Health insurance law criminalizes Medicaid planning transfers.

Individuals contemplating asset transfers for the purpose of Medicaid planning for themselves or for a family member should consider that new criminal penalties could be applicable to such transfers as of Jan. 1, 1997.

The Health Insurance Portability and Accountability Act, signed into law Aug. 21, 1996, includes a provision that makes it a crime for an individual to dispose of or transfer assets to become eligible for Medicaid benefits. The new law leaves many questions on enforcement unanswered.

A criminal penalty could be imposed on anyone who knowingly and willfully disposes of assets (including by any transfer in trust) in order for an individual to become eligible for medical assistance under a Title XIX state plan, if disposing of the assets results in a period of ineligibility for such assistance. The provision took effect Jan. 1, 1997.

Currently, Medicaid applicants must declare assets that have been disposed of within the last three years, and assets that have been placed in trust within the last five years. The applicant could be subject to a period of ineligibility for Medicaid benefits if sufficient assets were disposed of during that lookback period.

Typically, individuals engaging in transactions covered by these rules are planning for anticipated long-term care expenses and have, up to now, factored into their plans the potential civil sanction of a period of ineligibility. Under the new law, however, such individuals also must confront the possibility of criminal sanction - either a fine of up to $25,000, imprisonment for up to five years, or both.

The new statute leaves many questions about implementation unanswered. A congressional aide admitted there are "serious technical drafting problem" with the provision, and said it is hard to envision strict enforcement of it as drafted. The statute does not state whether the violation at hand would be a felony or a misdemeanor, which will make prosecution very difficult, the aide said.

Also, consider that anyone in a position to be prosecuted would have survived the lookback period for asset transfers (that still exists from prior law) and actually would have applied for Medicaid benefits. Theoretically, this could result in the government bringing charges against someone in a nursing home. It is very questionable whether a jail term is a viable punishment under such circumstances.