Medicaid (Title XIX of the Social Security Act of 1935, as amended) is a federal law designed in 1965 to provide medical assistance primarily to those needy families with dependent children, the aged (65 and over), the blind and the disabled. It is administered by the State of Connecticut in compliance with federal regulations. More recently, our aging middle-class population is looking more and more to Medicaid as they face the prospect of long term institutional care. We are finding that a good number of our clients are becoming increasingly concerned with protecting their assets against the prospect of long term care. There is reason to be concerned. In Connecticut, the average cost of care for a private care patient in a long term care facility as of July 1, 2005 is $7,905.00 per month.

Eligibility

Generally speaking, in order to qualify for Medicaid benefits, a single institutionalized individual may have no more than the following exempt assets:

A. $1,600.00 in assets;

B. Irrevocable Funeral Contract of not more than $5,400.00 or revocable funeral contract of not more than $1,200;

C. A burial plot;

D. Life insurance policies with a face value of $1,500.00 in the aggregate or less and such policies that have no cash surrender value regardless of the face value;

E. Essential household items;

F. Personal effects;

G. An automobile with certain qualifications; and

H. A home which an applicant owns and is using as a principal residence. A home owned by an individual who enters a long term care facility keeps its exempt status, provided the individual is expected to return home. If the institutionalized individual is married with a spouse who resides in the home, the home is exempt even though the institutionalized spouse is not expected to return home.

Gifting

In order to protect assets that are not exempt, a plan of gifting is necessary. When one applies for Medicaid benefits, the State of Connecticut will look back 36 months to determine if a transfer of assets for less than fair market value has occurred during the “look back” period. If so, a computation of a period of ineligibility for benefits is made unless the transfer fits within an exception to the transfer rule. The penalty period is determined by dividing the uncompensated value of the asset transferred by the average monthly cost of nursing home care for a private care patient in Connecticut, i.e., $7,905.00. The resulting sum is the number of months during which the Medicaid applicant will be disqualified from receiving Medicaid benefits. If the transfer of assets for less than fair market value is made to a trust, the “look back” period is 60 months. The penalty period begins running from the first day of the month in which the transfer was made. In developing a plan of gifting, one should plan on retaining sufficient assets to cover the cost of care during the penalty period. Since the development of a plan of gifting must avoid a myriad of pitfalls, it is recommended that you utilize counsel in preparing the plan.

Legislative Action

The Connecticut Legislature is attempting to limit the ability of senior citizens to protect their assets against the prospects of long term care. On July 13, 2005, the Governor signed into law the Department of Social Services Bill (Public Act No. 05-280), which provides at Sec. 40 that “(b) Any transfer or assignment of assets resulting in the establishment or imposition of a penalty period shall create a debt, as defined in Section 36a-645, that shall be due and owing by the transferor or transferee to the Department of Social Services in an amount equal to the amount of the medical assistance provided to or on behalf of the transferor on or after the date of the transfer of assets, but said amount shall not exceed the fair market value of the assets at the time of transfer. The Commissioner of Social Services, the Commissioner of Administrative Services and the Attorney General shall have the power or authority to seek administrative, legal or equitable relief as provided by other statutes or by common law.”

Congress is also considering several Medicaid related proposals in the President’s budget designed to erode further the ability to protect assets from the cost of long term care. One proposal is to extend the “look back” period from 3 to 5 years. Another proposal is to start the running of the penalty period for gifts from the date of eligibility for long term care services rather than from the date that the gift was made. For example, a $79,050.00 gift resulting in a 10 month penalty period now starts running from the month the gift is made, presumably at a time when the grantor has set aside enough assets to cover the private care payments to the nursing home for 10 months. The proposal under consideration by Congress would have the 10 month penalty period start on the date the applicant is “eligible”, i.e., when the applicant’s assets are $1,600.00 or less. Query who will then make the long term care payments during the 10 month penalty period. This language has been incorporated in the federal budget proposals before Congress, which, in part, are intended to reduce Medicaid spending by $10 billion. The National Governors’ Association is in support of the budget proposals which would tighten Medicaid transfer rules, and, in particular, begin the penalty period not in the month of the transfer but rather when the applicant is otherwise eligible for Medicaid.

Despite the erosion of options that our citizens can utilize to protect their hard-earned assets from the expenses of long term nursing home care, we shall continue our efforts to provide our clients with the best protection legally available.

Kenneth W. Mango Commercial Real Estate, Commercial Lending, Business Sales and Acquisitions, Probate & Estate Planning