Vol. 79, No. 5, May
A Brief History Leading to the Deficit Reduction Act
by Peter Grosskopf
The Deficit Reduction Act of 2005 (DRA) is the most comprehensive
change in the Medicaid laws since 1993. In 1993, with an aging U.S.
population and rising nursing home costs, Congress passed the Omnibus
Budget Reconciliation Act of 1993 (OBRA '93). OBRA '93 contained
provisions that required states to try to recover the cost of Medicaid
benefits paid, by passing new state laws mandating estate recovery and
liens on homes.
Peter E. Grosskopf, U.W. 1979, practices in elder law at
Grosskopf & Black LLC, Eau Claire. He is an advisor to the State Bar
Elder Law Section.
COBRA '93 also extended the look-back period from 30 to 36 months,
and to 60 months for payments involving a trust. OBRA '93 created some
positive changes, by expanding certain exemptions, specifically
supplemental needs trusts and pooled income trusts; OBRA '93 also
eliminated the old Medicaid qualifying trust.
The Health Insurance Portability and Accountability Act (HIPAA) of
1996 contained a provision, better known as the "Granny Goes to Jail"
law, that was an attempt to criminalize people who had transferred
assets in order to qualify for Medicaid. The legislation was heavily
criticized by the press and the public and the provision was later
repealed. The Balanced Budget Act of 1997 included follow-up legislation
that purported to impose criminal penalties on those who assist or
counsel others to transfer assets to obtain Medicaid eligibility. In
1998 Attorney General Janet Reno announced that the Department of
Justice would not enforce the legislation, because it appeared plainly
unconstitutional, and the law was later repealed
The critics who oppose Medicaid planning regularly argue and assume
that wealthy people are impoverishing themselves in order to qualify for
Medicaid. However, time and again, the statistics prove otherwise. For
example a U.S. General Accounting Office (GAO) study of practices in
Massachusetts found that about 90 percent of Medicaid planning involved
merely the conversion of countable assets into exempt assets. Countable
assets are the assets used to determine if an individual is financially
eligible for Medicaid. The GAO study also found that the most common
planning was to fix up or improve assets, such as a home, that already
were exempt under Medicaid law.
In 1993, the GAO study found that less than 10 percent of the cases
they reviewed involved asset transfers. The average transfer per case
was about $4,600. Similarly, in February 2006, the independent Kaiser
Foundation reported that its research "shows a low incidence of asset
transfers and limited cost savings from tightening such rules." The
Gerontologist Journal, in February 2006, reported similar
findings, concluding that less than 12 percent of Medical Assistance
recipients had transferred assets, with an average transfer of $4,112;
these figures were remarkably similar to the figures reported in the GAO
study in 1993.
Analysts employed by the government testified at hearings
contemplating the DRA changes. The government analysts concluded that
people who engage in Medicaid estate planning do so because of "the
absence of a nationwide social insurance program covering long term care
services for the elderly. In addition ¼ Medicaid's generally low
allowable asset limits ¼ often leaves persons [who have] long term
care needs without the resources they need to remain at home and
requires them to become virtually destitute before they can receive
assistance in paying for their care."
Those same analysts reviewed statistics of what had been recovered
through the states' recovery programs since 1993; they concluded it was
only a tiny portion, about 0.8 percent of Medicaid's total nursing home
expenditures for one year. The analysts further observed that there was
"no indication that completely prohibiting asset transfers could result
in savings that would amount to a large percentage of Medicaid program
Despite being armed with evidence that there is a relatively low
number and dollar amount of asset transfers and further, that
prohibiting asset transfers won't significantly affect the Medicaid
budgets, Congress, by extremely narrow voting in both the Senate and
House of Representatives, passed these major law changes, which were
signed into law by President Bush on Feb. 8, 2006.