(2)   Starting date of ineligibility (“penalty”).   Prior to the passage of the DRA, the ineligibility or penalty period began on the date of the gift by a Medicaid applicant. For instance, if a Medicaid applicant made a $50,000 gift to one of his children on January 1, 2005, his ineligibility for Medicaid began on that date. His ineligibility for Medicaid was calculated by dividing a penalty figure (called the “penalty divisor”) into the amount of the gift. That penalty figure was adjusted annually and was equal to the average cost of nursing home care in Pennsylvania for that particular year. Under this example, the Medicaid applicant would be ineligible for Medicaid for a period of eight months following the gift. Therefore, by September 1, 2005, this applicant would be again eligible for Medicaid.

Under the DRA, the ineligibility or penalty period does not begin on the date of the gift. Rather, it begins on the date when that applicant is “otherwise eligible” for Medicaid. Effectively, this means that the applicant must be otherwise qualified for Medicaid by having depleted his funds and is a resident in a nursing home.

Changing the facts of our example above will illustrate the dramatic impact of this change. Let’s assume that our applicant makes a $50,000 gift on January 1, 2007. At the time of the gift he is healthy, living alone in his home and has another $50,000 available for his own use. On January 1, 2009, this applicant is hospitalized and is eventually admitted to a nursing home during the same month. During the next 8-9 months, he will deplete the $50,000 in additional savings that he had back in 2007 when he made his gift. His ineligibility period does not begin to run in January 2007 or even January 2009 when he is admitted to the nursing home. Rather, it will begin to run in September or October of 2009, after he has been in a nursing home for 8-9 months and after he has otherwise depleted his remaining funds. Under this example, his period of ineligibility would run from approximately October, 2009 until June of 2010.

This change in the starting date of the penalty period will effectively end “half-a-loaf” gifting. Half a loaf gifting was one of the primary tools that Medicaid planners used in helping elderly clients gift off property to their children. It allowed Medicaid applicants the ability to give away approximately half of their assets upon their admission to a nursing home.

     (3)   Cumulative gifts.  Prior to the passage of the DRA, generally each gift during the three year look-back period was viewed separately and penalty periods were assigned separately. With the passage of the DRA, all gifts and charitable contributions made during the five year look-back period will be totaled to assess one entire period of ineligibility. Therefore, seemingly innocent gifts such as assisting a child with a down payment on a home or larger charitable contributions will become part of the computation of this period of ineligibility. A Medicaid applicant might, for instance, make gifts to his children over that five year period totaling $20,000 and charitable contributions totaling $10,000. These innocent looking gifts and contributions will result in a period of ineligibility of five months. Moreover, this period of ineligibility will only commence after the applicant has been admitted to a nursing home and is otherwise eligible for Medicaid. Elderly couples and individuals having modest wealth will need to be concerned about the impact of these two changes to the Medicaid laws.