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A grandparent who helps pay for a grandchild’s education will be disadvantaged by this law if they get sick and need to go into a nursing home within five years of making the gift.

The same will be true for parents who help children with medical expenses or other financial difficulties and even for seniors who make contributions to religious or charitable organizations.

This new law assumes that seniors can predict their medical and financial circumstances five years into the future. It punishes unwitting seniors who have helped their families with commonly made gifts and then experience unforeseen medical events. If people in these situations have not kept enough money to pay for the nursing home (upwards of $7500 per month) during the period of Medicaid ineligibility, who will pay the nursing home? Nursing homes are worried that they could be stuck providing uncompensated care. The Congressional Budget Office estimates that the Deficit Reduction Act will affect approximately 15% of nursing home residents each year.

It’s no surprise that the nursing home industry strongly opposed its passage. In analyzing the new law, the American Health Care Association, an organization representing health care providers, said it leaves the nursing home, not the government, to collect from individuals who have no funds to pay privately and are not eligible for Medicaid. Some have dubbed the Deficit Reduction Act as the “Nursing Home Bankruptcy Act”. Another unintended effect may be that seniors would be unable to move from a hospital to a nursing home because nursing homes can deny admission if there is no payment source. Hospitals could then be stuck providing uncompensated care.

One possibility that will come as a shock to many families is that nursing homes may look to a resident’s children for payment. Under Pennsylvania legislation passed last summer, children may be held liable for the financial support of their indigent parents. Criminal penalties could also apply to children who fail to support indigent parents. The Deficit Reduction Act could trigger a wave of nursing home lawsuits against the children of their residents. I can foresee a common scenario where nursing homes will sue children who would likely countersue on some basis such as substandard care. It could get very ugly, and I guess the government intends to just stand back and watch.

The new five-year look-back period and the new transfer penalty are not the only provisions of the Deficit Reduction Act that would be harmful to seniors. For example, under prior law, home equity was not considered available to pay for nursing home care. Now, there is a ceiling placed on this home equity exemption. Also, there are restrictions on allowing a nursing home resident’s spouse to keep financial resources in order to avoid impoverishment. Under prior Medicaid law, there were safeguards that prevented families of seniors needing nursing home care from going broke and allowed nursing home residents and their spouses to maintain a decent standard of living and quality of life.

The Deficit Reduction Act chips away at these safeguards. A fair question to ask is how much is all this pain and suffering of seniors and their families saving the government on Medicaid costs. A recent study by an impartial source (The Georgetown University Long-Term Care Financing Project) concluded, after an extensive study of the Medicaid program, that the provisions of the new law will result in a reduction of less than two-tenths of one percent in the projected federal Medicaid budget. Does Congress think that it is an acceptable trade off to put our senior population in jeopardy for two-tenths of one percent?

Because of the complexity of the new law, seniors, even those already in a nursing home, should consult with a qualified elder law attorney to review their options. All is not lost. There are still ways to escape the new law’s draconian effects if the proper planning is done as soon as possible.