New government rules restrict how older adults can give away assets and qualify for Medical Assistance coverage of their long-term care costs.

The regulations, designed to hinder the ability of well-off people to make sure their money goes to heirs instead of nursing homes, took effect in Pennsylvania March 5. The arcane rules resulted from a 2005 law passed by Congress, intended as one means of controlling the rising federal and state costs of Medical Assistance, or Medicaid.

The changes published by the state Department of Public Welfare have been little noticed beyond elder law attorneys and nursing home officials, and some of them are concerned that families innocently passing on money as gifts will be forced to regret it later.

If a senior's assets have eroded by the time he needs nursing home care, and he gave away part of his wealth within the prior five years, he could be ineligible for government coverage for weeks or months of costs that typically run more than $200 per day. Before the changes, the "lookback" period was three years.

Lawyers suggest the tightened restrictions create a scenario where an older person may have to ask for money back from a relative who received it a few years earlier, or a nursing home may be uncompensated for weeks of care it gives that person.

"There may be more difficulty getting a loved one into a nursing home if they made gifts," cautioned Robert C. Gerhard III, a Montgomery County attorney who wrote a book on the state's Medical Assistance rules. "It's riskier for seniors to make gifts to kids, even for seemingly acceptable reasons -- say, to help a child going through divorce or help a child buy a house, or a wedding present.

"These are things we typically help family members with, but if you do so now and need nursing home care, you may find yourself denied," he said.

State officials responsible for implementing the changes required by the federal law say they will effectively curb excesses, in which people who should be able to pay for their own long-term care used legal and financial advice to exploit the Medical Assistance system. Government reimbursements are meant to serve low-income people, said Niles Schore, welfare department executive assistant for income maintenance.

He said the new Medicaid spend-down rules don't prohibit gifts to relatives, but discourage people from deliberately using them as a means to avoid paying their own way in a nursing home.

"The basic thing is these transfers should be legitimate," Mr. Schore said. "They shouldn't be a scam in which everyone knows ... it's just a tricky way to pass on money to heirs. That needs to be secondary to the first obligation -- to fund their own health care with their own resources. That's what we all need to understand and accept."

Of several key changes in the spend-down provisions, the most significant could be the timing of when any past gifts are counted against the person applying for Medical Assistance.

In the past, if a person gave away money within the prior three years, it would only be counted against that donor for a temporary period starting when the exchange was made. Unless a health care crisis occurred, the person would not likely need a nursing home during the ineligibility period and run the risk of being denied care and reimbursement.

Under the new guidelines spelled out in the March 3 edition of the Pennsylvania Bulletin -- available online at www.pabulletin.com -- the period when the past gift is counted begins at precisely the time it would have the most impact: when someone is determined by the state to otherwise be eligible for subsidized nursing home care, on the basis of their health and depleted wealth.

If the state determines someone otherwise qualifying for Medical Assistance coverage gave away cash in the past five years -- or transferred some material asset such as a house or car in that period for less than market value -- that amount would determine a period of ineligibility for benefits.

The length of time the state would postpone benefits would equate to the amount of the giveaway, divided by the average daily cost of nursing home care -- $222.17 per day. So if someone had given away $50,000, or sold a home valued at $100,000 to a daughter for $50,000, the giver would face 225 days of postponed eligibility for government nursing home coverage, at the same time they lack their own resources.

"How do I now pay the nursing home when I don't have the money?" wondered Carol Sikov Gross, a Downtown elder law attorney. "What nursing home is going to take me if I don't have the money to pay and I'm not eligible for Medical Assistance? ... I don't think they really understood the change in the law when they passed it."

The new rules apply to any gifts made since Feb. 8, 2006, which was the effective date of the act by Congress. Gifts made before then fall under the former rules. The five-year "lookback" for how long gifts can affect eligibility is another change, as formerly they only mattered for three years.

Mr. Schore said the government has made allowances to prevent innocent gifts from hurting people. Any gift to another person of up to $500 in a month won't be counted against an individual, so as to allow generosity such as graduation gifts.

And on a broader basis, a "hardship" waiver will be created for individuals who made larger contributions and had unexpected health situations that led them to seek nursing home status, as opposed to making a deliberate plan to rid themselves of wealth to qualify for Medical Assistance.

Welfare officials could also allow eligibility, Mr. Schore said, if someone gave away money that is no longer returnable -- such as a grandchild using a gift to pay college tuition -- and if Medical Assistance reimbursement is the only way a nursing home will accept that individual.

Because the changes are so new that they have yet to have an impact, it's unclear how nursing homes will handle situations with patients denied Medical Assistance coverage. In many cases, they already occupy a nursing home bed -- paid for by Medicare up to a 100-day maximum -- after transfer from a hospital.

Ron Barth, president of PANPHA, the statewide group representing nonprofit nursing homes, said facilities would consider it improper or immoral to kick someone out of a bed, but they also have to be concerned about their bottom line. They might be forced to go without compensation for some care, or make it up through higher billing of other private-pay patients who have preserved their resources.

"We've said for a long time that government has to get a handle on how people are sheltering assets to qualify for Medical Assistance," Mr. Barth said, "but the facilities will be left holding the bag."

If more patients aware of the changes prudently plan ahead and preserve resources, or buy long-term care insurance, nursing homes could ultimately benefit by having more private-pay patients. Those residents are charged more than the government pays as the Medical Assistance reimbursement rate.

Anne Wantz, chief operating officer of the Pennsylvania Health Care Association, said nursing homes don't expect to come out ahead under the changes, however, and their impact will largely be determined by how flexibly the welfare department treats the hardship waivers.

Elder law attorneys said that, in general, the changes call upon aging couples with resources to do more advance planning than they have in the past. One financial tool expected to see more widespread use is an immediate annuity. That policy will be useful to provide more income security for the spouse of someone in a nursing home, lawyers and state officials say, if that spouse is still in the community and paying independent living costs.

The state is allowing more leeway for a couple to divert a portion of their resources to such an annuity, instead of requiring that those funds be used up-front for nursing home costs. The welfare department will become the primary beneficiary, however, if the annuity-holder dies, in order to recoup nursing home costs made on behalf of the second spouse. If the annuity has additional value after the state is repaid, family heirs may receive the remainder.