Court says lawyers can counsel patients on how to secure Medicaid benefits

A federal law prohibiting lawyers from advising clients on how to secure Medicaid benefits by shielding assets is unconstitutional, a New York U.S. District Court judge has ruled.

Northern District Chief Judge Thomas J. McAvoy rejected the U.S. Justice Department’s contention that, because the federal government has acknowledged the law as unconstitutional and has not enforced it, the issue is moot.

The court accepted the argument of the State Bar Association of New York—that allowing the law to stand would have a "chilling" effect on lawyers.

The law, §1128B(a)(6) of the Social Security Act, was enacted last year in an attempt to protect state and federal Medicaid budgets from the costs of nursing home services for middle-income residents.

The so-called "Medicaid gag rule," made it a misdemeanor for a lawyer or other professional to accept payment for assisting in the disposal of assets to meet the Medicaid wealth tests "if disposing of the assets results in the imposition of a period of ineligibility." An applicant is ineligible if he or she transfers assets and fails to wait for a specified period before applying for Medicaid.