The Medicaid Five-Year Look-Back Asset Transfer Rules: Avoiding Costly Errors in Long-Term Care Planning

For many people, Medicaid (a joint federal and state program) is their only available source for long-term nursing home care.  For those who can afford it, New York State provides a partnership for long-term care with some participating insurers.  Under this program, the insured person can apply for New York State Medicaid Extended Coverage that allows for either partial or total asset protection from the mandated federal estate recovery provisions described below. Even under this program, income is a factor in determining eligibility.

In 1993 Congress passed legislation requiring States to implement a mandatory estate recovery program for Medicaid recipients over the age of 55.  Three years later, Congress mandated that States set up agencies for the recovery of funds spent on long-term care from people who did not meet eligibility requirements.   Then in 2006 the Deficit Reduction Act (DRA 2005) inaugurated changes in the ineligibility period (or penalty period) to the Medicaid asset transfer rules.  Lawmakers were concerned that some Medicaid participants were meeting their eligibility by shifting assets to their children that would otherwise be used to cover the cost of their care.

To be eligible for long-term care in Medicaid nursing homes or for a community waiver, the person requiring the care must be receiving Social Security and his/her income and assets cannot exceed the income and asset guidelines (note that this chart has not changed for 2011).   DRA 2005 mandates a 60-month look-back period for any evidence of asset transfers, a significant increase from the prior three-year look back period.  If any evidence is found, then the clock for the look-back period will begin at the time of the application for services rather than the date of the asset transfer, a rather stiff penalty.

When contemplating a transfer of assets for the purpose of Medicaid long-term care eligibility, it is important to remember that any asset over which the individual retains control may be used to reimburse Medicaid for nursing home expenses.  And sometimes the best intentions of an individual can be defeated by a residual ownership interest.

Matter of Padulo v Reed presents such a scenario.  Between 1976 and 1994, Ada J. Romeo purchased U.S. savings bonds, naming herself and either her daughter Juliet Padulo or one of Juliet's children as the bond owners.  On 15 December 2001, Ada gave all her her bonds to Juliet, and Juliet distributed the bonds among herself and her children. 

In 2004 Ada moved to a nursing home.  In the months between July 2004 and February 2005, Juliet cashed out all of the bonds, including those that she had given to her children.   Juliet took the money and put it into a joint account that she held with her husband and her mother.  She used part of the money derived from the sale of the bonds to pay for Ada's nursing home care.  In September of 2005, Juliet applied for Medicaid benefits on behalf of her mother, thinking that she had met the then three-year look-back period under pre-DRA 2005 rules.  The New York State Department of Health denied the application.

The Appellate Division, Fourth Department agreed with the Department of Health.   Because the proceeds from the sale of the bonds were placed in a joint account with Ada, there was a presumption that Ada had full control over the funds and thus that the money belonged to her.  Joint bank accounts also have a right of survivorship, so it would have been possible for Ada to become the sole owner of the account had her daughter and son-in-law predeceased her.   Thus Ada's transfers to her daughter and grandchildren failed to satisfy the look-back period for Medicaid because she still maintained control over the money.  After Ada's death, her estate became subject to the federal estate recovery provisions for the cost of her nursing home care.

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The New CLASS Act and Your Estate: Planning with Long-Term Care in Mind

On 23 March 2010, President Barack Obama signed into law the Community Living Assistance Services and Supports Act (CLASS Act), creating a new voluntary publicly-sponsored national insurance trust for long-term care. CLASS is a part of the Patient Protection and Affordable Care Act. Designed to be a low-cost voluntary insurance program, CLASS is self-supported by premiums paid into the program by workers; no taxpayer funds are used. Unlike Medicaid, CLASS is not an entitlement program. Therefore, the only way that an individual derives a benefit from CLASS is if that individual contributes into CLASS through the payment of voluntary premiums primarily through an employer.

The Secretary of Health and Human Services is charged with developing both the premiums schedule and the schedule of benefits. The legislation does not specify either. But Congress did mandate that the schedules be actuarially sound and self-sustaining. Notwithstanding, several groups, including the Congressional Budget Office (CBO), have developed projections about both premiums and benefits. For example, the CBO projected in June of 2009 that an individual paying $65/month for initial decade would receive an average daily benefit of $75/day. But after 2019, the CBO-projected benefits dropped to $50/day and premiums for new enrollees went up to $85/month. But remember that these are mere projections. The final implemented version through Health and Human Services may incorporate different assumptions and different benefits.

Because the Act does not mandate screening of applicants, CLASS offers benefits to people who otherwise would not be eligible to apply for private long-term care insurance. However, CLASS is not designed to cover the full cost of long-term care. MetLife provides a long-term care calculator that can give you some realistic costs for long-term care in New York City and New York State. For instance, the annual cost of a semi-private room in New York City is $128,480. The daily rate would be $285. The daily rate is significantly less for an assisted-living facility ($153), and even less so for home care, around $58 per day for five hours of care, five days per week. The benefits of contributing into CLASS become apparent. And while some people would prefer to save for their long-term care needs, the rising cost of long-term care makes that prospect increasingly difficult.

In addition, no one can predict the seriousness of an injury or a disabling illness and the resulting costs of care and rehabilitation. But we can prepare to meet the challenge with a carefully crafted plan that take into account the individual's current state of health (physical, mental, emotional), their rate of savings, their family relationships, and their preferences as to long-term care, among other factors. Long-term care considerations should be part of any estate plan to make sure that financial resources are available and that assets are protected when the need arises.

Fortunately, New York State also has a unique program called The New York State Partnership for Long-Term Care that combines private long-term insurance with public Medicaid Extended Coverage. The website provides a list of participating private insurers. Most importantly, the program allows for partial or complete asset protection, providing some protection against "spousal impoverishment" in the case of nursing home care. It is well to remember that, for institutionalized care, any transfers of assets into an trust for Medicaid purposes is subject to a five-year "look back" period, and that some penalties may apply for some transfers of assets by the individual or his/her spouse if the transfer is made within that five-year window.

CLASS will provide New Yorkers with another arrow in their quiver as they contemplate their long-term care needs. Together with the New York State Partnership for Long-Term Care, CLASS will provide a valuable safety net, especially for those with pre-existing medical conditions.

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