Deficit Reduction Act 2005 Law and Legal Definition

The Deficit Reduction Act of 2005 is a United States Act of Congress concerning the budget. It addresses deficit reductions ranging from education to housing and Medicare to Medicaid. It was signed into law by President Bush on February 8, 2006 after a closely divided Congress approved the legislation.

This Act made several changes to Medicaid law, the most notable of which were the changes to the Medicaid Transfer of Asset rules. The new law, created a five-year look-back period and established a waiting, or penalty, period for individuals in institutional care who would otherwise be able to receive Medicaid. The start of the Penalty Period for transferred assets was changed from the date of transfer to the date when the individual transferring the assets enters a nursing home and would otherwise be eligible for Medicaid coverage. Therefore the penalty period does not begin until the nursing home resident is unable to pay the nursing home. The provisions of this law make it difficult for the middle-class to qualify for certain Medicaid programs.

The legislation also provides new rules for the treatment of annuities, including a requirement that the state be named as the remainder beneficiary; Allows Continuing Care Retirement Communities (CCRCs) to require residents to spend down their declared resources before applying for medical assistance; Sets forth rules under which an individual's CCRC entrance fee is considered an available resource; Requires all states to apply the so-called “income-first” rule to community spouses who appeal for an increased resource allowance based on their need for more funds invested to meet their minimum income requirements; Extends long-term care partnership programs to any state and authorizes states to include home and community-based services as an optional Medicaid benefit.

DRA also makes major funding and program changes to the child support and TANF programs. It creates a new federal grants program available for fatherhood and marriage initiatives.