federal court in New York has enjoined enforcement of a federal statute that had put lawyers at risk of criminal prosecution for advising clients about transferring assets in order to qualify for Medicaid. Judge Thomas J. McAvoy issued the preliminary injunction last week.

Medicaid, the primary payer of nursing home bills, is a means-tested program. In order to qualify, nursing home residents as a general rule must have no more than $2000 in countable assets. (The home and a few other assets are exempt, that is, not countable.)

Advice Made a Crime
Persons who transfer assets in order to qualify for Medicaid are ineligible for benefits. For each month of nursing home care that is given away, a penalty of one month of ineligibility will be imposed.

The genesis of the "Granny's Lawyer Goes to Jail" law is the practice of Medicaid planning engaged in by many elder law attorneys. Similar to the "welfare queens" of yesteryear, a perception developed that millionaires regularly transferred assets to relatives and then let Medicaid pick up the tab for their nursing home care.

To put a stop to such perceived abuses, Congress made it a crime for a person to transfer assets to qualify for Medicaid. Such a hue and cry arose over the "Granny Goes to Jail" law that Congress amended it last summer to make it a crime to advise, for a fee, a person to transfer assets, although it is entirely legal for the person to do so in order to qualify for Medicaid.

Needless to say, the new law was aimed squarely at elder law attorneys.

Last December the New York State Bar Association filed suit, asking that the Granny's Lawyer Goes to Jail law be found unconstitutional, because it violates the First Amendment free speech rights of attorneys.

Judge McAvoy's ruling was not unexpected. Prior to the enactment of the law last summer legislators had been advised by a Congressional research service that the law was probably unconstitutional.

Dark Hints of More to Come
In the government's response to the suit, a March 11 letter from U.S. Attorney General Janet Reno to President of the Senate Al Gore and House Speaker Newt Gingrich was attached, in which Ms. Reno indicated that she would not enforce or defend the law because it "plainly is unconstitutional under the First Amendment."

It is doubtful, however, that the federal court ruling will be the last to be heard of this issue. Lawyers' organizations are already lining up to file challenges to the law in each of the federal circuit courts of appeal. (To paraphrase the government's response to this tactic filed in the New York case, "What part of the Attorney General's letter do you not understand?")

And Ms. Reno's letter hints darkly that her office has redrafted the language of the Granny's Lawyer Goes to Jail law in a way that meets the objections to the constitutionality found by Judge McAvoy.

It is difficult to predict what Congress and the Administration will do now. In the last major change to the Medicaid rules, in 1993, Congress increased the look-back period for transfers of assets, from thirty to thirty-six months, along with other changes as well.

As Tucson elder law attorney Robert Fleming has recently written, "It is easy to predict, however, that long-term care eligibility rules will be changed by Congress in the next two years."