Older Americans love their families more than they love the U.S. Treasury.
That is why they may pay a medical bill for an adult child when there is no legal obligation to do so, or pay college tuition for a grandchild when there is no legal obligation to do so. Such payments are considered to be acts of generosity by family members.
However, the Centers for Medicare and Medicaid Services view such payments not as acts of generosity, but rather as "asset transfers" that render the donor ineligible for Medicaid assistance with long-term care. It looks upon such "blood-is-thicker-than-government" sentiment as being misplaced, perhaps even unpatriotic.
And, this Congress, by a one-vote margin last week said it agreed. Be generous at your own risk, said Congress, in enacting tougher Medicaid standards as part of the 2006 Budget Deficit Reduction Act. The restrictions were enacted despite opposition from AARP, the Alzheimer's Association, and the Council of Aging Organizations.
They include an extension of the "lookback rule" from three years to five years. Any gift or payment for less than fair market value made during the previous 60 months must be disclosed and triggers a "penalty period," an amount of time calculated by dividing the amount of the transfer by the average monthly cost of long-term care.
The start of the "penalty period" is now deemed to begin on the Medicaid application date, rather than the actual date of the transfer. This means, for example, that a widower who paid a $30,000 medical bill for an incapacitated adult daughter in 2005 and who himself becomes incapacitated in 2009 would be ineligible for Medicaid assistance for several months, even if he met the program's impoverishment criteria.
The applicant must disclose any interest in annuities and name the state its "remainder beneficiary." Individuals with $500,000 or more in equity in a home automatically will be ineligible for Medicaid assistance with long-term care; and states may increase that amount to $750,000.
Also, the law mandates the "income first rule," requiring the institutional spouse's income to be contributed to the community spouse's needs allowance.
Advice to seniors with assets: Give early and carefully.