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    A Brief History leading to the DRA

    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 Grosskopf

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 79, No. 5, May 2006

    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. GrosskopfPeter 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 The legislation was heavily criticized by the press and the public and the provision was later repealed.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of Justice would not enforce the legislation, because it appeared plainly unconstitutional, and the law was later repealed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 outlays."

    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.




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