purposes other than
to obtain Medicaid. For example, one might gift $10,000 annually to individuals in order
to reduce future estate taxes. Or transfers can be made for the sole benefit of a spouse
or to assist a disabled child. In some states, certain types of Medicaid assistance don't
fall under a "look back" period, such as community-based Medicaid in New York.
Granny can shift assets in other ways, as well, such as buying an annuity, paying off old
debts, or prepaying funeral expenses. Under the new law, the act of transferring assets is
not illegal. But the act of applying for Medicaid assistance during that applicable
"look back" period (those 10 months in the above example) can result not merely
in a delay of eligibility but in a fine and even imprisonment. Part of the thrust of this
action by Congress was not only to stem what it viewed as an abuse by middle- and
upper-class people to go on the public dole (the wealthy are more likely to pay their own
nursing home bills because they can afford it), but to encourage the purchase of private
long-term care insurance. Part of the same Health Act included tax breaks for people
buying long-term care insurance. As might be expected, estate planners are in an uproar
about the provisions, arguing that there was little public debate and it wasn't right to
criminalize something that was already prevented by the use of the look back rules. The
statute is also somewhat vague. There are questions among estate planners about who might
be held as criminal under the act (though Granny and her lawyer are most certainly
included) and exactly what transfers do or don't fall under the statute (transfers made
before January 1, 1997, are apparently safe). So before you or a family member try to
shift assets to help qualify for Medicaid assistance, consult with your Certified
Financial Planner professional and a qualified estate planning attorney. -30-
This column is produced by the Institute of Certified Financial Planners. |
