Plan smart for the long term: Medicaid changes you should know.

"MS isn't going to kill me," Anne Straub said (see the feature on MS awareness, page 15), "but I often think it will annoy me to death." She, like other Americans and especially those living with MS, is increasingly mindful of a possible need for long-term care.

Medicaid is the nation's largest payer of long-term care services, accounting for nearly half of the total cost in the United States. This federal- and state-funded health care program, under the Centers for Medicare and Medicaid Services, or CMS, covers long-term care services for people with disabilities who meet income and asset standards, and for low-income seniors.

Understand the changes

In February 2006, in an effort to reduce government spending, Congress passed the Deficit Reduction Act of 2005 (DRA). The DRA is expected to save $2.4 billion during the next five years through many changes in federal programs, including more stringent Medicaid eligibility requirements.

Under the new rules, home equity, life insurance, and other financial resources are counted as assets. People are required to use that money to pay for their own or their spouse's long-term care needs, before Medicaid will pick up the tab.

Some people have attempted to prepare for eligibility requirements by giving their valuable assets away to children or others. Medicaid will now lengthen the period in which it will "look back" on any transfers of money or property. Under the DRA, the "look back" period increases to five years, from three, and coverage will be restricted if a transfer is suspected.

How will these changes impact your personal finances?

About income limits

Before the DRA was enacted, individuals applying for Medicaid long-term care services had to meet the low-income limits, but they were able to keep some assets. Under the DRA, countable assets now include an individual's home and property, life insurance, annuities, and any promissory notes or mortgages the person holds, along with savings accounts and investments that were counted previously.

About penalties for transferring assets

Under the DRA the asset transfer "look back" period has increased to five years. Moreover, eligibility for Medicaid-supported nursing home and other long-term care will be delayed if applicants have transferred assets for amounts below fair market value or made a cash gift within the previous five years.

The DRA has also changed the penalties for people who transfer assets and then need to become eligible for Medicaid benefits in a long-term care setting. Previously, an applicant was penalized starting on the date of the transfer. Effective February 8, 2006, the penalty period changed to begin on the date of the Medicaid application or the person's entry into a long-term care facility, whichever is earliest.

Here is an example of what this penalty period could mean:

A woman gave her grandchild $12,000 to help pay for college. A year later, she unexpectedly needed nursing home care. Because nursing home care averages $4,000 per month in her state, her penalty period is three months ($12,000 divided by the $4,000 average nursing home cost). Before the DRA was enacted, the three-month penalty period would have expired by the time she needed care--which was one year after the transfer. With the enactment of the DRA, she will not qualify for Medicaid until three months after she enters a nursing home and will have to come up with $12,000 to pay her bill for that period.

About home equity

The DRA completely disqualifies individuals who have home equity of more than $500,000 from receiving Medicaid long-term care benefits. This could be an unexpected surprise for any homeowner, but especially for those who have seen their real estate values appreciate in recent years. While the DRA gives states the option to raise this threshold to $750,000, New York is the only state to do so, so far. In addition to home equity, annuities and the value of any promissory notes or mortgages are now counted as assets under the new law.

Plan ahead

The changes to Medicaid will have a financial impact on many individuals who face either short- or long-term care needs. Take the time to understand the new rules. See "Financial Planning Resources" on page 54. Find out what the activists in your chapter are considering with respect to long-term care in your state. Visit national mssociety.org/ advocacy or call 1-800-FIGHT-MS.

RELATED ARTICLE: Free financial planning resources.

With 20-25% of people with MS expected to need long-term care at some point during their lives, it is important to be aware of the new Medicaid restrictions--and to take the necessary steps to prepare financially.

Understand the new rules, review how they might affect you, consider long-term care insurance if possible, and consult a financial planner. A financial planner can assess your individual situation and make recommendations to protect you or your family from having to divest assets in order to receive long-term care services at some point in the future.

The National MS Society has joined with the Society of Financial Service Professionals--in a partnership called the Financial Education Partners--to help people with MS and their families address financial planning and insurance issues. Contact your chapter by calling 1-800-FIGHT-MS (1-800-344-4867) to learn more about this free program.

Sandra Grance is the public policy analyst at the National MS Society's Public Policy Office in Washington, D.C.