Last August, Congress passed the Health Insurance Portability and Accountability Act (the Kassebaum-Kennedy Bill) which restricts the use of pre-existing condition exclusions in employer-sponsored group health insurance policies.
While providing valuable protection against employers who refuse to insure workers with MS, the bill also includes an important and little-noticed provision that may profoundly affect the availability of long-term care to Americans with severe disabilities.
In the United States, the primary payor for long-term services is Medicaid, a government program that serves as the health benefit component of state public assistance benefits. Medicaid is only available to eligible recipients who meet strict financial limitations. Those limitations are so rigorous that most recipients may have $2,000 or less in savings (not counting the value of a home -- assuming the spouse still lives in it).
People with disabilities without substantial private means usually have no other option for financing long-term care services.
Most must look to the Medicaid system. Therefore, many completely legal strategies have been developed by attorneys and financial planners to create or preserve Medicaid eligibility. One of these strategies is asset transfers -- signing away property and savings in order to meet Medicaid limits. At least one state study found that over half of its Medicaid nursing home beneficiaries had transferred assets shortly before applying for Medicaid.
In 1993, in order to deter an 'abuse' of the Medicaid system, Congress created several rules to discourage transfers. One was the imposition of a 'look back' period.
If any assets were transferred within 36 months of the Medicaid application (60 months if a trust was involved) the applicant was generally required to wait as many as 36 additional months to be eligible for Medicaid. The length of the period of ineligibility was based on the amount of the transfer.
The New Bill Raises the Stakes
Under the new law, the act of transferring assets is still not illegal, but applying for Medicaid during a 'look back' period is. It not only delays eligibility but may also result in a fine and/or imprisonment. The law now imposes criminal liability. In other words, applying for Medicaid during the period of ineligibility that follows transferring assets is now a criminal violation of the law -- not merely the grounds for temporary denial of Medicaid benefits. The bill provides for penalties of up to one year in jail and a fine of $ 10,000.
The purpose of the law is to prevent what Congress believed to be an abuse by middle- and upper-income people trying to go on public assistance. It was also intended to encourage purchase of private longterm-care insurance -- and, in fact, the same bill contains tax incentives for buying private insurance.
But the bill does nothing to make long-term care insurance policies available to people who are already ill or disabled. Nor has anything been done to alleviate the widespread tendency toward poverty and lack of reasonable private financing alternatives for non-elderly adults with chronic disabilities and illnesses.
Asset transfers are still completely legal. But the potential of criminal liability will chill the willingness of legal and financial advisors to suggest them. So this option is now even more difficult to find, understand, and wisely employ.
Plan Now
I advise people with multiple sclerosis to begin aggressive financial planning to develop private long-term-care strategies as soon as possible, regardless of their income.
In addition to accumulating cash, private strategies might include forming or joining a personal-assistance care cooperative*; developing independent living skills and creating a completely accessible environment to reduce the need for services; developing care resources through church or community groups; and purchasing stop-gap insurance coverage such as catastrophic excess major medical policies.
As it stands now, people who have transferred financial assets, need to plan on a 3-year waiting period (5 years if a trust was involved) before even filing a Medicaid application. The cost of being poor in America just went up.
* The author is currently involved in a pilot personal-care-assistance cooperative for herself and other residents of her apartment complex.
Laura Cooper, Esq., is a disability rights lawyer and Society volunteer.
