While the Deficit Reduction Act of 2005 went into effect in February 2006 but the look-back does not begin to extend until next month. At that point the look-back period will be 37 months and each month thereafter it will extend for an additional month until February 2011, when it will reach 60 months. Most people are aware that the new law has taken effect and that it is harsher than previous law, but few people understand its real impact. I have spoken about it before but because of the new law's complexity and the confusion surrounding it, I believe it merits further explanation.

The problem with the new law is not that the look-back period has been extended. The look-back period refers to a question that's found on the Medicaid application regardless of what type of assistance one is applying for. The application simply asks the applicant to divulge any asset transfers that have taken place within the look-back period - either to another person or to a trust. Transfers to a trust have had a 60-month look-back since 1993, so nothing's new there. The only difference now is that any transfers to either a trust or another individual that occur within the look-back period must be revealed to the local Department of Social Services and may result in a period of ineligibility.

A number of key factors remain the same. No matter how long the look-back period is, there still is no "period of ineligibility" for transfers when applying for community Medicaid. A person looking for assistance in the community, such as a home health aide, can transfer any amount of money to anyone or anything and not be concerned with a period of ineligibility. Since that is the case, many people wrongly believe that they do not tell Medicaid about it. But they do. If the transfer took place within the look-back period, Medicaid must be informed, but no action can be taken against the applicant for having made the transfer.

In addition, the laws regarding spouses have not changed. Whether you are applying for institutional Medicaid ("nursing home Medicaid") or community Medicaid, there is no period of ineligibility when transferring assets to a spouse or to a disabled child. Again, clients will ask if that means that there is no look-back for those transfers or whether they have to divulge those transfers to Medicaid. There is a look-back, and if the transfers take place during the look-back period the Department of Social Services must be informed - but again there is no period of ineligibility and no action can be taken against the applicant.

The problem with the new law is not so much the extension of the look-back period, although that does complicate planning and may mean that relatively healthy and active older people may still feel the need to make transfers because of what eventually be the additional two years of planning that must be revealed. The bigger problem is that the "period of ineligibility," which previously started the month after the transfer took place and may well have ended long before the need for institutional care, now does not begin until the individual actually enters a nursing home, has less than the allowable resource allowance and actually files an application for Medicaid, which will be denied but which will cause the period of ineligibility to trigger. Unfortunately, what this means is that an individual may make a transfer of assets and be perfectly fine for four years or so and then suddenly need nursing home care. Only upon entering the nursing home will the period of ineligibility for the transfer commence. That is the particularly harsh part of the new law, and one can only hope that the new administration and the new Congress will take a serious look at.

The positive news in this new year is that once again the resource allowance has been increased in New York. For 2009, the amount is $13,800. In addition, an individual in the community may now retain $767 per month in income. The spouse of an individual in a nursing home can now have a community spouse resource allowance of $109,560 and may keep a community spouse income allowance of $2,739.

For eight years we have witnessed a steady trend by the federal government to make it more and more difficult for middle-class people to afford the cost of long term care. In this inauguration month we can only hope that the new president will swing the pendulum back to a more sympathetic view of those struggling to deal with long-term illness.