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Medicaid and Federal Deficit Reduction Act of 2005

 How does it affect you?

In February of 2006, President Bush signed the Deficit Reduction Act of 2005 (the “Act”) which drastically changed the way people will plan in the event they need long-term care. By way of trickle down, it also had a significant impact on their future eligibility for long-term care through MassHealth (Medicaid). Below are some of the major changes in MassHealth long-term care eligibility because of the Act:
1. The “lookback period” is extended from 3 to 5 years.
First, understand that any transfer of an asset for less than fair market value (a gift) creates a disqualification period for MassHealth eligibility purposes. Prior to the Act, MassHealth required that you report outright gifts made three years before your application and gifts to trusts made five years before your application.  Now, the lookback period is five years for both. This means any gift made within five years of filing a MassHealth application could be disqualifying. Some gifts may be exceptions, if they were made for reasons other than to obtain MassHealth eligibility.
2.  The disqualification period starts the day you are admitted to the nursing home.
Prior to the Act, the disqualification period began on the day the gift was made. Now, the disqualification period does not begin until the date you are admitted to the nursing home and continues until such time as you would have been eligible for benefits but for the gift. Ofcourse any gift made more than five years before the application will not cause a problem.
3. Annuities:
Annuities owned by a person applying for MassHealth long-term care benefits must name the state as the remainder beneficiary for the amount of medical assistance paid, or named in the second position after the community spouse or minor or disabled child. Before, a qualifying annuity was a non-countable asset that could be passed to your spouse or your children regardless of the receipt of MassHealth benefits. The Act has not changed the beneficial use of annuities to protect assets for a spouse who remains at home.
4. Excess Home Equity:
The prior law allowed you, or your spouse, to keep your primary residence as a non-countable asset regardless of its value. The Act now limits the amount of home equity you can have, and be eligible for MassHealth, to $750,000.
Current Planning
Assets can be protected, despite the changes described in the above summary. The longer lookback period encourages earlier planning, but if timely planning is completed then assets can be protected for our families. Transfers including trusts, life estates and annuities remain viable planning options.

Content on this web site is for informational purposes only and does not constitute legal advice.