On February 8, 2006, President Bush signed the Deficit Reduction Act of 2005 (DRA). Included in this legislation were sweeping changes to the Medicaid eligibility laws.

     However, as of this month, the Oklahoma Health Care Authority has not implemented new rules and policy on the DRA. It is possible that gifts made before the OHCA implements new DRA policy may be treated with the more-generous lookback periods and gifting penalty periods of the old Medicaid laws.

     The DRA increased the lookback period so that all transfers will be subject to a minimum of a five-year lookback period. Prior to the DRA, there was a three-year lookback period for individuals, a five-year lookback period for transfers to trusts and an unlimited lookback period for those who made applications during a lengthy penalty period.

     Additionally, the DRA shifted the start of the period of ineligibility for a transfer (gift) of assets. No longer will the penalty begin as of the date of the gift. Under the DRA, gifts will create a penalty period that will not start to run against the Medicaid applicant until they are already in a nursing home, are already spent-down to less than $2,000, and make a Medicaid application.

     The DRA states that the new transfer rules apply to all transfers occurring on or after February 8, 2006, the date of enactment of the DRA. However, Oklahoma has not changed the Oklahoma Medicaid administrative policy manual.

     It is uncertain if Oklahoma will implement new rules as of January 1, 2007, or a future date. It is also uncertain if Oklahoma will retroactively apply the harsh penalty periods imposed by the DRA, or will just apply the DRA to Medicaid applications filed after the Oklahoma policy manual is changed.

     It is imperative that your clients, friends and family members who are elderly or disabled, take advantage of these final days of potential great asset-savings. Yes, it may not work. But, if it does work, their house may be saved, their life-savings may be saved, the family farm may be saved, mineral interests may be saved, etc.

     Of course, it is vitally important before making any gifts that you consult with an experienced elder law attorney who can consider not only the Medicaid ramifications of the gifting, but also the tax implications, loss of step-up in cost basis, capital gains on a residence, etc.

     The new DRA law has greatly complicated Medicaid planning and the Medicaid application process making the professional advice of an experienced elder law attorney vitally important.

Attorney Tracy Neisent was a featured speaker on Sophisticated Medicaid Planning under the DRA at the National Academy of Elder Law Attorneys Advanced Elder Law Institute in Salt Lake City, Utah in November.

Lee M. Holmes is available to speak to your group or organization regarding Medicaid planning and the changes enacted under the DRA.