Congress has passed a budget resolution that mandates cuts in the federal Medicaid program of $10 billion over the next five years. The resolution only indicates Congress’ resolve, it is not law at this time. The resolution contains no specifics as to how the $10 billion in cuts will be achieved.

The Secretary for Health and Human Services, Michael Leavitt, has appointed a commission to look into the matter. The commission is scheduled to make recommendations to Congress by mid-September. In addition to the HHS commission, the National Governor’s Association (“NGA”) has weighed in on this matter. For most states, the cost for Medicaid exceeds 50% of the state’s budget. On June 1, 2005, the NGA Executive Committee adopted “EC-16” Medicaid Reform Policy. Portions of EC-16 are likely to be given consideration by Congress is formulating any new Medicaid laws.

Important points of EC-16 are:

Reverse Mortgages. The NGA is recommending that Congress require homeowners to pay for their care through the use of reverse mortgages on their homes. A homeowner would not be approved for Medicaid until after a reverse mortgage had been put in place.

Transfer of Assets. Current law creates a period of ineligibility for Medicaid when non-exempt assets are transferred to a third party as part of a strategy to “impoverish” the Medicaid applicant. This period of ineligibility is generally calculated by the dividing the average monthly cost for a nursing home in the state by the amount transferred. For example, if $100,000 is transferred and the average monthly cost for a nursing home is $5,000, the person would be ineligible for Medicaid coverage for 20 months. EC-16 proposes to begin the period of ineligibility from the date the person applies for Medicaid as opposed to the date that the person makes the transfer. This will severely impact the ability to use transfers as part of a strategy to qualify for Medicaid coverage.

Family Contribution. The NGA is encouraging Congress to adopt policies that would encourage individuals and their families to self-finance long-term care rather than rely on Medicaid. This may mean that children may be required to contribute to the cost of custodial care of their parents.

Cost Sharing. The NGA is also looking to establish premiums, deductibles and co-payments for certain services provided through Medicaid.

Corporate Welfare. The Governors are concerned that those companies that provide health insurance for their retirees are at a competitive disadvantage to foreign corporations in countries offering universal health care as well to companies that choose not to offer health care assistance to their retirees. The NGA suggests that Congress come up with a plan to shift some of the cost from the good citizen corporations to some sort of a “reinsurance mechanism.”

How does this affect you and your clients? Those clients who have implemented a Medicaid plan to gradually transfer non-exempt assets may want to accelerate their timetable. It may make sense to transfer the residence before a new law is put in place. For those clients that can afford it, long-term care insurance, purchased alone or as part of a Medicaid asset protection plan, may make even more sense today than it did a year ago.

Our law firm focuses its practice on elder law and estate planning issues. Your clients can contact us to schedule an appointment to discuss Medicaid planning options that might be available to them.