Now that the new law (the Tax and Jobs Act) has been passed resulting in less tax revenue for the federal government, it is anticipated that there will be changes to Social Security, Medicare and Medicaid so that expenses will be cut. As mentioned in this issue of the Texas Elder Law e-letter, it is anticipated that Social Security may be tied to a “chained index” as opposed to the present consumer price index, Medicare premiums and payments to doctors will likely change as will various Medicaid program eligibility requirements.
In Texas, there are 40-50 Medicaid programs, each with different rules, but since long-term care is what we most often see because the cost of care is so great, we will mention 3 things that may be targeted as follows:
- Ending the 3-month retroactive coverage: At the present time, States provide 3 months of retroactive benefits to Medicaid beneficiaries who are eligible during that time period (3 months prior to the month of application). This was originally introduced as part of a package that was passed by the U.S. House of Representatives (but not the Senate) in May of last year. Since it hit the radar screen last year, it is likely to be considered in any Medicaid reform package.
- Limiting Community Spouse Annuities: Although this was not part of the final bill that passed by the U.S. House of Representatives last May, there was a bill called the Close Annuity Loopholes in Medicaid Act that would make half the income of a community spouse’s annuity available and count as income to the institutionalized spouse. This would reduce the amount the government would have to pay to the nursing home. This practice (often used by middle class families) is commonly used when the income (such as Social Security or pensions) of the couple exceeds $3090 per month (if lower that that then the amount of resources that can be kept is often far greater than the maximum protected resource amount which is presently $123,600, excluding non-countable resources such as a homestead, car, pre-need funeral, etc.). For example, if the institutionalized spouse has monthly gross income of $750 and the community spouse (the one living at home or in the community) has a gross monthly pension of $3000 and they had $300,000 of countable resources, then the community spouse could purchase a $200,000 annuity in compliance with the Medicaid rules (a single premium immediate annuity, payable in level installments of principal and interest that is actuarially sound with the government as the beneficiary to the extent Medicaid benefits are advanced). The $200,000 annuity would become an income stream and not count as a resource and the community spouse could have all of the income. If this rule should change, it is anticipated that it will encourage “Medicaid divorces”.
- Limiting Annuities Within Retirement Accounts: In our January 2017 Texas Elder Law e-letter, I wrote an article entitled “Am I killing the Goose that laid the Golden Egg? How tax-deferred annuities can be used in Texas in retirement accounts so that the Government pays for care costs”, which described how any type of annuity (whether tax-deferred, fixed or variable) would not count as a resource for Medicaid planning if within certain retirement accounts. Since the mere conversion of the type of investment (i.e. stocks, bonds, mutual funds, etc.) within a retirement account (such as a Roth, traditional IRA, 401K or SEP) to an annuity changes whether the resource counts or not, saving the value of retirement account from Medicaid spenddown to get to the Medicaid countable resource limit (whether single or married), this is likely to be changed at some point - perhaps in the relatively near future. This rule is based on the way Texas interprets the federal law.
These are not the only issues that can be targeted (for example, one proposal that was also included in the bill that passed the U.S. House of Representatives last May was to limit the home equity limit for a person who is single to present limits, now $572,000 in Texas, without an index for inflation), but it is expected that long-term care Medicaid shall be under attack (and so will Social Security and Medicare). Stay tuned.