Centara Connection

Deficit Reduction Act of 2005: An Update

Brittany Oates, Estate Planning Attorney

The Deficit Reduction Act of 2005 (DRA) places severe restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care.

Since President Bush signed the DRA into law on February 8, 2006, the new Democratic Congress has put aside the question of whether the law was legally enacted, and instead is waiting for the outcome of six constitutional challenges that are proceeding in the federal courts.

It is widely acknowledged that the bill signed into law by the President never passed the U.S. House of Representatives due to a clerical error. The Constitution requires that a bill must pass both houses of Congress and be signed by the President in identical forms to become law. When the bill was signed last February, congressional Democrats said that the measure was not a law within the meaning of the Constitution and called for it to be brought before Congress for another vote. However, with support for the DRA fading fast even among its own members, the Republican leadership ignored such requests, calling the matter "a technical problem."

Now that control of Congress has shifted, the Democratic leadership is unwilling to act. A spokesperson advises that the House Democratic leadership will wait for the legal challenges to work their way through the federal courts. So far, federal district courts have rejected five challenges to the DRA's legitimacy.

The DRA increased penalties on persons applying for Medi-Cal who transfer assets for less than fair market value. In particular, the Act (1) moves the start of the penalty period from the date of the asset transfer to the date of application, (2) increases the look back period from 3 to 5 years, and (3) requires states to either set the home equity limit at $500,000 or $750,000. The bill, SB 483, is seeking to impose the higher limit.

Legislation to implement an important change to the Medi-Cal program in California was referred to the State Senate Health Committee for further action. The bill will, for the first time, place a limit of $750,000 on a person's equity in their home as one of the conditions to be eligible for the Medi-Cal program. There are specific exceptions (hardship waivers) to this requirement for spouses and for children with disabilities who remain in the home.

Under previous federal law and current State law, the home has been deemed an exempt asset. The proposed change, combined with other new requirements under the DRA, will have a significant impact on people with disabilities, mental health needs, seniors, and others in need of Medi-Cal services. This change will have a major effect on those who are in need and have not yet applied, as well as those currently receiving benefits whose eligibility is up for review. Depending on their specific circumstances and how the new requirements are actually implemented by both state and local government entities, the impact could mean denial or a delay of months or even years in becoming eligible to receive benefits.

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