New Medicaid Gifting Rules Now in Effect in North Carolina
In past issues of ElderLaw Today we have been explaining the Medicaid changes under the new Deficit Reduction Act of 2005. We also explained we were waiting for the State to begin enforcing these new rules.
On November 1, 2007, North Carolina issued the DMA Change Notice relating to long-term care elgibility changes. The changes addressed in the memorandum are the following:
- “The beginning date for periods of ineligibility (penalty periods for transfers for less than fair market value) is changed.
- Partial month penalties will be determined when the amount of a transfer is less than the average private pay rate or there is a remainder after dividing the transfer amount by the private pay rate.
- The look-back period for all transfers is changed to 60 months.
- Individuals with home equity that exceeds $500,000 are ineligible for long-term care services.”
The Memorandum goes on to state that these changes are in effect for all transfers made on or after November 1, 2007.
Here is an example of what this means:
Using the new rules, if a Medicaid applicant (or his spouse) transferred $52,000 to his daughter on January 15, 2008 and then applied for Medicaid in February 2009 with less than $2,000 of remaining assets…then the claimant would be eligible for assistance beginning in February except for the transfer. Since February 2009 is the first month of eligibility, the penalty would begin that month because the transfer occurred after November 1, 2007.
What does this mean?
Let’s assume that the claimant transferred the $52,000 as in the above example. The $52,000 transfer would cause a penalty of 10.4 months. That is determined by taking the amount of the transfer ($52,000 in this example) and dividing it by the average cost of a nursing home ($5,000 per month according to the State of North Carolina). In other words, the penalty is now 10.4 months.
The major change in this case, however, is that under the new law the penalty period will not start until the assets have otherwise been spent down. Under the old law the penalty started (for transfers prior to November 1, 2007) in the month the gift was made. No longer. Now the transfer penalty will not start until the Medicaid applicant is already spent down below $2,000 as required by North Carolina law and is in a nursing home and applies for Medicaid. Only then will the penalty start to toll.
Obviously the intent of this new legislation is to require the gifted or transferred funds to be used for the cost of care of the person who made the gift. The effect of the law is to make gifting more difficult.
To make matters worse, the State can no longer “round-down” partial periods of ineligibility. Under the prior law the State would disregard a transfer penalty if the penalty was determined to affect less than a full month. That is no longer permitted under the new law.
Under the new rules, a partial month penalty will be converted to days. Based on the current average cost, each $161.00 will equal a one (1) day sanction. In the example above, 10.4 months would be converted to 10 months and 12 days. Similarly, a gift of $500.00 would incur a 3 day penalty.
There are very important implications to this for all Medicaid applicants. In essence, any gift or transfer (e.g. gifts to children, charities, church tithing, any gifting whatsoever) is now subject to the new transfer rules. If someone makes a gift after November 1, 2007 the penalty period does not begin tolling until the individual is otherwise spent down and in a nursing facility (or receiving CAP services), and applies for Medicaid.
A further implication concerns “simple” applications.
“Simple” Medicaid applications could be filed under the old rules knowing that any small or inadvertent gifting would probably not make the applicant ineligible for Medicaid. There are now very few if any “simple” Medicaid applications. Every application must be scrutinized by someone who knows the new rules!
This law does not mean that there are no ways to protect assets or to do asset transfers. However, now more than ever you will need the expert advice of an elder law attorney to help you through these situations. In the coming months we will continue to provide additional advice and information on the law.
Important Note: If a married person enters a nursing home and needs Medicaid, despite the gifting restrictions, in that case the institutionalized spouse usually can qualify for Medicaid quickly by using the right Medicaid strategy. Future issues of Elderlaw Today will discuss this, or call our office at 336-378-1122 or 877-909-1122 for additional information.