New Pennsylvania Law Tightens Medicaid Eligibility in a Variety of Ways

A new Pennsylvania law places new restrictions on the rules governing qualification for Medicaid-financed long-term care services in the state. "Act 42," as it is now known, was proposed by Gov. Edward Rendell as part of his 2005-2006 fiscal year budget was enacted July 7, 2005.

The new law:

• Imposes fractional penalties for asset transfers. Long-term care services applicants or recipients will now be ineligible based on any partial months resulting from transfers, rather than the previous practice of rounding down to the nearest whole month.
• Limits the use of the "resource-first" approach in boosting a community spouse's income. Under the new law the community spouse will be allowed to keep only enough additional resources to purchase an immediate annuity that names the state as a beneficiary.
• Attempts to deal with Life Estate with Retained Powers (LERP) arrangements. Under Pennsylvania's current law, estate recovery is limited to the probate estate of the deceased recipient of Medical Assistance benefits. The new law allows the state to require applicants to exercise any powers they retain in life estate ownership arrangements in order to limit Medicaid costs, such as exercising a power to revoke a remainder interest and return a home to the sole ownership of the applicant, where it could later be subject to estate recovery.
• Restricts the use of annuities. The new law voids restrictions on the marketability of immediate annuities so that the payment stream can be sold by the owner and thus converted from income into a lump sum resource available to pay for care. These marketability rules will not apply to commercial annuities that meet certain safe harbor provisions, including that the state be named as the residual beneficiary of any remaining funds.
• Requires that Medicaid's spousal resource attribution and impoverishment rules be applied to Medicaid-funded home care. Previously, the assets of the community spouse were disregarded in determining qualification for Medicaid-financed home care.

• Places new limits on the deductibility of unpaid medical expenses. Only medical expenses incurred on or after the 'first day of the third month before the month of application' may be deducted from countable income, and the law places a $10,000 lifetime limit on the deduction of medical expenses not paid by Medicaid from a recipient's income.
• Creates new rules for special needs trusts, including that the state be reimbursed from any remaining funds.

"Act 42 places complicated new restrictions on eligibility for Medicaid financed long-term care services," says Williamsport, Pa., ElderLawAnswers member Jeffrey Marshall. "It reduces the resources that can be protected by low-income community spouses, and will make it much more difficult for married seniors to qualify for Medicaid-funded home care benefits."

"The act's changes are complex and ambiguous," Marshall adds. "They will raise administrative and legal barriers and costs for seniors who are seeking Medicaid. Some of the new provisions appear to conflict with federal law."

Here is a link to the new provisions: https://www2.legis.state.pa.us/WU01/LI/BI/BT/2005/0/HB1168P2560.pdf

Our thanks to Pennsylvania ElderLawAnswers member attorneys Robert Clofine and Jeffrey Marshall for background information for this article.