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Deficit Reduction Act

President Bush signed this important legislation affecting Medicaid and the long term care industry on February 8, 2006. Most provisions were effective on this date based on individual state approval.

Deficit Reduction Act of 2005 - Key Medicaid Asset Provision

  • Penalty Period Changes:  Requires states to lengthen the look back period from 3 to 5 years and changes start of penalty date from date of transfer to date of Medicaid eligibility.
  • Hardship Waiver:  Creates an exception from penalty in cases when health or life is endangered.
  • Treatment of Annuities:  Requires annuities to be disclosed and the state named as a remainder beneficiary; IN Partnership policyholders are exempt; 405 IAC 2-3-1.2(d)(3)
  • Mandatory "Income-First" Rule:  Requires states to consider all income of institutionalized spouses to meet the minimum monthly maintenance needs allowance for community spouses.
  • Excluded Coverage for Substantial Home Equity:  Persons become ineligible with home equity in excess of $500,000 (IN) - $750,000, as set by state;  IN Partnership policyholders are exempt; 405 IAC 2-3-15(c)(3)

Deficit Reduction Act of 2005 - Key Partnership Provisions

  • Expansion:  Section 6021 of the DRA expands Long Term Care Partnerships to other states.  Partnership policy features for new DRA states can vary from state to state.  The programs for the 4 "original" states are grandfathered.
  • Reciprocity:  Provides portability of asset protection in Partnership policies with other state Medicaid programs.  If a Partnership policyholder from one state applies to another state's Medicaid program, asset protection can be honored on a dollar for dollar basis.  To qualify for asset protection, a LTC Partnership policyholder must qualify and be approved under the other state's Medicaid program.  Also, both states must have a reciprocity agreement with each other at the time of application to the other state's Medicaid program.
  • The 4 original states must opt in to join the National Reciprocity Compact (NRC).  Indiana joined the NRC effective April 1, 2009 and Connecticut on January 1, 2009.  The separate reciprocity agreement between Indiana and Connecticut remains in effect.  Indiana Partnership policyholders could have either dollar for dollar or total asset protection depending on their policy when applying to Indiana Medicaid.