Medicaid planning in Illinois. are you ready for the DRA? The federal Deficit Reduction Act of 2005 requires estate planners to devise new ways to protect the assets of clients who face long nursing-home stays. Illinois hasn't implemented the law, but it will. This article looks at what will and won't change when that happens

Illinois Bar Journal, Nov, 2007 by Kirsten Izatt

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Medicaid law is unsettled. On February 8, 2006, President Bush signed the Deficit Reduction Act of 2005 (DRA), which drastically restricts the options available to seniors and persons with disabilities for Medicaid asset-protection planning--i.e., strategies that will keep their assets from being exhausted by a nursing-home stay that results from their or a spouse's ill health.

The DRA was supposed to be adopted by July 1, 2007. Illinois has not yet enacted the act's more restrictive provisions, though it will probably do so by late this year or early next. Since Illinois has yet to propose any changes, we do not know how specific provisions of the new law will be interpreted.

Because Medicaid is a joint federal and state program, both federal statutes and state laws and regulations affect Medicaid policy. The federal statutes are found in Subchapter XIX of the Social Security Act. (1) In particular, 42 USC 1396p addresses liens, adjustments and recoveries, and transfers of assets. 42 USC 1396r-5 contains provisions for the treatment of income and resources for certain institutionalized spouses.

Illinois statutes are found in the Public Aid Code. (2) Illinois regulations are found in the Illinois Administrative Code. (3) Conforming policy used by the Illinois Department of Human Services (DHS) staff to establish eligibility is found in the DHS Combined Policy Manual and Worker's Action Guide. (4)

Illinois must submit the DRA changes as proposed rule amendments to the joint Committee on Administrative Rules. Upon submission, the rule amendments are published in the Illinois Register and posted at www.ilga.gov

The proposed changes will be listed under "Proposed Rules" at 89 Ill Adm Code 120. They are enforceable only after they have been adopted, at which point DHS will notify local office staff of the revised policy and the effective date of the changes.

Until then, Illinois continues to apply current, or pre-DRA, Medicaid policy, and current planning strategies are still good ones for any application approved prior to enactment of the DRA. This article will review those strategies, then look at how the planning landscape will change after the DRA is implemented.

An overview of Medicaid eligibility for nursing-home care in Illinois

The following overview applies both to current applications and those filed after enactment of the DRA. Basic eligibility requirements are unchanged by the Act.

Who is eligible? DHS authorizes Medicaid to cover care in a nursing facility to an eligible person who needs help paying for the cost of his or her care. To qualify, an applicant must

* be a U.S. citizen or a qualified alien,

* be a resident of Illinois,

* be aged (age 65 or older), blind, or disabled,

* have a medical necessity for nursing care, and

* have personal resources and income within strict limits.

Medical necessity. To qualify for Medicaid payment for nursing facility care, an applicant must be deemed medically in need of long-term care and reside in a licensed nursing facility participating in the Medicaid program. The determination of "medical necessity" for nursing-home care is documented by a screening evaluation completed by either the Illinois Department on Aging or DHS.

Income eligibility. Upon application for Medicaid, DHS completes an assessment of both the applicant's income and his or her spouse's, if he or she is married. DHS then establishes the amount the applicant must contribute to the nursing facility each month. The agency does not include the income of the spouse (aka "community spouse" or "CS") in making this determination. Medicaid pays the balance to the nursing facility.

The following amounts are deducted from the DHS determination of the amount the applicant must pay the nursing facility:

* A $30 personal allowance,

* medical insurance premiums,

* medical bills not paid by Medicaid, and

* the "community spouse maintenance needs allowance."

Community spouse maintenance needs allowance. DHS allows a married applicant to give all or a portion of his or her income each month to the CS to bring the CS's income up to an annual maximum, which is called the "community spouse maintenance needs allowance." For 2007, this amount is $2,541 per month.

For example, if the CS has monthly income of $1,000, the applicant may give up to $1,541 ($2,541--$1,000 = $1,541) of his or her monthly income to the CS. This monthly total is excluded from the amount the applicant must pay the nursing facility. The maximum amount may be increased only by a court order or an appeal.

If the CS's income exceeds the monthly maximum, the applicant may not give any income to the CS. In fact, a CS in that case might be required to make a support payment to DHS on the applicant's behalf. The amount is based on a sliding scale. This will not, however, make the applicant ineligible for Medicaid.

Resource eligibility. "Resources" are generally defined to include any real and personal property the applicant and CS possess. Real property is land and whatever is built on it. It includes both homestead and non-homestead property. Personal property includes all liquid assets, even if they are not now in liquid form.