A Penny Saved Can Be a Penalty Earned: Nursing Homes, Medicaid Planning, the Deficit Reduction Act of 2005, and The Problem of Transferring Assets


The Deficit Reduction Act of 2005 (DRA) makes it difficult for a senior citizen to transfer financial assets and subsequently qualify forMedicaid’s long-term care benefit. It makes it so difficult, in fact, that it creates a class of sick, poor senior citizens who do not qualify for Medicaid because they inadvertently transferred assets long before they had reason to believe that they would need long-term care. Essentially, Medicaid law expects senior citizens who gave away money during the past five years to recover it and spend it on nursing home care before they qualify for Medicaid. However, senior citizens who simply spend their money – on cars, home improvements, or whatever they choose – are not expected to recover it and incur no penalty. The hardship waivers that are supposed to provide a safety net for ill senior citizens who are denied Medicaid coverage are useless because they are applied so restrictively. The result is the exclusion from Medicaid of the people it was designed to serve.

This article discusses how financial asset transfers are treated under Medicaid law, both before and after the DRA’s enactment, and analyzes whether Medicaid policy is served by the DRA’s changes. The article also proposes solutions to the problems caused by the DRA and presents a strategy for seniors to transfer some financial assets and still qualify for Medicaid. Finally, the article advocates for changes to Medicaid law, including changing the hardship waiver procedures, increasing the asset exemption amount, and rolling back the DRA. These changes would enable Medicaid law to perform the function for which it was designed -to provide a safety net for our nation’s poorest and sickest citizens.

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