After months of negotiations between attorneys and Illinois state legislators, new regulations have been released that will alter the way senior citizens can shelter assets for long-term care Medicaid planning purposes. The new regulations are scheduled to become effective January 1, 2012 and will have wide-reaching effects on the way seniors plan their affairs.

Currently, the Illinois Department of Healthcare and Family Services has a three year look-back provision in place to determine eligibility for long-term care services benefits. The Department will consider assets transferred by the applicant for less than fair market value to be available for his/her use if they were transferred within three years of the application date. The Department calculates the uncompensated value of the transferred property and factors how long it would have taken the applicant to spend down those assets had they instead been applied toward his/her monthly care expenses. Beginning in 2012, this look-back period will increase to 5 years, making it more difficult for prospective applicants to shelter assets for their families.

Also new in 2012 will be the manner in which the penalty period is calculated. Instead of beginning the penalty period on the date the transfer was made, beginning in 2012, the penalty period will begin on the later occurrence of (1) a transfer of assets for less than fair market value or (2) “the date on which the person is eligible for medical assistance and would otherwise be receiving long term care services (based on an approved application for those services) were it not for the imposition of the penalty period…” Effectively, the change will require a person already living in a facility to spend down his/her assets to the point he/she would qualify for benefits; if he/she gifted property for less than fair market value within 5 years prior to that date, the penalty period will begin to run. Similar to the current rules, these transferred assets will be imputed to the applicant even though they have been transferred. The Department will calculate the period of time it would have taken the applicant to spend down those assets had they been applied to toward his/her monthly care expenses considering the average cost of long term-care facilities in his/her area. Only at the end of the penalty period will the applicant become eligible for Medicaid benefits.

Realizing the potential hardship this rule may cause patients, the regulations also provide for an “undue hardship waiver” that under special circumstances will cause the Department to waive all or a portion of the penalty period. The regulations state that “[a]n undue hardship exists when application of a penalty would deprive an institutionalized person (A) of medical care, endangering the person’s health or life; or (B) of food, clothing, shelter or other necessities of life.” Approval of the waiver is discretionary and the patient may find it useful to present documentation about the disqualifying transfers, including the mental state of the patient when the transfer was made and any subsequent attempts made to recoup the property that was earlier transferred.

The regulations continue to provide against the impoverishment of a community spouse or civil union partner by exempting the primary residence if the community spouse or civil union partner resides there and by exempting assets held by the community spouse or civil union partner up to $109,560. Planning for Medicaid eligibility is complex and nuanced and should be carefully considered with the advice and counsel of an experienced legal professional.