Congress puts damper on 'Medicaid planning'


September 19, 1993|By JANE BRYANT QUINN

NEW YORK -- The warning flags are flying for seniors involved in "Medicaid planning." The budget passed by Congress last month shuts some of the loopholes you've been using and more may be closed in the years ahead.

With Medicaid planning, older people arrange their financial affairs so they won't have to pay their own nursing home bills. Instead, they make the taxpayers pay.

Fortunately for struggling state budgets, many seniors decline to descend to this level of financial manipulation. But a growing minority indulge.

On paper, Medicaid looks like any other welfare program. If you have money, you pay for the nursing home yourself. If you don't have money, Medicaid (welfare) takes over. It's normal for middle-class people to move from the first category to the second. If you have, say, $100,000 and enter a nursing home for the rest of your days, you pay your own way while your money lasts. When it runs out, the government pays.

Some seniors, however, refuse to use their savings to pay their own bills. Instead, they give away most of their assets to their children. They then present themselves to Medicaid as "poor."

When people with money sneak onto any of the other wel fare programs, they're called "welfare cheats." If they sneak onto Medicaid, they're called "savvy."

Both the federal and state governments have set up modest barriers to this form of taxpayer abuse. But elder-care lawyers know where the loopholes are.

Now, the loopholes are fewer. Of some 30 back doors into the Medicaid program, the new law strips away about 10, elder-care attorney Armond Budish of Cleveland told my associate, Amy Eskind. Every state has its own Medicaid rules, but here's what's been tightened up under the governing federal law:

* Medicaid eligibility. When you give away money or property and then ask Medicaid for support, you may be blocked from the rolls for a while. You could be ruled temporarily ineligible if you made gifts within the past 36 months (up from 30 months under the old law).

The old law limited your period of ineligibility. No matter how much money you gave away, you could go on the taxpayers' dole after just 30 months. Now, you might have to wait much longer (a complex formula determines the waiting period).

* Overlapping gifts. Formerly, you could get Medicaid faster by making a series of small gifts instead of one large one. That doesn't work any more.

* Medicaid trusts. Congress may have blocked the trusts that provided you with income yet protected your assets from nursing home bills. "This is still a gray area," says elder-care attorney Vincent Russo of Westbury, N.Y., but for now he's advising his clients not to set them up. If you can get income from the trust, the principal can apparently be counted as an asset.

If you put your money into an irrevocable trust which denies you any income or principal, that sum will be treated as a gift to the trust's beneficiary. If you establish such a trust up to 36 months before entering a nursing home, you'll be temporarily blocked from the Medicaid program. The waiting period might actually be 60 months, Russo says. Living trusts set up to avoid probate could also cost you a 60-month wait.

These new rules apply to all trusts established since Aug. 11, 1993. Exemptions exist for certain trusts set up for disabled children or grandchildren under 65.

* Joint ownership. Formerly, you could make yourself "poor" and -- in some states -- get onto Medicaid immediately, through the clever use of a joint bank account. Your co-owner could romp off with the cash and the law wouldn't count it as a gift. Now, it's a gift and can subject you to waiting periods.

* Estate recoveries. Starting Oct. 1, all states are required to have "estate recovery" programs. If you go on Medicaid, and die owning assets, the state might get back all the money it spent by tapping the property you left.

3' 1993, Washington Post Writers Group

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