The “Nursing Home Bankruptcy Act” of 2005
By Jim Zeigler, www.JimZeigler.com
Medicaid Asset
Protection Attorney
Plaintiff in federal
suit challenging Deficit Reduction Act
No, there is not a law actually named “Nursing Home
Bankruptcy Act.” That is the reason for
using quotation marks. But the Deficit
Reduction Act of 2005 has the unfortunate potential of becoming the nursing
home bankruptcy act.
The management of each nursing home needs to become aware of
the danger to their financial health from the DRA. Every private pay patient is a ticking time
bomb UNLESS each has proper legal counsel to prevent Medicaid ineligibility
later. You will shortly see why each
private pay patient or their power of attorney need to
counsel with a Medicaid planning attorney now.
One of the many yet-to-be-discovered aspects of the DRA is
the affect on nursing homes of the new penalty start date. That is the date on which an applicant for
Medicaid nursing home coverage is assessed a penalty period for transfers made
during the Medicaid look-back period.
That penalty period requires patients to pay from assets that they DO
NOT HAVE.
Actually, two DRA changes work together to
produce a huge liability for nursing homes -- the penalty start date and the
look-back period. The look-back
period is now five years under DRA.
That means that any gifts or other “transfers without fair market value”
within five years of Medicaid application date are held against the
applicant. Add to that the start date
that does not assess those penalties until the nursing home patient has dropped
below the Medicaid asset limit, usually $2,000.
The short story is that nursing homes and families of
patients will be caught unaware. They
thought Granny would qualify for Medicaid nursing home coverage when Granny
spent down all her assets except for $2,000.
But the new post-DRA reality is that Granny will NOT
automatically qualify for Medicaid coverage when her assets drop below
$2,000. At that point, it may be months
or years more before Granny can qualify for Medicaid.
The reason is this:
At the point when Granny drops below $2,000 (mostly due to private pay
nursing home costs), she will only then be assessed a penalty equal to all
transfers she made during the previous five years. She will have to continue to private pay
until the transfers are “recaptured”.
Since she now has less than $2,000, from what source will she pay her
nursing home bills during that penalty period?
And she cannot SAVE assets to pay this penalty because she would not
then be below $2,000 and thus not subject to the penalty.
Granny has $1,900.
She is not eligible for Medicaid for 5 months, or 50 months due to transfers. Who will pay her $4,000 to $7,000 a month
nursing home bill during that period?
Granny is in a bind.
Her family is in a bind. AND the nursing home is in a bind. Is the nursing home going to go through the
horrible process of trying to eject Granny?
Are they going to brow-beat the family into paying even though the
family probably has no legal obligation to do so and may have financial
commitments of their own?
Or is the nursing home going to EAT the cost for Granny
during the penalty period?
To figure this potential liability, multiply the number of
private pay patients times the monthly nursing home
cost times the life expectancy of the private pay patients. Compare this to the profit margin of a
nursing home. See now why I referred to
the DRA as a “Nursing Home Bankruptcy Act?”
This little-known aspect of the DRA proves the old adage “No
good deed goes unpunished.” All of
Granny’s gifting for five years can come back to haunt her, her family and the
nursing home.
Example: A widow goes in the nursing home with $52,000
of “countable assets.” She is informed
that she is over the Medicaid limit of $2,000 and must private pay until her
assets drop below $2,000. (This advice
is actually incorrect because with a Medicaid asset protection plan, she could
qualify now for Medicaid by legally dropping her countable assets below $2,000
now. That would be better for Granny and
the family. Under this new DRA-induced
liability, it would also eliminate liability for the nursing home to go ahead
and get Granny Medicaid eligible now.)
Granny, her family and the nursing home all plan that she will private pay until she drops below $2,000 and then
qualify for Medicaid coverage.
Problem is, Granny has been
generous. She has gifted $10,000 each year
to children and grandchildren, having been told that that amount is
"legal." (The yearly gifting
amount is now actually $12,000 but that is ONLY a federal estate & gift tax
exclusion. Medicaid does NOT honor the
annual exclusion).
Granny has also come to the rescue with college 529 plans,
which she was told are “legal.” They are
legal under IRS law, but again Medicaid does not exempt college tuition
transfers.
Upon advice of well-meaning friends, Granny added her adult
children's names to her bank accounts.
The children began occasionally writing checks on these joint
accounts. These checks are considered by
Medicaid to be penalizable transfers.
After Granny drops below $2,000 everyone is shocked that her
Medicaid application is declined and a penalty period is imposed recapturing
all her transfers for five years. She
had donated it once and now must pay it again – but she has only $1,900.
The supporters of the DRA did not think through the
juxtaposition of the new penalty start date and the new five-year look-back
period. These provisions will devastate
nursing home patients, families and nursing homes.
UNLESS.
There is a way out of this for all concerned. Every nursing home patient on private pay
needs to meet NOW with a Medicaid planning attorney. Not with their lawyer who did their wills,
deeds or divorces but with a lawyer who does Medicaid planning under the
DRA. Few lawyers do Medicaid planning
and fewer still have done so under the DRA.
The days are over when a nursing home employee should give
advice on Medicaid planning. That
practice, which was never a good idea, can now be disastrous under the
DRA.
The idea of the family doing financial things for Granny on
their own without Medicaid planning counsel is dangerous for Granny, the family
and the nursing home.
This need is so obvious that a prudent nursing home could
actually REQUIRE that all private pay patients or their POA’s certify that they
have retained Medicaid planning counsel.
Without proper counsel, a private pay patient who expected
to become a Medicaid patient can instead become a zero pay patient. The nursing home's costs associated with this
zero pay patient continue in full. The
revenues generated by the patient will drop to zero.
With proper counsel, a private pay patient and the family
can avoid the devastation of surprise Medicaid denial by being advised of:
1. Any causes of ineligibility that they have already done without counsel.
2. Options to un-do penalties, including re-gifting.
3. The possibility of steps to become Medicaid-eligible early, reducing the
loss of assets to private pay.
4. Things not to do in the future that would cause ineligibility.
5. Options for how to pay during any penalty period that cannot be avoided.
6. Other issues, such as protecting the homestead from a Medicaid lien.
Over the years, there has been a bit of an adversarial
relationship between nursing home administrators and Medicaid planning
attorneys. That needs to cease
immediately, with nursing homes becoming a large source of referrals for the
attorneys.
By preventing ineligibility-causing mistakes by families of
private pay patients, Medicaid planning attorneys can prevent the DRA from
becoming “The Nursing Home Bankruptcy Act.”
© Copyright 2006 by Jim Zeigler, Mobile, Alabama
www.JimZeigler.com
The author is a
Medicaid planning attorney with a nationwide practice based from his web site, JimZeigler.com.
He is the plaintiff in the federal lawsuit challenging the constitutionality of
the Deficit Reduction Act of 2005. He
was keynote speaker at the Academy
of Florida Elder Law Attorneys
in December 2006, speaking on this subject.
He was elected and served as Public Service Commissioner. He can best be reached online. Otherwise at 251-660-2060.