The Impact of the Deficit Reduction Act of 2005
on Medi–Cal for Long Term Care
On February 1, 2006, the U.S. House of Representatives, by a narrow margin of 216-214, voted to pass the Deficit Reduction Act (DFRA) of 2005 (S. 1932), which includes numerous provisions aimed at denying Medicaid benefits to current and prospective nursing home residents. Every House Democrat voted against the bill, along with 13 Republicans. It is also interesting to note that every California Republican House member, with the exception of one abstention, voted for the bill.
The President signed the bill with great fanfare on February 8, 2006. However, as of today, there is still some question as to whether the DFRA is still a bill or if it has been signed into law. Apparently, a $2 billion clerical error resulted in the President signing a slightly different version of the bill than the House voted on and different from the Senate version, where the bill squeaked by on a 51-50 vote, with Vice-President Cheney breaking the tie. This means that the President signed a bill that had not passed both chambers of Congress. In order for a bill to become law, the House and Senate must agree to it on identical terms. Although the customary solution is a unanimous consent agreement, which the Senate agreed to right after the bill was signed, there is some question as to whether House members are willing to go this route. How they will fix this "typo" is unclear, but it has not been fixed yet.
Meanwhile, an elder law attorney in Mobile, Alabama, Jim Zeigler, and another consumer group, have filed a lawsuit in U.S. District Court challenging the constitutionality of the law, and asking other individuals and groups to join him.
Over the next few weeks, CANHR will provide a more detailed analysis of the bill and its likely impact in California, particularly the implementation dates and whether legislation or regulations or both will be needed to implement the new federal law. Regardless of when the bill's provisions are implemented, there is no question that the lives of long term care consumers will be impacted dramatically.
6011(a): Five-Year Look Back
Current federal law requires the states Medicaid programs to "look back" 36 months
(3 years) to determine if a Medicaid applicant has given away assets without adequate consideration. Since California never implemented the federal law, the look-back period in California has been 30 months. Under the new federal law, the look-back period has been extended to 60 months (5 years) and applies to gifts made on or after the date of implementation of the federal law.
Section 6011(b): Period of Ineligibility
Under current law, the period of ineligibility begins from the date of the transfer. For example, your grandmother could give $5,000 to a grandchild on March 1 and be eligible for Medi-Cal on April 1, since the period of ineligibility (one month) has already run during March. Under the new federal law, the period of ineligibility will begin from the date of application. What this means for nursing home/Medi-Cal applicants is that they will be penalized for transfers made within five years of applying for Medi-Cal and the penalty period will begin to run the same day that they apply, when the money is long gone and all of their private pay money is spent.
Section 6011(c): Date of Implementation
Under the federal law, the date of enactment for most of the provisions is the date the President signs the law, which may or may not be February 8, 2006. The home equity provisions apply to applications made on or after January 1, 2006. The DFRA also allows states until the close of their legislative session, if statutory changes are necessary to comply with Section 6016. However, since California hasn't even implemented the OBRA 1993 laws, there are a lot of questions as to what the date of implementation would be in California.
Eligibility Workers have not been given any new instructions and are following the current law. When California does implement the law, will it be through legislation, regulations or simply an All County Letter? Will the Department follow their past practices and only apply the new law to transfers made on or after the date the new laws go into effect in California? These and many other questions need to be answered by the Department and soon.
Section 6011(d): Undue Hardship Provisions
The DFRA requires states to provide for a hardship waiver process to determine whether an undue hardship would exist when the new transfer of asset provisions are applied.
California currently has undue hardship provisions under draft regulations, 22 CCR § 50096.5, where the applicant/beneficiary has an opportunity to appeal a denial of Medi-Cal based on the transfer of assets. It is not known whether the state will retain these regulations or promulgate new ones.
In order to prove hardship, those denied Medicaid would have to be able to understand their rights, file for a hearing in a timely manner and have legal representation at fair hearings. This is not likely to happen for the majority of elder and disabled applicants, who have already spent their assets and can't afford legal representation.
6011(e)(1)&(2): Protections for Nursing Homes
DFRA permits nursing homes to apply for hardship exemptions on behalf of residents with the resident's permission or the permission of the resident's representative. The law also protects the facility from loss, by ensuring up to 30 days reimbursement while the hardship hearing is pending. However, it is doubtful that nursing homes are going to spend their funds representing poor people when it is easier and more cost-effective to simply evict them.
Section 6012: Disclosure and Treatment of Annuities
Under current California law, the principal in an annuity is considered "unavailable" for the purposes of Medi-Cal eligibility as long as the annuity is structured to pay out fixed, equal payments over the lifetime of the beneficiary. Despite the requirement of fixed, equal payments, "balloon" payment annuities, i.e., annuities structured to pay out a large lump sum payment at the end of the period, have been common, since no penalty attaches. Any income from the annuity is counted toward the share of cost. Under California regulations filed in 2004, annuities purchased on or after September 1, 2004 are subject to Medi-Cal recovery.
The new federal laws regarding annuities are substantial and comprehensive. In short, the new annuity rules:
- (a) Mandate that the states require that applicants disclose any interest that the individual or the community spouse has in an annuity, regardless of whether the annuity is irrevocable or is treated as an asset.
- (b) Require that the application or recertification form include a statement that the State becomes a remainder beneficiary under the annuity because of the provision of medical assistance.
- (c) Treat the purchase of a deferred or balloon payment annuity as a transfer of assets.
- (d) Exempt certain work related pension funds, annuities and IRAs from the annuity rules.
Section 6013: Income First Rule
Under current California law, if the community spouse's minimum monthly maintenance need allowance (MMMNA) is below the income cap ($2,489 for 2006), he/she can apply for a fair hearing or court order to retain assets over the Community Spouse Resource Allowance (CSRA) level -- if they have excess assets -- because they are needed to generate income. This means that an athome spouse whose income is, for example, only $500 per month, can often retain assets well above the $99,540 (CSRA) level, before looking to retain any of the nursing home spouse's income. This is the most preferred way to ensure that the community spouse can be somewhat financially secure, since after the nursing home spouse dies, much of the income dies with the spouse.
Under the new federal "income first" rule, states are required to allocate any available income from the nursing home spouse first, before any additional assets will be allocated.
Section 6014 : Disqualification for Long Term Care Assistance when home equity exceeds $500,000, unless there is a spouse or a minor, blind or disabled child lawfully residing in the home.
- Applies to nursing home as well as "other long-term care services"
- States can elect to increase that amount up to $750,000
- Dollar amounts shall increase, beginning 2011, based on CPI
- Individuals can use reverse mortgages or home equity loans to reduce equity
- Disqualification can be waived in case of demonstrated hardship
Effective date: Shall apply to individuals who apply on or after January 1, 2006
Encouraging Elder Fiduciary Abuse
Section 6014 specifically permits individuals to reduce the equity in their homes by using a reverse mortgage or a home equity loan. While there are reverse mortgage and home equity lenders that are reputable, forcing the aged and disabled to seek out such loans will subject them to further exploitation and encourage abuse.
Home equity loans and reverse mortgage lenders will boom, and, like trust mills and annuity scams, a new cottage industry will be born. Seniors and the disabled will be faced with sleazy mortgage lenders who will offer money for unconscionable rates that, when they can't pay, will force the foreclosure of homes. Those who are able to take out reasonable equity loans are unlikely to use those funds to pay for nursing home care as a first choice. They are much more likely to try to pay for at-home care or a less-restrictive alternative to institutionalized care. Reverse mortgages are not available for those who are going into nursing homes. Applicants must live in their homes in order to qualify.
Section 6015: Enforcement of CCRC Admission Contracts
In an extraordinary show of preference for the Continuing Care Retirement Community lobby, the bill includes provisions that permit CCRCs to include language in their admission contracts that limit how residents can spend their resources and includes the CCRC entrance fee as an asset for the purposes of determining Medicaid eligibility.
Section 6016: Other Asset Transfer Rules
- (a) Partial Months of Ineligibility : Requires states to impose partial months of ineligibility for transfer of asset penalty period and prohibits the states from rounding down to whole months, as is the practice in California.
- (b) Accumulating Multiple Transfers : Although this provision does not define "multiple fractional transfers," it appears to be an attempt to prohibit transfers for less than the APPR. This provision permits the states to aggregate all transfers made during the look back period and treat it as one transfer to determine the period of ineligibility.
- (c) Inclusion of Notes and Loans : Funds used to purchase a promissory note, loan or mortgage will be considered an "asset" for the purposes of the transfer of asset rules, unless the note, loan or mortgage
- Has a repayment term that is actuarially sound;
- Provides for payments in equal amounts during the term of the loan, with no deferral or balloon payments;
- Prohibits the cancellation of the balance upon the death of the lender.
- If the note, loan or mortgage does not meet these requirements, its value will be defined as the outstanding balance due as of the date of application for Medicaid. California's Medi-Cal program currently permits notes to be valued at the outstanding balance or by an appraiser.
- (d) Transfers to Purchase Life Estates : The purchase of a life estate in another individual's home will now be treated as a transfer of assets, unless the purchaser resides in the home for at least a year after the date of purchase. This does not prohibit the individual from transferring a principal residence and retaining a life estate.
Section 6036: Documentation Requirements
This generally overlooked provision will require all applicants for Medicaid to provide "satisfactory documentary evidence of citizenship or nationality," for applications made on or after July 1, 2006 and for re-determinations for eligibility made on or after that date. The section lists the forms of required documentation, and, in some cases, two forms of documentation will be required.
Clearly, some of the savings anticipated from this section will be due to the fact that thousands of aged and disabled Medicaid recipients, particularly those with cognitive disabilities, won't be able to provide such documentation on a regular basis. This is likely to cause major eligibility problems in the Summer of 2006, which seem to have been anticipated by the bill's authors, as it requires the Secretary of Health and Human Services to establish an "outreach" program (undoubtedly similar to their Medicare Part D outreach) to educate individuals likely to be affected by this onerous provision.
The DFRA provisions apply to those individuals receiving services as defined in 42 U.S. C. 1396p (c)(1)(C)(i): those receiving nursing facility services; a level of care in an institution equivalent to nursing facility services; or home and community based waiver services.
The latest version of the Deficit Reduction Act of 2005, the specific Medicaid provisions and the list of California House members who voted for the bill can be found here.