The Deficit Reduction Act (DRA) has had an adverse effect on the Medicaid rules. Particularly, the new gifting rules required by the DRA, the look back period for any gifts or transfers for less than fair market value has been extended from 3 years to 5 years. Also, the penalty for gifts in the previous five years will not begin until the person is eligible and has applied for Medicaid benefits.

This poses a serious problem for Medicaid applicants who have given money to a family member, church or another charity and now require nursing home care. How can they qualify for Medicaid if they have given money away and now cannot afford the nursing home cost of more than $6500.00 per month?

One possible approach is to assert that the gift was for a purpose other than to qualify for Medicaid benefits. In other words, the person gave money away without any Medicaid motive in mind and had no reason to believe that nursing home care might be necessary. An example of this would be that Jim Smith a healthy 60 year old, gives his vacation cottage to his daughter. Shortly thereafter, Mr.Smith suffers serious injuries in an automobile accident which requires 24 nursing home care. This transfer asset would likely not be subject to penalty under the Medicaid rules because Mr.Smith could not have anticipated his need for nursing home care.

Another possible approach to avoiding the penalty for any gifts under the Medicaid rules would be to seek a hardship Waiver.

According to the Medicaid rules, a penalty can be waived if it creates “undue hardship”. The Medicaid rules provide that undue hardship exists if the client’s physician states that “necessary medicaid care is not being provided” and the person “needs treatment for an emergency medical condition”. A medical emergency may result in the person’s death or permanent injury to the person’s health.

In other words, if it can be established that a Medicaid penalty will cause the nursing home resident to be deprived of necessary medical care and the failure to provide such care will result in death or permanent impairment to one’s health, then the Medicaid penalty will be waived. This would presumably require the nursing home to discharge the non-paying resident with no other options available to provide for the person’s care.

It is critically important that planning for these cases be done early – well before the filing of the Medicaid application. If a loved one requiring nursing home care has given away money or any other assets including gifts to a church or Charity, it is critical that an experienced elder law attorney review the matter to identify the potential problems and develop a sound strategy before the Medicaid application is filed.