The rules on getting help from the federal government to pay for nursing home expenses have been tightened, making it harder for senior citizens to qualify for long term care payments.

With the average nursing home stay between two and three years at an average annual cost of $74,000, this could become a daunting financial burden for some seniors. 

The federal government has toughened the rules designed to prevent individuals from transferring assets to family members, usually children, as a way to qualify for Medicaid-funded nursing home care.  Gifts to children or charities may now be seen as suspect if a person later seeks Medicaid.  This could affect current estate plans.

Generally, seniors cant qualify for long-term care under Medicaid unless they have less than $2,000 in liquid assets.  The changes will likely mean seniors who want to give away assets during their lifetime in order to qualify will have to plan farther ahead and make transfers sooner.  It could also mean children will carry a greater burden to pay for long-term elder care.

Congress passed the bill, which President Bush signed into law, as a way to reduce the federal budget deficit.

Here’s a look at some of the major changes:

–         Under the old rules, gifts that were made within three years prior to the date an individual applied for Medicaid (also known as the “look-back period”) disqualified the individual from long-term care.  The look-back period has been extended to five years under the new rules.

–         Under the old rules, homes were exempt as assets for determining eligibility.  Now, the first $500,000 of equity in a home is exempt, but any equity above that will count as an asset.  States can opt to increase this amount to $750,000.  An exception under the new rule is if a spouse, or a child under 21 or who is disabled, is living in the home.

–         Previously, the ineligibility “penalty period” (imposed when an asset was transferred during the look-back period) started on the date a gift was made.  The waiting period corresponded to the amount of nursing-home care the transferred assets could have purchased.  It allowed individuals to make transfers early and “wait out” the penalty period.  Now the penalty period doesn’t begin until an individual applies for Medicaid and is already receiving nursing home care.

To pay nursing home bills, the changes could force seniors to buy long-term care insurance or use the equity in their homes.  The new law sets up a public-private insurance program allowing people who buy the insurance to keep more of their assets and still be eligible for Medicaid if their coverage runs out.