The Deficit Reduction Act of 2005, which was signed into law in February of 2006, is expected to reduce Federal Medicaid spending by approximately $40 billion over the next five years. Medicaid eligibility was immediately impacted, and those changes should positively impact the long term care insurance industry. As people begin to hear about how Medicaid eligibility has changed, they’ll want to explore the value that private long term care insurance can offer.

Because Medicaid rules vary by state and even locality, and because Medicaid will undoubtedly look different 20 years from now when many customers will be receiving long term care, specific Medicaid rules should not be as important to potential consumers as the government message from the Deficit Reduction Act -- Americans need to find private solutions for their long term care needs because the federal government is implementing rules to keep middle-class Americans out of a Medicaid program designed for the impoverished.

Below are high-level summaries of some of the Medicaid changes contained in the Deficit Reduction Act of 2005 to provide you with context to the emerging importance of long term care insurance. Please refer any consumer seeking information about Medicaid eligibility to the local Medicaid agency.

Partnership Program expanded

The Partnership Program now in place in four states (California, Connecticut, Indiana and New York) has been expanded to any state choosing to implement it. A key feature of the program is that assets equal to the amount of long term care insurance benefits received may be disregarded for Medicaid eligibility purposes.

Home equity

Under the previous law, the value of an individual’s home equity was not considered for Medicaid eligibility. That has changed as follows:

Individuals with home equity above $500,000 will not be eligible for Medicaid coverage in most instances.

·         States have the option to raise the limit to $750,000. Beginning in 2011 these amounts will be indexed for inflation.

Look-back period

·         The look-back period for all asset transfers made by the Medicaid applicant is extended from three years to five years.  This change affects only those transfers made after February 8, 2006.

The start of the penalty period for individuals who have transferred assets for less than fair    market value changes from the date the transfer was made (current law) to the date one applies for Medicaid Deposits in Continuing Care Retirement Communities (CCRC)

Previously exempt, the new law requires that applicants for Medicaid benefits count the entrance fees paid for a CCRC as an asset. 

What this means

Long term care insurance becomes more important than ever with the expansion of the Partnership Program in those states choosing to implement it.

It may still be possible for some wealthy individuals to do Medicaid asset transfer planning, but the new rules have, at a minimum, made such strategies more difficult to implement and less certain in their outcome.

The Medicaid “safety net” remains for low-income elderly and disabled individuals.

Don’t wait! Long term care insurance is more important than ever. 

Don’t wait for states to offer the Partnership program.  Talk to your customers today about the importance of preparing for the potential cost of long term care.  If you don’t, someone else will.

Source:  2006 Medicaid Article.  Harley Gordon, President, Corporation for Long Term Care Certification. March 2006