Deficit reduction act of 2005
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Deficit Reduction Act of 2005. This presentation covers the Medicaid Asset Transfer and Partnership portions of this law only Current as of: July 1, 2006. President Bush (At Bill Signing February 8, 2006).

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Deficit Reduction Act of 2005

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Deficit reduction act of 2005

Deficit Reduction Act of 2005

This presentation covers the Medicaid Asset Transfer and Partnership portions of this law only

Current as of: July 1, 2006


President bush at bill signing february 8 2006

President Bush(At Bill Signing February 8, 2006)

“…without reforms to entitlement programs, spending for Medicare, Medicaid and Social Security alone will be almost 60% of the entire federal budget by 2030.

That will leave future generations with impossible choices -- staggering tax increases, immense deficits or deep cuts in every category of spending”

Pickler, AP/Houston Chronicle, 2/8/06


Deficit reduction act

Deficit Reduction Act

  • Made Medicaid Planning very difficult by closing most loop-holes that have been used in the past

  • Allows States to begin new LTCi Partnership Plans to give residents an incentive to purchase Long Term Care insurance

  • Effective date is the date of enactment (February 8, 2006) unless state legislation is required


Transfer changes will have the largest impact on medicaid planning

Transfer Changes Will Have The Largest Impact On Medicaid Planning

  • Look-back Period extended from 36 months to 60 months

  • Penalty Period now begins on the date of eligibility for Medicaid instead of the date the transfer was made


Example john and mary

Example – John And Mary

  • March 1, 2006:

    • They transfer $200,000 to their son(s) and/or daughter(s)

  • April 1, 2009:

    • John goes into Nursing Home. He is eligible for Medicaid immediately


Look back period

Look-back Period

  • Old Law: 36 months

  • New Law: 60 months

Transfer

Date: 03/01/06

Old Law

Medicaid Application

Date: 04/01/09

Review for any transfer made for under fair market value back to 04/01/06

New Law

Medicaid Application

Date: 04/01/09

Review for any transfer made for under fair market value back to 04/01/04


Calculating penalties

Calculating Penalties

  • Penalty: Divide amount of transfer1 by the average cost of SNF in state

  • Example: (Assume average cost is $3,888)

    • Transfer is $200,000 in March, 2006

    • $200,000 / $3,888 = 51.44 months (Under old law, normally rounded down to 51 mos.)

1 Only transfers made for “under fair market value”


Beginning date of eligibility

Beginning Date of Eligibility

  • Old Law: Penalty applied from date of transfer

  • New Law: Penalty applied at date of eligibility

Transfer

Date: 03/01/06

Medicaid Eligibility

Date: 04/01/10

A penalty period of 51 months, starting 3/1/06 – 14 months left to pay

Old Law

A penalty period of 51 months, starting 4/1/10

New Law


New law effects on john mary

New Law Effects On John & Mary

  • So, when John becomes eligible, after April, 2010, the family will have to pay 51 months of care

  • Remember, the penalty could cost more than what was transferred. Example:

    • Actual NH cost is $4,350 a month

    • 51 months will cost $221,850!


Home equity limited

Home Equity Limited

  • Old Law: The value of the home is not used to determine eligibility for Medicaid1

  • New Law: Individuals with more than $500,0002 in home equity are ineligible

    • Doesn’t apply if spouse, minor or disabled child lives in the house (exemptions in the case of hardship)

  • Applies for Medicaid applications filed on or after January 1, 2006

1 The home is exempt for the first 6 mos. 2. States can increase to $750,000


Treatment of annuities

Treatment of Annuities

  • Old law: Loop-holes included:

    • Medicaid annuities

    • Annuities bypassed probate

  • New law: Requires Medicaid applicants

    • Annuity must meet conditions or could be penalized

    • Name state as remainder beneficiary for amount they paid

    • Second position if community spouse, minor or disabled child


Purchase of life estates

Purchase Of Life Estates

  • Old Law: Fairly open

  • New Law: Can be penalized for the purchase of a life estate interest in another individual's home

    • Unless the purchaser resides in the home for a period of at least 1 year after the date of the purchase


Other loop holes closed

Other Loop-holes Closed

  • Requires states impose partial months of ineligibility

  • Multiple transfers will be accumulated into one penalty period

  • Income first rule

  • Certain notes and loans

  • Admission contracts


But dra gave us a huge benefit

But, DRA gave us a huge benefit!

State LTCi Partnership Program


State ltci partnership programs

State LTCi Partnership Programs

  • Federal government has limited states ability to pass Medicaid Partnership plans since 19931

  • The Deficit Reduction Act of 2005 now allows states to pass Partnership Program laws

  • Partnership Programs will help state’s Medicaid programs by encouraging consumers to purchase Long Term Care Insurance

1. Four states were allowed full Partnership Plans during this time. The states were New York, Connecticut, Indiana and California.


How partnership plans work

How Partnership Plans Work

  • You buy a Long Term Care insurance policy that meets your state’s guidelines

  • When you need long term care, your policy will pay first. If your policy benefits run out, you can apply for Medicaid

  • Medicaid will allow you to protect assets equal to the insurance benefit payments

  • Example:

    • If an your policy paid $100,000 in benefits

    • Medicaid will let you protect $100,000 of assets

    • Protected assets are also exempt from estate recovery


Federal guidelines policies

Federal Guidelines - Policies

  • Any tax qualified plan Long Term Care insurance policy can be certified under partnership plan

  • States may not require specific terms or benefits of policies unless they require the same for all LTCi policies sold in their state

    • Goal is for future reciprocal recognition among States


Federal guidelines inflation coverage

Federal Guidelines – Inflation Coverage

  • Based on the individuals age when purchased the policy:1

    • Age 60 and under:

      • Must have compound inflation coverage

    • Age 61-75:

      • Must have some level of inflation coverage

    • Age 76 and above:

      • No inflation coverage is required

1 Even if policy is re-issued, this requirement is based on the age of original sale.


The author s opinion 1

The Author’s Opinion1

  • Many think that most, if not all, states will pass this new legislation to help solve their Medicaid budget problems

  • Most, if not all, companies will rush to get their products certified to stay competitive in the market

  • Consumers should act now to protect their insurability

  • With 31 years of experience in the insurance industry, Mark began researching and training agents in 1985. Focusing on Long Term Care insurance since it’s inception, he is recognized as one of the nation’s leading experts in this area.


How should this affect your decision regarding long term care coverage

How Should This Affect Your Decision Regarding Long Term Care coverage?

  • The AHIA expects most companies to re-issue policies currently in force so their clients can take advantage of the new law

  • Companies are shying away from guaranteeing re-issue because they want to see some states pass laws to make sure there policies will be compliant and verify no benefits will have minimums or mandated

  • However, if your state passes a Partnership Plan following current federal law – most policies should be certified as long as inflation guidelines are followed


Potential pitfalls

Potential Pitfalls

  • Your state may not pass Partnership Plan legislation

  • Your state may pass legislation that requires different benefits than DRA requires

  • Your LTCi policy may not be certified under your state’s Partnership Plan


Potential benefits

Potential Benefits

  • Your state has incentive to pass Partnership legislation that follows the Deficit Reduction Act

  • Your insurance company has incentive to become certified to remain competitive

  • So, if you follow inflation guidelines, there’s a good chance your policy will be covered under your new law. That means you could protect some or all of your assets from a long term care situation!

  • Why not lock in your insurability NOW!

  • There has been discussion that having LTCi coverage may protect children under filial laws.

  • There are many reasons to buy Long Term Care insurance – potential Partnership coverage is icing on your cake!


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