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The Deficit Reduction Act (DRA)

In order to understand the changes that have occurred pursuant to the Deficit Reduction Act of 2005 (DRA), it is first necessary to review those provisions of the applicable Federal law that were not changed by the DRA. It is important to be familiar with the provisions of the DRA as codified in 42 USCA sections 1396p and 1396r-5. The DRA was signed into law on February 8, 2006.

The DRA makes no changes concerning the imposition of liens against the property of an individual receiving medical assistance prior to his death or to the estate recovery process after the person's death. There are major changes, however, regarding "a qualified State long-term care insurance partnership plan", which when prepared and submitted by the State and approved by the Federal government [Centers for Medicare and Medicaid Services (CMS)], provides for the disregard of any assets or resources in an amount equal to the insurance benefit payments that are made to or on behalf of an individual who is a beneficiary under a long-term care insurance policy if certain conditions and requirements are satisfied. [42 USCA Section 1396p (a) through (b)].

The look-back periods for transfers made prior to the enactment of the DRA and the penalty period imposed are unchanged. The look-back period for outright transfers is three years and five years for transfers to irrevocable trusts. The penalty period is calculated by dividing the amount or value of the resource transferred for less than fair consideration or fair market value by the average monthly cost to a private patient of nursing facility services in the State at the time of application. [42 USCA section 1396p(c)(1)(A) through (E)(i)-(iii)]. The applicable monthly divisor is currently $6,942.10 or $227.61 per day.

The DRA imposes a five year look-back period on any transfers for less than fair consideration and establishes the penalty commencement date as the later of "...the first day of a month during or after which assets have been transferred for less than fair market value, or the date on which the individual is eligible for medical assistance under the State plan and would otherwise be receiving institutional level of care described in subparagraph (C) based on an approved application for such care but for the application of the penalty period..." [42 USCA 1396p(c)(1)(B)(i) and (D)(i),(ii)].

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