Medicaid
Transfers of Assets by Elderly Individuals to Obtain Long-Term Care Coverage Gao ID: GAO-05-968 September 2, 2005In fiscal year 2004, the Medicaid program financed about $93 billion for long-term care services. To qualify for Medicaid, individuals' assets (income and resources) must be below certain limits. Because long-term care services can be costly, those who pay privately may quickly deplete their assets and become eligible for Medicaid. In some cases, individuals might transfer assets to spouses or other family members to become financially eligible for Medicaid. Those who transfer assets for less than fair market value may be subject to a penalty period that can delay their eligibility for Medicaid. GAO was asked to provide data on transfers of assets. GAO reviewed (1) the level of assets held and transferred by the elderly, (2) methods used to transfer assets that may result in penalties, (3) how states determined financial eligibility for Medicaid long-term care, and (4) guidance the Centers for Medicare & Medicaid Services (CMS) has provided states regarding the treatment of asset transfers. GAO analyzed data on levels of assets and cash transfers made by the elderly from the 2002 Health and Retirement Study (HRS), a national panel survey; analyzed states' Medicaid applications; and interviewed officials from nine states about their eligibility determination processes.
In 2002, over 80 percent of the approximately 28 million elderly households (those where at least one person was aged 65 or over) had annual incomes of $50,000 or less, and about one-half had nonhousing resources, which excluded the primary residence, of $50,000 or less. About 6 million elderly households (22 percent) reported transferring cash, with amounts that varied depending on the households' income and resource levels. In general, the higher the household's asset level, the more likely it was to have transferred cash during the 2 years prior to the HRS study. Overall, disabled elderly households--who are at higher risk of needing long-term care--were less likely to transfer cash than nondisabled elderly households. Certain methods to reduce assets, such as spending money to pay off debt or make home modifications, do not result in penalty periods. Other methods, such as giving gifts, transferring property ownership, and using certain financial instruments, could result in penalty periods, depending on state policy and the specific arrangements made. None of the nine states GAO contacted tracked or analyzed data on asset transfers or penalties applied. These states required applicants to provide documentation of assets but varied in the amount of documentation required and the extent to which they verified the assets reported. These states generally relied on applicants' self-reporting of transfers of assets, and officials from these states informed GAO that transfers not reported were difficult to identify. To help states comply with requirements related to asset transfers, CMS has issued guidance primarily through the State Medicaid Manual. CMS released a special study in 2005 to help states address the issue of using annuities as a means of sheltering assets. Additionally, CMS officials provide ongoing technical assistance in response to state questions, but noted the challenge of issuing guidance applicable to all situations given the constantly changing methods used to transfer assets in an attempt to avoid a penalty period. In commenting on a draft of this report, CMS noted the complexity of the current law and commented that data on the precise extent and cost of asset transfers to the Medicaid program have been difficult to gather.
GAO-05-968, Medicaid: Transfers of Assets by Elderly Individuals to Obtain Long-Term Care Coverage
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
September 2005:
Medicaid:
Transfers of Assets by Elderly Individuals to Obtain Long-Term Care
Coverage:
GAO-05-968:
GAO Highlights:
Highlights of GAO-05-968, a report to congressional requesters:
Why GAO Did This Study:
In fiscal year 2004, the Medicaid program financed about $93 billion
for long-term care services. To qualify for Medicaid, individuals‘
assets (income and resources) must be below certain limits. Because
long-term care services can be costly, those who pay privately may
quickly deplete their assets and become eligible for Medicaid. In some
cases, individuals might transfer assets to spouses or other family
members to become financially eligible for Medicaid. Those who transfer
assets for less than fair market value may be subject to a penalty
period that can delay their eligibility for Medicaid.
GAO was asked to provide data on transfers of assets. GAO reviewed (1)
the level of assets held and transferred by the elderly,
(2) methods used to transfer assets that may result in penalties,
(3) how states determined financial eligibility for Medicaid long-term
care, and (4) guidance the Centers for Medicare & Medicaid Services
(CMS) has provided states regarding the treatment of asset transfers.
GAO analyzed data on levels of assets and cash transfers made by the
elderly from the 2002 Health and Retirement Study (HRS), a national
panel survey; analyzed states‘ Medicaid applications; and interviewed
officials from nine states about their eligibility determination
processes.
What GAO Found:
In 2002, over 80 percent of the approximately 28 million elderly
households (those where at least one person was aged 65 or over) had
annual incomes of $50,000 or less, and about one-half had nonhousing
resources, which excluded the primary residence, of $50,000 or less.
About 6 million elderly households (22 percent) reported transferring
cash, with amounts that varied depending on the households‘ income and
resource levels. In general, the higher the household‘s asset level,
the more likely it was to have transferred cash during the 2 years
prior to the HRS study. Overall, disabled elderly households”who are at
higher risk of needing long-term care”were less likely to transfer cash
than nondisabled elderly households.
Cash Transferred in the Previous 2 Years as Reported by Elderly
Households with Varying Levels of Income and Nonhousing Resources,
2002:
[See Table 4]
Certain methods to reduce assets, such as spending money to pay off
debt or make home modifications, do not result in penalty periods.
Other methods, such as giving gifts, transferring property ownership,
and using certain financial instruments, could result in penalty
periods, depending on state policy and the specific arrangements made.
None of the nine states GAO contacted tracked or analyzed data on asset
transfers or penalties applied. These states required applicants to
provide documentation of assets but varied in the amount of
documentation required and the extent to which they verified the assets
reported. These states generally relied on applicants‘ self-reporting
of transfers of assets, and officials from these states informed GAO
that transfers not reported were difficult to identify.
To help states comply with requirements related to asset transfers, CMS
has issued guidance primarily through the State Medicaid Manual. CMS
released a special study in 2005 to help states address the issue of
using annuities as a means of sheltering assets. Additionally, CMS
officials provide ongoing technical assistance in response to state
questions, but noted the challenge of issuing guidance applicable to
all situations given the constantly changing methods used to transfer
assets in an attempt to avoid a penalty period.
In commenting on a draft of this report, CMS noted the complexity of
the current law and commented that data on the precise extent and cost
of asset transfers to the Medicaid program have been difficult to
gather.
www.gao.gov/cgi-bin/getrpt?GAO-05-968.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Kathryn G. Allen at (202)
512-7118 or allenk@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Asset Levels and Extent of Cash Transfers Varied Depending on
Demographic Factors:
Methods of Reducing Assets May Not Result in a Penalty Period:
States Could Not Identify the Extent to Which Individuals Transferred
Assets:
CMS Provides Guidance on Transfers of Assets through the State Medicaid
Manual and in Response to Specific Questions from States:
Agency and State Comments:
Appendix I: Information about the Health and Retirement Study:
Appendix II: Methodology for Selecting Sample States:
Appendix III: Characteristics of Medicaid Long-Term Care Application
Processes, by State:
Appendix IV: Characteristics of Medicaid Long-Term Care Applications
Related to Transfers of Assets, by State:
Appendix V: Comments from the Centers for Medicare & Medicaid Services:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Types of Assets and Examples:
Table 2: Income and Resource Standards for Certain Medicaid Eligibility
Categories, as of 2005:
Table 3: Cash Transferred in the Previous 2 Years as Reported by
Elderly Households, by ADL Limitation, Marital Status, and Gender,
2002:
Table 4: Cash Transferred in the Previous 2 Years as Reported by
Elderly Households with Varying Levels of Income and Nonhousing
Resources, 2002:
Table 5: Information Required during States' Application Processes for
Medicaid Eligibility:
Table 6: Nine States' Requirements for Documentation of Assets:
Table 7: Proportion of Applicants for Which Nine Sample States Used
Specific Asset Verification Sources:
Table 8: Clusters Used for State Sample Selection:
Figures:
Figure 1: Distribution of Annual Income as Reported by Elderly
Households, 2002:
Figure 2: Distribution of Nonhousing Resources as Reported by Elderly
Households, 2002:
Figure 3: Median Assets--Income and Resources--for Elderly Households,
by Level of Disability, 2002:
Figure 4: Median Assets--Income and Resources--for Elderly Households,
by Marital Status and Gender, 2002:
Figure 5: Median Income and Nonhousing Resources for Elderly Households
That Reported Transferring Cash Compared with All Elderly Households,
2002:
Abbreviations:
ADL: activities of daily living:
CMS: Centers for Medicare & Medicaid Services:
HRS: Health and Retirement Study:
IADL: instrumental activities of daily living:
IEVS: Income and Eligibility Verification System:
SSI: Supplemental Security Income:
United States Government Accountability Office:
Washington, DC 20548:
September 2, 2005:
The Honorable John D. Dingell:
Ranking Minority Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Sherrod Brown:
Ranking Minority Member:
Subcommittee on Health:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Henry A. Waxman:
House of Representatives:
As people age, their ability to carry out certain basic physical
functions declines, increasing the likelihood that they will need long-
term care. In 2003, nearly half of the nation's total expenditures of
about $183 billion for long-term care, including nursing home payments,
were paid for by the Medicaid program, the joint federal-state health
care financing program that covers certain categories of low-income
individuals.[Footnote 1] Medicaid expenditures for long-term care in
2004 were about $93 billion out of total Medicaid expenditures of $295
billion. With the aging of the population and the likely increase in
demand for long-term care, federal Medicaid spending is expected to
more than double in size over the next 10 years.[Footnote 2]
To qualify for Medicaid coverage for long-term care services,
individuals must meet certain financial and functional eligibility
criteria.[Footnote 3] To meet the financial eligibility criteria,
individuals must have assets that fall below established standards,
which vary by state but are within standards set by the federal
government. Assets include income, which is anything received during a
calendar month that is used or could be used to meet food, clothing, or
shelter needs; and resources, which are anything owned, such as savings
accounts, stocks, or property, that can be converted to cash.[Footnote
4] Not all assets are counted in determining financial eligibility for
Medicaid--for example, states generally exclude the value of an
individual's primary residence. Because certain types of long-term
care--particularly nursing home care--are costly (estimated by some to
average over $70,000 a year for a private-pay patient),[Footnote 5]
individuals who pay for an extended stay in a nursing home can quickly
deplete their assets and subsequently qualify for Medicaid. In some
cases, individuals might divest themselves of their assets--for
example, by transferring them to their spouses or other family members-
-in order to establish financial eligibility for Medicaid long-term
care coverage. However, those who transfer assets for less than fair
market value during a specified "look-back" period--the period of time
before application for Medicaid in which asset transfers are reviewed-
-may incur a penalty--a period during which they are ineligible for
Medicaid coverage for long-term care services. The look-back period is
either 36 months or 60 months, depending on the type of asset. The
penalty period begins at approximately the time assets were
transferred.
Opinions differ over the extent to which individuals transfer assets to
qualify for Medicaid coverage for long-term care. Some contend that
asset transfers are prevalent and that individuals, on the advice of
elder law attorneys, transfer assets that are sometimes significant in
order to qualify for Medicaid long-term care coverage, thus
substantially increasing Medicaid costs. Others contend that, while
such transfers may occur, they are not a large-scale problem that
unduly increases Medicaid program costs and that individuals expecting
to need nursing home care tend to save more assets than others in order
to pay for their care. Evidence on the extent to which individuals
transfer assets to become eligible for Medicaid long-term care is
generally limited and often based on anecdotes.
The President's fiscal year 2006 budget proposed to save an estimated
$1.5 billion over 5 years by tightening existing rules related to asset
transfers. According to the Centers for Medicare & Medicaid Services
(CMS), the agency within the Department of Health and Human Services
that oversees states' Medicaid programs, the proposal changes the start
of the penalty period from the date of the asset transfer to the later
of (1) the date of the asset transfer, or (2) the point at which an
individual is eligible for Medicaid and is receiving long-term care
services. In light of the current budget proposal, you asked us to
provide data on transfers of assets by elderly individuals in order to
obtain Medicaid-covered long-term care.
For this report, we reviewed (1) the level of assets held by the
elderly, including those who transferred cash and the amounts they
transferred; (2) methods that the elderly use to reduce available
assets that may result in a penalty period; (3) states' experiences in
identifying the extent of asset transfers to establish Medicaid
eligibility for long-term care coverage; and (4) guidance and technical
assistance that CMS provided to states regarding individuals' transfers
of assets in order to qualify for Medicaid long-term care coverage.
To examine these issues, we analyzed data from the 2002 Health and
Retirement Study (HRS), a longitudinal national panel survey, sponsored
by the National Institute on Aging and conducted every 2 years by the
University of Michigan. (See app. I for more information about the
HRS.) We used data from this survey to estimate the (1) level of assets
(both income and resources) held by elderly households (defined as
those in which at least one member is aged 65 or over), (2) extent to
which they transferred cash, and (3) amount transferred.[Footnote 6]
Our analysis includes data from all elderly households; we did not
assess whether the respondents had or were seeking Medicaid coverage.
Because the HRS only addressed cash transfers--cash provided to
relatives or other individuals--our analysis understates the extent and
amount of all transfers by excluding transfers of property and other
types of assets. Since the HRS did not inquire about the reason for the
cash transfers, no conclusions can be drawn regarding the extent to
which the survey respondents transferred cash for purposes of
establishing Medicaid eligibility for long-term care. In addition to
analyzing the survey data, we collected and analyzed Medicaid
applications in use during June and July 2005 for long-term care, from
all 50 states and the District of Columbia.[Footnote 7] We reviewed the
federal laws related to Medicaid and asset transfers, as well as
related CMS guidance. We also interviewed officials from 9 states
regarding Medicaid eligibility determination practices, including the
process for identifying whether applicants had transferred assets. To
select states, we assessed the prevalence of five factors in each
state;[Footnote 8] on the basis of this assessment, we grouped the
states into three clusters (low, medium, and high) based on the
prevalence of the five factors. We then selected 3 states from each
cluster based on randomly generated numbers, for a total sample of 9.
The 9 states in the sample were Arkansas, District of Columbia,
Florida, Hawaii, Montana, Ohio, Oregon, South Carolina, and Wisconsin.
(See app. II for more information about our methodology for selecting
the sample states.) We also interviewed several elder law attorneys,
researchers, and officials from CMS and its 10 regional offices. We
conducted our work from April through August 2005 in accordance with
generally accepted government auditing standards.
Results in Brief:
Overall, in 2002, elderly households' asset levels varied depending on
demographic factors such as the level of disability, marital status,
and gender; additionally, transfers of cash also depended on these
demographics as well as the overall level of a household's assets. Of
the approximately 28 million elderly households, about 80 percent of
households had annual incomes of $50,000 or less, and about one-half of
elderly households had nonhousing resources, which exclude the primary
residence, of $50,000 or less, according to data from the 2002
HRS.[Footnote 9] The median annual income for all elderly households
was $24,200, and their median nonhousing resources were $51,500.
Households with a disabled elderly individual (reporting at least one
limitation in activities of daily living (ADL)) tended to have lower
asset levels than nondisabled elderly households, and as the level of
disability increased, the level of household assets decreased. Elderly
individuals reporting three or more limitations in ADLs--who are at
higher risk of needing long-term care--had a median income of $13,200
and median nonhousing resources of $3,200. With regard to transfers of
cash during the 2 years prior to the HRS study, approximately 6 million
elderly households (about 22 percent) reported transferring cash, with
a median transfer amount of $3,000. In general, households with higher
asset levels were more likely to have transferred cash; hence,
nondisabled elderly households and couples were most likely to have
transferred cash.
Methods individuals use to reduce their assets for purposes of
establishing Medicaid eligibility do not always result in a penalty
period and thus may not lead to a delay in Medicaid coverage for long-
term care services. For example, reducing debt or making home
modifications does not result in a penalty period. Other methods,
however, could result in a penalty period and thus a delay in Medicaid
coverage for long-term care services. Methods used that may result in a
penalty period include giving away assets as gifts, making use of
certain financial instruments such as annuities and trusts, and
transferring property ownership. Whether or not an asset reduction
method results in a penalty period depends on the specific arrangements
made and the policies of the individual state. For example, giving away
assets generally results in a penalty period, but exceptions exist,
including assets given to a spouse or disabled child without penalty.
Although most of the officials in the nine states we reviewed reported
that some individuals transferred assets for purposes of qualifying for
Medicaid coverage for long-term care, none of these systematically
tracked or analyzed data that would provide information on the
incidence of asset transfers and the extent to which penalties were
applied in their states. Nationwide, all states requested information
about applicants' assets, including transfers of assets, through
Medicaid application forms, interviews to determine Medicaid
eligibility, or both. The nine states we reviewed generally relied on
this applicant-reported information to identify transfers of assets.
These states required applicants to provide documentation of their
assets as part of the application process but varied in the amount of
documentation they required. For example, all nine states required bank
statements but differed in the length of time the statements were to
cover. Although these states also differed in the extent to which they
verified reported assets, they were more likely to verify information
on income and less likely to verify information on resources. According
to officials in these nine states, transfers that were not reported by
applicants were difficult to identify. Some of these states, however,
reported using certain indicators from applicants' asset documentation,
the states' asset verification data, case worker interviews, or a
combination of these factors to try to identify unreported transfers.
To help states comply with federal requirements related to asset
transfers and Medicaid eligibility for long-term care coverage, CMS
issued guidance primarily through the State Medicaid Manual. The agency
also released a special study in 2005 to help states address the issue
of using annuities as a means of sheltering assets. Although CMS
officials provide ongoing technical assistance to individual states in
response to their questions, some said that the agency faces challenges
in issuing guidance that would be applicable to all situations. In
particular, CMS officials said that states' efforts to identify and
address asset transfer issues are constantly changing, as certain
methods to convert countable assets are identified, increase in use,
and then diminish. For example, CMS officials cited the use of personal
care agreements, in which the individual applying for Medicaid long-
term care coverage hires a family member to perform services, as a
practice that at one time was frequently used to transfer assets, and
then diminished in use. The officials added that they provided
technical assistance to states to help them limit the use of certain
personal care agreements.
We provided CMS and the nine states in our sample an opportunity to
comment on a draft of this report. In written comments, CMS noted that
the complexity of current law provides opportunities for attorneys and
individuals to devise asset transfer schemes that have the effect of
shielding substantial financial assets for certain individuals who
consequently qualify for Medicaid coverage for long-term care. CMS also
commented that data on the precise extent and cost of asset transfers
to the Medicaid program have been difficult to gather.
Background:
To be eligible for Medicaid, individuals must be within certain
eligibility categories, such as children or those who are aged or
disabled. In addition, individuals must meet financial eligibility
criteria, which are based on individuals' assets--income and resources
together. Once eligible for Medicaid, individuals can receive basic
health and long-term care services, as outlined by each state and
subject to minimum federal requirements.[Footnote 10] Long-term care
includes many types of services needed when a person has a physical
disability, a mental disability, or both. Individuals needing long-term
care have varying degrees of difficulty in performing some ADLs and
instrumental activities of daily living (IADL).
Medicaid Coverage for Long-Term Care:
Medicaid coverage for long-term care services is most often provided to
individuals who are aged or disabled.[Footnote 11] Within broad federal
standards, states determine the need for long-term care services by
assessing limitations in an applicant's ability to carry out ADLs and
IADLs. Most individuals requiring Medicaid long-term care services have
become eligible for Medicaid in one of three ways: (1) through
participation in the Supplemental Security Income (SSI) program, (2) by
incurring medical costs that reduce their income and qualify them for
Medicaid, or (3) by having long-term care needs that require nursing
home or other institutional care.
* The SSI program provides cash assistance to aged, blind, or disabled
individuals with limited income and resources. Those who are enrolled
in SSI generally are eligible for Medicaid.[Footnote 12]
* Individuals who incur high medical costs may "spend down" into
Medicaid eligibility because these expenses are deducted from their
countable income. Spending down may bring their income below the state-
determined income eligibility limit. Such individuals are referred to
as "medically needy." As of 2000, 36 states had a medically needy
option, although not all of these states extended this option to the
aged and disabled or to those needing nursing home care.
* Individuals can qualify for Medicaid if they reside in nursing
facilities or other institutions in states that have elected to
establish a special income level under which individuals with incomes
up to 300 percent of the SSI benefit ($1,737 per month in 2005) are
Medicaid-eligible. Individuals eligible under this option must apply
all of their income, except for a small personal needs allowance,
toward the cost of nursing home care.[Footnote 13] The National
Association of State Medicaid Directors reported that, as of 2003, at
least 38 states had elected this option.[Footnote 14]
SSI policy serves as the basis for Medicaid policy on the
characterization of assets--income and resources. Income is something,
paid either in cash or in-kind, received during a calendar month that
is used or could be used to meet food, clothing, or shelter needs;
resources are cash or things that are owned that can be converted to
cash. (Table 1 provides examples of different types of assets.) States
can decide, within federal standards, which assets are countable or
not. For example, states may disregard certain types or amounts of
income and may elect not to count certain resources.[Footnote 15]
Table 1: Types of Assets and Examples:
Type of asset: Income;
Examples:
* Money earned from work;
* Money generated from resources, such as interest, dividends, and
annuity payments[A];
* Money received from other sources, such as Social Security, worker's
compensation, and unemployment benefits.
Type of asset: Resources;
Examples:
* Cash;
* Bank accounts;
* Stocks;
* Bonds;
* Trusts[B];
* Annuities;
* Real estate;
* Vehicles (such as automobiles and boats);
* Life insurance.
Source: GAO analysis of SSI requirements.
[A] Some resources produce income. For example, an annuity is a
financial instrument that provides a fixed income over a defined period
of time in return for an initial payment of principal. The principal of
an annuity is considered a resource, while the payments it generates
are considered income.
[B] A trust is any arrangement in which a grantor transfers property to
a trustee with the intention that it be held, managed, or administered
by the trustee for the benefit of the grantor or certain designated
individuals.
[End of table]
In most states, to be financially eligible for Medicaid long-term care
services, an individual must have $2,000 or less in countable resources
($3,000 for a couple). However, specific income and resource standards
vary by eligibility category (see table 2).
Table 2: Income and Resource Standards for Certain Medicaid Eligibility
Categories, as of 2005:
Medicaid eligibility category: Mandatory coverage:
Medicaid eligibility category: SSI[A];
Income standard: Less than $579 per month for an individual and less
than $869 per month for a couple;
Resource standard: Countable resources of less than $2,000 for an
individual, and less than $3,000 for a couple.
Medicaid eligibility category: State-elected coverage (optional):
Medicaid eligibility category: Medically needy;
Income standard: State-set income standard; individuals may "spend
down" to eligibility by deducting incurred medical expenses from
income;
Resource standard: State-set resource standard no more restrictive than
the SSI resource standard.
Medicaid eligibility category: Special income level for residents of a
nursing facility or institution;
Income standard: State-set income standard no higher than 300 percent
of the SSI standard ($1,737 per month);
Resource standard: Same as SSI.
Source: GAO analysis of Medicaid eligibility requirements and
Schneider, et al., The Medicaid Resource Book (Washington, D.C.: The
Kaiser Commission on Medicaid and the Uninsured, July 2002), p. 30.
[A] Not all SSI recipients automatically qualify for Medicaid. Under
Section 1902(f) of the Social Security Act, states may use Medicaid
eligibility standards that they had in place in 1972 rather than
federal SSI rules. As of June 2003, 11 states had opted to use these
standards. These states are often referred to as 209(b) states because
the origin of this provision was §209(b) of the Social Security
Amendments of 1972, Pub. L. No. 92-603, 86 Stat. 1329, 1381.
[End of table]
Spousal Impoverishment Protections:
The Medicaid statute requires states to use specific income and
resource standards in determining eligibility when one spouse is in an
institution, such as a nursing home, and the other remains in the
community (referred to as the "community spouse"). This enables the
institutionalized spouse to become Medicaid-eligible while leaving the
community spouse with sufficient assets to avoid hardship.
* Resources. The community spouse may retain an amount equal to one-
half of the couple's combined countable resources, up to a state-
specified maximum resource level.[Footnote 16] If one-half of the
couple's combined countable resources is less than a state-specified
minimum resource level, then the community spouse may retain resources
up to the minimum level.[Footnote 17] The amount that the community
spouse is allowed to retain is generally referred to as the community
spouse resource allowance.[Footnote 18]
* Income. The community spouse is allowed to retain all of his or her
own income. States establish a minimum amount of income--the minimum
monthly maintenance needs allowance (for this report we will refer to
it as the minimum needs allowance)--that a community spouse is entitled
to retain. The amount must be within a federal minimum and maximum
standard.[Footnote 19] If the community spouse's income is less than
the minimum needs allowance, then the shortfall can be made up in one
of two ways: by transferring income from the institutionalized spouse
(called the "income-first" approach) or by allowing the community
spouse to keep resources above the community spouse resource allowance,
so that the additional funds can be invested to generate more income
(the "resource-first" approach).[Footnote 20]
Transfers of Assets under Medicaid:
Federal law limits Medicaid payments for long-term care services for
persons who dispose of assets for less than fair market value within a
specified time period to satisfy financial eligibility requirements. As
a result, when an individual applies for Medicaid coverage for long-
term care, states conduct a review, or "look-back," to determine
whether the applicant (or his or her spouse, if married) transferred
assets to another person or party and, if so, whether the transfer was
for less than fair market value.[Footnote 21] Generally, the look-back
period is 36 months.[Footnote 22] If an asset transfer for less than
fair market value is detected, the individual is ineligible for
Medicaid long-term care coverage for a period of time, called the
penalty period. The penalty period is calculated by dividing the dollar
amount of the assets transferred by the average monthly private-pay
rate for nursing home care in the state (or the community, at the
option of the state). For example, if an individual transferred
$100,000 in assets, and private facility costs averaged $5,000 per
month in the state, the penalty period would be 20 months. The penalty
period begins at approximately the date of the asset transfer.[Footnote
23] As a result, some individuals' penalty periods have already expired
by the time they apply for Medicaid long-term care coverage, and
therefore they are eligible when they apply.
Federal law exempts certain transfers from the penalty provisions.
Exemptions include transfers of assets to the individual's spouse,
another individual for the spouse's sole benefit, or a disabled child.
Additional exemptions from the penalty provisions include the transfer
of a home to an individual's spouse, or minor or disabled child; a
sibling residing in the home who meets certain conditions; or an adult
child residing in the home who has been caring for the individual for a
specified time period.[Footnote 24] Transfers do not result in a
penalty if the individual can show that the transfer was made
exclusively for purposes other than qualifying for Medicaid.
Additionally, a penalty would not be applied if the state determined
that it would result in an undue hardship, that is, it would deprive
the individual of (1) medical care such that the individual's health or
life would be endangered or (2) food, clothing, shelter, or other
necessities of life.
Asset Levels and Extent of Cash Transfers Varied Depending on
Demographic Factors:
Elderly households' asset levels varied on the basis of level of
disability, marital status, and gender; additionally, the extent to
which elderly households transferred cash varied with the level of
household assets and these same demographic factors.[Footnote 25] In
general, disabled elderly households had lower asset levels than
nondisabled elderly households, and the asset levels decreased as the
level of disability increased.[Footnote 26] Elderly couples made up 46
percent of elderly households and had higher levels of assets than
single elderly; single elderly females, who made up 41 percent of
elderly households, generally had lower assets than single elderly
males, who made up 13 percent of elderly households.[Footnote 27] For
all elderly households, the higher their asset levels, the more likely
they were to have reported transferring cash to another individual.
Elderly households with both incomes and nonhousing resources above the
elderly household median were responsible for over one-half of all
transfers made. Overall, severely disabled elderly households--those
reporting three or more limitations in ADLs--were less likely to
transfer cash than nondisabled elderly households.[Footnote 28] Single
individuals were less likely to transfer cash than couples, and single
males had a higher likelihood of transferring cash than single females.
Greatest Proportion of Elderly Had Incomes of $50,000 or Less and
Nonhousing Resources below $100,000:
According to data from the 2002 HRS, total income for the nation's
approximately 28 million elderly households was $1.1 trillion and total
nonhousing resources were $6.6 trillion. Approximately 80 percent of
elderly households had annual incomes of $50,000 or less. (See fig. 1.)
The median annual income for all elderly households was $24,200 and
ranged from $0 to $1,461,800.
Figure 1: Distribution of Annual Income as Reported by Elderly
Households, 2002:
[See PDF for image]
[End of figure]
About half of all elderly households had nonhousing resources of
$50,000 or less, while almost 20 percent had nonhousing resources
greater than $300,000. (See fig. 2.) For all elderly households, median
nonhousing resources were $51,500 and ranged from less than zero to
$41,170,000.[Footnote 29] In terms of total resources, elderly
households had median total resources of $150,000, ranging from less
than zero to $41,640,000, and a primary residence with a median net
value of $70,000, ranging from less than zero to $20,000,000.
Figure 2: Distribution of Nonhousing Resources as Reported by Elderly
Households, 2002:
[See PDF for image]
[End of figure]
Elderly Households' Level of Assets Varied Depending on Level of
Disability, Marital Status, and Gender:
Disabled elderly households--which are at higher risk of needing long-
term care--had lower levels of assets than nondisabled elderly
households. Generally, as the level of disability increased, the level
of assets decreased.[Footnote 30] Severely disabled elderly households,
which made up about 6 percent of total elderly households, had
significantly lower median income ($13,200) and median nonhousing
resources ($3,200) compared with all elderly households ($24,200 and
$51,500, respectively). (See fig. 3.)
Figure 3: Median Assets--Income and Resources--for Elderly Households,
by Level of Disability, 2002:
[See PDF for image]
[End of figure]
Elderly couples, which made up approximately 46 percent of elderly
households, had higher levels of assets than single elderly
individuals. Of the single elderly, males, who made up approximately 13
percent of elderly households, were generally likely to be better off
financially than females, who made up approximately 41 percent of
elderly households. (See fig. 4.)
Figure 4: Median Assets--Income and Resources--for Elderly Households,
by Marital Status and Gender, 2002:
[See PDF for image]
[End of figure]
Likelihood of Cash Transfers and Amount Transferred Varied by Level of
Assets:
The likelihood that elderly households transferred cash and the amounts
they transferred varied with the level of assets held and demographic
characteristics, such as the level of disability, marital status, and
gender. Approximately 6 million, or about 22 percent, of all elderly
households reported transferring cash during the 2 years prior to the
HRS survey. Almost all of these cash transfers were made to children or
stepchildren. Of the elderly households that transferred cash, the
median income was $37,000 and ranged from $0 to $725,600; median
nonhousing resources were $128,000 and ranged from less than zero to
$12,535,000. Generally, elderly households with higher asset levels
were more likely to have transferred cash than households with lower
asset levels (see fig. 5).
Figure 5: Median Income and Nonhousing Resources for Elderly Households
That Reported Transferring Cash Compared with All Elderly Households,
2002:
[See PDF for image]
[End of figure]
Of the 22 percent of elderly households that reported having
transferred cash in the 2 years prior to the survey, nondisabled
elderly households and couples were most likely to do so. Among
disabled elderly households, severely disabled households were the
least likely to transfer cash.[Footnote 31] With regard to the amounts
transferred, among single elderly individuals, males were more likely
to transfer larger amounts of cash than females, with median cash
transfer amounts of $4,500 and $3,000, respectively.[Footnote 32] (See
table 3.)
Table 3: Cash Transferred in the Previous 2 Years as Reported by
Elderly Households, by ADL Limitation, Marital Status, and Gender,
2002:
Demographic characteristic of household: All elderly 65+;
Elderly household (percentage of all elderly households): All elderly
65+ (100);
Percentage of group that transferred cash: 21.6%;
Amount of cash transferred (in dollars): Minimum: $50;
Amount of cash transferred (in dollars): Median (midpoint): $3,000;
Amount of cash transferred (in dollars): Mean[A] (average): $8,800;
Amount of cash transferred (in dollars): Maximum: $1,005,000.
Demographic characteristic of household: ADL limitation;
Elderly household (percentage of all elderly households): None (79.6%);
Percentage of group that transferred cash: 22.7%;
Amount of cash transferred (in dollars): Minimum: $50;
Amount of cash transferred (in dollars): Median (midpoint): $3,000;
Amount of cash transferred (in dollars): Mean[A] (average): $8,970;
Amount of cash transferred (in dollars): Maximum: $1,005,000.
Elderly household (percentage of all elderly households): One (10.2%);
Percentage of group that transferred cash: 18.4%;
Amount of cash transferred (in dollars): Minimum: $500;
Amount of cash transferred (in dollars): Median (midpoint): $3,500;
Amount of cash transferred (in dollars): Mean[A] (average): $6,370;
Amount of cash transferred (in dollars): Maximum: $55,500.
Elderly household (percentage of all elderly households): Two (4.4%);
Percentage of group that transferred cash: 22.2%;
Amount of cash transferred (in dollars): Minimum: $300;
Amount of cash transferred (in dollars): Median (midpoint): $2,000;
Amount of cash transferred (in dollars): Mean[A] (average): $6,820;
Amount of cash transferred (in dollars): Maximum: $60,000.
Elderly household (percentage of all elderly households): Three or more
(5.8%);
Percentage of group that transferred cash: 12.7%;
Amount of cash transferred (in dollars): Minimum: $500;
Amount of cash transferred (in dollars): Median (midpoint): $3,000;
Amount of cash transferred (in dollars): Mean[A] (average): $13,610;
Amount of cash transferred (in dollars): Maximum: $160,000.
Demographic characteristic of household: Marital status and gender;
Elderly household (percentage of all elderly households): Couples
(46.2%);
Percentage of group that transferred cash: 27.8%;
Amount of cash transferred (in dollars): Minimum: $50;
Amount of cash transferred (in dollars): Median (midpoint): $3,000;
Amount of cash transferred (in dollars): Mean[A] (average): $9,070;
Amount of cash transferred (in dollars): Maximum: $1,005,000.
Elderly household (percentage of all elderly households): Single male
(12.7%);
Percentage of group that transferred cash: 20.8%;
Amount of cash transferred (in dollars): Minimum: $50;
Amount of cash transferred (in dollars): Median (midpoint): $4,500;
Amount of cash transferred (in dollars): Mean[A] (average): $11,760;
Amount of cash transferred (in dollars): Maximum: $420,000.
Elderly household (percentage of all elderly households): Single female
(41.1%);
Percentage of group that transferred cash: 15.0%;
Amount of cash transferred (in dollars): Minimum: $300;
Amount of cash transferred (in dollars): Median (midpoint): $3,000;
Amount of cash transferred (in dollars): Mean[A] (average): $6,970;
Amount of cash transferred (in dollars): Maximum: $343,000.
Source: GAO analysis of data from the 2002 Health and Retirement Study.
[A] Mean amounts of cash transferred have been rounded to the nearest
$10.
[End of table]
Transfers of cash were also more likely to occur in households with
higher income and resource levels. Elderly households with both income
and resources above the median--approximately 37 percent of all elderly
households--were the most likely to transfer cash. In contrast, elderly
households with both income and resources at or below the median were
the least likely to transfer cash. With regard to amounts of cash
transferred, the median amounts transferred for elderly households with
both income and resources above the median were twice as high ($4,000)
as those for elderly households with both income and resources at or
below the median ($2,000). (Table 4 shows the cash transferred by
elderly households in relation to the median income and resource
levels.)
Table 4: Cash Transferred in the Previous 2 Years as Reported by
Elderly Households with Varying Levels of Income and Nonhousing
Resources, 2002:
Household income[A]: At or below median;
Household nonhousing resources[B]: At or below median;
Percentage of all elderly households: 36.7%;
Percentage of group that transferred cash: 10.4%;
Amount of cash transferred (in dollars): Minimum: $300;
Amount of cash transferred (in dollars): Median (midpoint): $2,000;
Amount of cash transferred (in dollars): Mean[C] (average): $4,000;
Amount of cash transferred (in dollars): Maximum: $130,000[D].
Household income[A]: At or below median;
Household nonhousing resources[B]: Above median;
Percentage of all elderly households: 13.3%;
Percentage of group that transferred cash: 19.0%;
Amount of cash transferred (in dollars): Minimum: $500;
Amount of cash transferred (in dollars): Median (midpoint): $4,000;
Amount of cash transferred (in dollars): Mean[C] (average): $8,320;
Amount of cash transferred (in dollars): Maximum: $343,000[E].
Household income[A]: Above median;
Household nonhousing resources[B]: At or below median;
Percentage of all elderly households: 13.3%;
Percentage of group that transferred cash: 27.5%;
Amount of cash transferred (in dollars): Minimum: $100;
Amount of cash transferred (in dollars): Median (midpoint): $2,000;
Amount of cash transferred (in dollars): Mean[C] (average): $3,910;
Amount of cash transferred (in dollars): Maximum: $60,000[F].
Household income[A]: Above median;
Household nonhousing resources[B]: Above median;
Percentage of all elderly households: 36.7%;
Percentage of group that transferred cash: 31.7%;
Amount of cash transferred (in dollars): Minimum: $50;
Amount of cash transferred (in dollars): Median (midpoint): $4,000;
Amount of cash transferred (in dollars): Mean[C] (average): $12,010;
Amount of cash transferred (in dollars): Maximum: $1,005,000[G].
Source: GAO analysis of data from the 2002 Health and Retirement Study.
[A] The annual median income for all elderly households was $24,200.
[B] The median nonhousing resources for all elderly households were
$51,500.
[C] Mean amounts of cash transferred have been rounded to the nearest
$10.
[D] Ninety-nine percent of households in this group reported transfers
of cash of $30,000 or below.
[E] Ninety-nine percent of households in this group reported transfers
of cash of $120,000 or below.
[F] Ninety-nine percent of households in this group reported transfers
of cash of $25,000 or below.
[G] Ninety-nine percent of households in this group reported transfers
of cash of $141,000 or below.
[End of table]
Methods of Reducing Assets May Not Result in a Penalty Period:
Methods elderly individuals use to reduce their countable assets do not
always result in a penalty period. Reducing debt and making purchases,
such as for home modifications, for example, do not result in a penalty
period and thus would not lead to delays in Medicaid eligibility for
long-term care coverage. Other methods, however, could result in a
penalty period, depending on the specific arrangements made and the
policies of the individual state. For example, giving away assets as a
gift generally results in the imposition of a penalty period, but
giving away assets valued at less than the average monthly private-pay
rate for nursing home care may not, depending, in part, on whether the
state imposes partial-month penalties.
Some Asset Reduction Methods Do Not Delay Medicaid Eligibility:
Some methods individuals use to reduce their countable assets do not
result in a penalty period and thus would not lead to delays in
eligibility for Medicaid long-term care coverage. According to several
elder law attorneys and some state officials we contacted, one of the
first methods Medicaid applicants use to reduce assets is to spend
their money, often by paying off existing debt, such as a mortgage or
credit card bills, or by making purchases. When such purchases and
payments convert a countable resource, such as money in the bank, to
noncountable resources, such as household goods, they effectively
reduce the assets that are counted when determining Medicaid
eligibility. Common purchases mentioned included renovating a home to
make it more accessible for persons with disabilities, repairing or
replacing items such as a roof or carpeting, prepaying burial
arrangements, buying a home, or having dental work done. Elder law
attorneys explained that once individuals are Medicaid-eligible, they
and their families will have limited means. Therefore, they advise
these individuals to update, renovate, repair, or replace old or
deteriorating items such as homes and cars to reduce the need for
maintenance and repairs in the future. No penalty is associated with
paying a debt or making a purchase as long as the individual receives
something of roughly the same value in return.
Another method married individuals use that does not result in a
penalty period is seeking to raise the community spouse's resource
allowance above a state's maximum level, which reduces the amount of
income or resources considered available to the spouse applying for
Medicaid coverage.[Footnote 33] States establish, under federal
guidelines, a maximum amount of resources that a community spouse is
allowed to retain. In general, the remaining resources are deemed
available to be used to pay for the institutionalized spouse's long-
term care needs. In addition, if the community spouse's income is less
than the state's minimum needs allowance, the state can choose to make
up the shortfall by (1) transferring income from the institutionalized
spouse or (2) allowing the community spouse to keep resources above the
resource allowance so that the additional funds can be invested to
generate more income.[Footnote 34] Under the latter approach, the
community spouse may be able to retain a significant amount of
resources in order to yield the allowable amount of income. For
example, a community spouse might ask to retain a savings account with
$300,000 and an annual interest rate of 2 percent that would yield an
additional $500 in income per month.
Other Methods to Reduce Assets Could Delay Medicaid Coverage for Long-
Term Care Services:
Some of the other methods elderly individuals use to reduce their
countable assets could result in a penalty period and thus could delay
Medicaid coverage for long-term care services, according to the elder
law attorneys and state and federal officials we contacted. Whether or
not an asset reduction method results in a penalty period depends on
the specific arrangements made and the policies of the state.
Therefore, the extent to which each of the following methods is used is
likely to vary by state.
* Gifts. Under this method, an individual gives some or all assets to
another individual as a gift, for example, by giving his or her
children a cash gift. Although this is probably the simplest method to
reduce assets, some elder law attorneys told us that this method would
be one of the last things a person would want to do. Not only would the
individual lose control of his or her assets, but giving a gift would
likely be a transfer for less than fair market value and therefore
result in a penalty period. As with other asset transfers, if
individuals can prove that they gave away their assets exclusively for
a purpose other than qualifying for Medicaid long-term care coverage,
or if the transfer is to a spouse or a disabled child, then there would
be no penalty.[Footnote 35] Additionally, if a state treats each
transfer as a separate event and does not impose penalty periods for
time periods shorter than 1 month, then transfers for amounts less than
the average monthly private-pay rate for nursing home care in that
state do not result in a penalty period.[Footnote 36] Because the
penalty period begins at approximately the date of asset transfer,
individuals that meet Medicaid income eligibility requirements can give
away about half of their resources and use their remaining resources to
pay privately for long-term care during which time any penalty period
would expire.[Footnote 37] This is often referred to as the "half a
loaf" strategy because it preserves at least half of the individual's
resources.
* Financial Instruments. Some financial instruments, namely annuities
and trusts, have been used to reduce countable assets to enable
individuals to qualify for Medicaid. Annuities, which pay a regular
income stream over a defined period of time in return for an initial
payment of principal, may be purchased to provide a source of income
for retirement. According to a survey of state Medicaid
offices,[Footnote 38] annuities have become a common method for
individuals to reduce countable resources for the purpose of becoming
eligible for Medicaid because they are used to convert countable
resources, such as money in the bank, to a resource that is not
counted, and a stream of income.[Footnote 39] If converting the
resource to an annuity results in individuals' having countable
resources below the state's financial eligibility requirements, then
these individuals can become eligible for Medicaid if their income,
including the income stream from the annuity, is within the Medicaid
income requirements for the state in which they live.[Footnote 40]
Married individuals can use their joint resources to purchase an
annuity for the sole benefit of the community spouse. Since a community
spouse's income is not counted in a Medicaid eligibility determination,
an annuity effectively reduces the countable assets of the applicant.
Annuities must be actuarially sound--that is, the expected return on
the annuity must be commensurate with the reasonable life expectancy of
the beneficiary--or they are considered a transfer of assets for less
than fair market value and result in a penalty.[Footnote 41] Trusts are
arrangements in which a grantor transfers property to a trustee with
the intention that it be held, managed, or administered by the trustee
for the benefit of the grantor or certain designated individuals. The
use of trusts as a method of gaining Medicaid eligibility for long-term
care services was addressed in 1993 legislation.[Footnote 42] The law
and associated CMS guidance indicate how assets held in a trust, as
well as the income generated by a trust, are to be counted in the
Medicaid eligibility process.[Footnote 43] According to CMS, since this
legislation was enacted, the use of trusts as a Medicaid asset
reduction method has declined.
* Transfer of Property Ownership. Medicaid allows individuals to
transfer ownership of their home, without penalty, to certain
relatives, including a spouse or a minor child (under age 21).[Footnote
44] Other transfers of a home or other property within the look-back
period may result in a penalty period if they were for less than fair
market value. For example, individuals might transfer ownership of
their home while retaining a "life estate," which would give them the
right to possess and use the property for the duration of their lives.
According to the CMS State Medicaid Manual, this would be a transfer
for less than fair market value and thus would result in a penalty
period.[Footnote 45]
* Personal Services Contract or Care Agreement. Personal services
contracts or care agreements are arrangements in which an individual
pays another person, often an adult child, to provide certain services.
Based on CMS guidance, relatives can be legitimately paid for care they
provide, but there is a presumption that services provided without
charge at the time they were rendered were intended to be provided
without compensation. Under this presumption, payments provided for
services in the past would result in a penalty period.
* "Just Say No" Method. Under this method, the institutionalized spouse
transfers all assets to the community spouse, which is permitted under
the law. The community spouse then refuses to make any assets available
to support the institutionalized spouse and retains all of the couple's
assets. In turn, the institutionalized spouse may seek Medicaid
coverage for long-term care.[Footnote 46] Whether this method results
in a delay in Medicaid coverage for long-term care services depends on
the policies of the individual state.
* Promissory Notes. A promissory note is a written, unconditional
agreement, usually given in return for goods, money loaned, or services
rendered, whereby one party promises to pay a certain sum of money at a
specified time (or on demand) to another party. According to CMS and
state officials, some individuals have given assets to their children
in return for a promissory note as a means to reduce their countable
assets.[Footnote 47] For example, we were told of a case in which a
mother gave her daughter money in return for a promissory note with a
schedule for repayments. Although the note was scheduled to be repaid
during the mother's expected lifetime, the payment arrangements called
for the child to repay only the interest until the final payment, when
the entire principal was due. Additionally, each month the mother
forgave a portion of the note that equaled slightly less than the
average monthly nursing home cost.[Footnote 48] Whether promissory
notes result in a delay in Medicaid coverage for long-term care would
depend on the specific details of the note and the policies of the
state.
States Could Not Identify the Extent to Which Individuals Transferred
Assets:
None of the nine states we reviewed systematically tracked or analyzed
data that would provide information on the incidence of asset transfers
and the extent to which penalties were applied in their states.
Nationwide, all states requested information about applicants' assets,
including transfers of assets, through Medicaid application forms,
interviews to determine Medicaid eligibility, or both. The nine states
we reviewed generally relied on applicants' self-reporting of financial
information and varied in the amount of documentation they required and
in the extent to which they verified the assets reported. According to
officials in these states, transfers that were not reported by
applicants were difficult to identify.
States Reviewed Did Not Systematically Track and Analyze Applicants'
Transfers of Assets:
Although officials from the nine states reviewed reported that some
individuals transferred assets for purposes of qualifying for Medicaid,
these states did not systematically track and analyze data on the
incidence of asset transfers or associated penalties. As a result, the
states could not quantify the number of people who transferred assets,
the assets transferred, or the penalties applied as a result of
transfers for less than fair market value. Officials in four of the
nine states informed us that they had computer-based systems for
recording applicant information, including data on penalties that
resulted in a delay in Medicaid eligibility but they did not regularly
analyze these data and thus did not have information available on the
number of applicants who transferred assets. One of these states--
Hawaii--was able to determine that there were no individuals serving a
penalty at the time of our interview. However, because the state's
system only kept data on applicants currently serving a penalty, the
state could not provide us with data on the number of people who had
served penalties in the past. One state--Montana--that did not report
having a computer-based application system, did report collecting
several months of data on asset transfers from its counties in the fall
of 2004, but a state official told us that as of mid-July 2005, the
data had not been analyzed.
Although states could not systematically track and analyze asset
transfers, state officials were familiar with and had observed
different methods that elderly individuals used to transfer assets in
their states. For example, state officials frequently identified cash
gifts as the most common method used to reduce the amount of countable
assets. Some states had taken steps to try to deter the use of
financial instruments, such as annuities. For example, two states
reporting changing their laws to expand the circumstances under which
annuities are counted as available resources for purposes of
determining Medicaid eligibility for long-term care. Similarly, some
states have tried to deter the use of the "Just Say No" method by
pursuing financial support from the community spouse or by requiring
the institutionalized spouse to take the community spouse to court to
recover his or her share of the assets.
Some officials commented that as states took actions to identify and
prevent methods used to make transfers in order to become eligible for
Medicaid long-term care coverage, new ways emerged to make transfers
for this purpose that are permitted under the law. For example, one
state took action to try to deter multiple small transfers by adding
the amount of the transfers together, under certain circumstances, for
purposes of calculating the penalty period.[Footnote 49] According to
this state's officials, however, some attorneys had advised their
clients to transfer very small amounts of money in consecutive months
and make one final transfer of a significant amount before applying for
Medicaid. Under the state's policy, these transfers are added together
and the penalty period begins at the month of the first transfer, as
opposed to the month of the final transfer. As a result, some or all of
the penalty period may have expired by the time the applicant applies
for Medicaid long-term care coverage.
Nationwide, States Request Information on Assets and Transfers of
Assets as Part of the Medicaid Application Process:
Nationwide, states used the application process--application forms,
interviews, or both--to determine the level of assets held by Medicaid
applicants and whether applicants transferred assets.[Footnote 50]
Applications in 38 states requested comprehensive information about
assets--for example, by requiring applicants to respond to questions
regarding whether they had certain types of assets, such as checking
accounts or real estate. Another 7 states' applications requested
general information about applicants' assets, and the remaining 6
states reported relying on the interview process to collect information
on assets.[Footnote 51] Thirty states required in-person or telephone
interviews with either the applicant or an applicant's appointed
representative.[Footnote 52] Table 5 summarizes states' application
processes. (See app. III for more details on the application processes
in each state.)
Table 5: Information Required during States' Application Processes for
Medicaid Eligibility:
Method of gathering information: Application;
Information required: Comprehensive information on assets;
Number of states: 38.
Information required: General information on assets;
Number of states: 7.
Information required: No information on assets;
Number of states: 6[A].
Method of gathering information: Interview;
Information required: Required as part of the application process;
Number of states: 30.
Source: GAO analysis of state and county information, June and July
2005.
Note: In June and July 2005, we asked state officials to provide their
current applications for Medicaid long-term care coverage. Where states
asked for clarification or had multiple applications for Medicaid long-
term care coverage, we asked for applications appropriate for nursing
home coverage. Some states referred us to a county eligibility office
for information about the Medicaid application process. As such, the
information on the interview requirement in these states is based on
the response of the official from the county eligibility office.
[A] Of the six states that did not ask about assets, two states had
applicants complete their application during the interview process with
eligibility case workers and four states had brief applications. All
six states required interviews in which officials collected information
on applicants' assets.
[End of table]
Medicaid application forms in 44 states asked applicants to report
whether they had transferred assets. Eleven of the 44 states'
applications asked whether applicants had transferred assets in the
past 36 months, the required look-back period for most assets; 13 asked
applicants whether they had transferred assets in the past 60 months,
the required look-back period for trusts; and 17 did both.[Footnote 53]
Of the applications in the remaining 3 states, 1 asked about assets
ever transferred; 1 asked applicants to report any transfers, including
the date of the transfer, on a separate form; and 1 asked about
transfers in the prior 30 months.[Footnote 54] (See app. IV for details
on the characteristics of Medicaid application questions related to
transfers of assets in each state.) Although the 7 remaining states did
not have a question about transfers on their applications, they all
required interviews as part of the application process.
Nine States' Identification of Asset Transfers Predominately Relied on
Applicant Reporting:
The nine states we reviewed generally relied on the information
applicants reported during the application process--the application,
supporting documentation, and interviews--to identify transfers of
assets. The states generally required applicants to submit
documentation of their assets as part of the application process (see
table 6). The type of documentation required varied by type of asset.
For example, for trusts, annuities, and life insurance, states
generally required a copy of the agreement or policy; for real estate,
states generally required a copy of the deed or documentation of the
value from a tax assessment or broker. For more liquid assets, such as
checking and savings accounts, four of the nine states contacted
reported requiring a copy of 1 month's statements. However, the
remaining five states reported requiring or collecting documentation
for longer periods of time ranging from 3 months to 3 years. For
example, Florida generally collected at least 3 months of bank
statements from individuals seeking nursing home coverage, South
Carolina required applicants to submit a total of 14 months of
statements covering points in time over a 3-year period, and Montana
generally collected bank statements dating back 3 years.
Table 6: Nine States' Requirements for Documentation of Assets:
Documentation requirement:
* Checking and savings accounts;
* Certificates of deposit;
* Stocks and bonds;
* Annuities;
* Trusts;
* Retirement accounts;
* Life insurance policies;
* Real estate;
* Vehicles;
Number of states: 9.
Documentation requirement:
* Income;
* Business equity for self-employed;
Number of states: 8.
Documentation requirement:
* Prepaid burial arrangements;
Number of states: 6.
Documentation requirement:
* Federal tax returns;
* State tax returns;
Number of states: 1.
Source: GAO analysis of state information, July 2005.
[End of table]
To verify applicants' assets, the nine states used other information
sources, to varying degrees, in addition to the documentation provided
by applicants. Generally, states were more likely to verify information
related to possible income sources for applicants, such as the Social
Security Administration and unemployment offices, than for data sources
on possible resources, such as motor vehicle departments and county
assessor offices. For example, seven of the nine states reported using
information from an Income and Eligibility Verification System (IEVS),
a system that matches applicant-reported income information with data
from the Internal Revenue Service, the Social Security Administration,
and state wage reports and unemployment benefits, for all or almost all
of their applicants. In contrast, five of the nine states used
information from county assessor offices that provide information on
property taxes and thus property ownership, and four of these states
used this source to verify resources for half of their Medicaid
applicants or less. (See table 7 for the proportion of applicants for
which the nine states used specific sources to verify applicants'
assets.)
Table 7: Proportion of Applicants for Which Nine Sample States Used
Specific Asset Verification Sources:
Source: Social Security Administration;
Number of states using method for: All or almost all applicants: 9;
Number of states using method for: More than half of applicants: 0;
Number of states using method for: About half of applicants: 0;
Number of states using method for: Less than half of applicants: 0;
Number of states using method for: Method not used: 0.
Source: Income and Eligibility Verification System (IEVS)[A];
Number of states using method for: All or almost all applicants: 7;
Number of states using method for: More than half of applicants: 0;
Number of states using method for: About half of applicants: 0;
Number of states using method for: Less than half of applicants: 0;
Number of states using method for: Method not used: 2.
Source: Unemployment office;
Number of states using method for: All or almost all applicants: 7;
Number of states using method for: More than half of applicants: 1;
Number of states using method for: About half of applicants: 0;
Number of states using method for: Less than half of applicants: 1;
Number of states using method for: Method not used: 0.
Source: Worker's compensation office;
Number of states using method for: All or almost all applicants: 4;
Number of states using method for: More than half of applicants: 1;
Number of states using method for: About half of applicants: 0;
Number of states using method for: Less than half of applicants: 2;
Number of states using method for: Method not used: 2.
Source: Department of motor vehicles;
Number of states using method for: All or almost all applicants: 2;
Number of states using method for: More than half of applicants: 0;
Number of states using method for: About half of applicants: 1;
Number of states using method for: Less than half of applicants: 3;
Number of states using method for: Method not used: 3.
Source: State/local tax authorities;
Number of states using method for: All or almost all applicants: 2;
Number of states using method for: More than half of applicants: 0;
Number of states using method for: About half of applicants: 0;
Number of states using method for: Less than half of applicants: 2;
Number of states using method for: Method not used: 5.
Source: County assessor offices;
Number of states using method for: All or almost all applicants: 1;
Number of states using method for: More than half of applicants: 0;
Number of states using method for: About half of applicants: 2;
Number of states using method for: Less than half of applicants: 2;
Number of states using method for: Method not used: 4[B].
Source: Financial institutions;
Number of states using method for: All or almost all applicants: 0;
Number of states using method for: More than half of applicants: 1;
Number of states using method for: About half of applicants: 2;
Number of states using method for: Less than half of applicants: 5;
Number of states using method for: Method not used: 1.
Source: GAO analysis of state information, July 2005.
[A] IEVS matches applicant-reported income information with data from
the Internal Revenue Service, the Social Security Administration, and
state wage reports and unemployment benefits.
[B] One state did not obtain data from county assessor offices because
the state can access a statewide assessor system.
[End of table]
Regarding transfers of assets, the nine states asked on their Medicaid
application forms, in interviews, or both, whether applicants had
transferred assets. Officials from the nine states indicated that
transfers that are not reported by applicants or a third party are
generally difficult to identify. Three of the nine states did not have
a process to identify unreported transfers. The remaining six states
generally relied on certain indicators from applicants' asset
documentation, the states' asset verification data, case worker
interviews, or a combination of these factors to try to identify
unreported transfers. Following are two examples of how states used
these indicators:
* South Carolina asked for the previous 12 months of bank statements
and also asked for statements from the 24TH and 36TH month preceding
the application. South Carolina officials reviewed these bank
statements to ascertain whether there had been large reductions in the
amount of money in the account over the past 3 years. If a large
reduction was detected, the state would ask the applicant for
information regarding the use of the money.
* Ohio officials told us that the state generally relied on case
workers' experience to decide whether additional review was necessary,
noting that there are certain indications that a transfer might have
occurred, which would prompt additional review of the application.
Examples include the opening of a new bank account, an applicant who is
living beyond his or her means, and an applicant who recently sold his
or her house but reports having no resources.
CMS Provides Guidance on Transfers of Assets through the State Medicaid
Manual and in Response to Specific Questions from States:
To help states comply with requirements related to asset transfers and
Medicaid, CMS has issued guidance primarily through the State Medicaid
Manual. The agency has also provided technical assistance, through its
regional offices, to individual states in response to their questions;
communicated to states through conferences; and funded a special study
on the use of annuities to shelter assets. Officials from the majority
of CMS regional offices and the nine states we contacted indicated that
some additional guidance, such as on the use of financial instruments,
would be helpful. CMS officials, however, noted that it would be
difficult to issue guidance that would be applicable in all situations
given the constantly changing methods used to transfer assets.
In response to provisions in the Omnibus Budget Reconciliation Act of
1993, CMS updated the State Medicaid Manual in 1994 to include
provisions relating to transfers of assets, including the treatment of
trusts. The portion of the manual relating to asset transfers and
trusts generally includes definitions of relevant terms, such as
assets, income, and resources; information on look-back periods;
penalty periods and penalties for transfers of less than fair market
value; exceptions to the application of such penalties; and spousal
impoverishment provisions. The portion of the manual regarding trusts
includes other definitions relating specifically to trusts, provisions
on the treatment of the different types of trusts (such as revocable
and irrevocable),[Footnote 55] and exceptions to the specified
treatment of trusts. CMS is in the process of revising certain policies
in the manual related to funeral and burial arrangements.[Footnote 56]
CMS officials were not able to provide a date for when revisions to the
manual would be completed and stated that they did not anticipate any
major revisions to the asset transfer provisions in the Medicaid
manual.
CMS has provided additional guidance to states about asset transfers
through conferences and one special study:
* Conferences. CMS officials reported providing states with information
on asset transfer issues at its annual Medicaid eligibility conference.
At this conference, issues regarding transfers of assets have been
discussed as a formal agenda item, in panels on state experiences, or
in question and answer sessions.
* Special study. In 2005, the agency released a report that examined
the use of annuities as a means for individuals to shelter assets to
become Medicaid-eligible.[Footnote 57] While this study did not
identify a universal recommendation for the policy on annuity use or
determine the extent to which the use of annuities is growing or
declining, it suggested that annuities established for the purpose of
becoming Medicaid-eligible do lead to additional costs for federal and
state governments in that individuals may shift assets from countable
resources into a resource that is not counted, and into a stream of
income. In some cases, the use of annuities results in individuals
qualifying for Medicaid more quickly. Using the estimated cost of
annuities to Medicaid from a sample of five states and an examination
of policies regarding annuities in all states, the study estimated that
annuities cost the Medicaid program almost $200 million
annually.[Footnote 58]
Officials from CMS's regional offices informed us that they provided
technical assistance on asset transfer issues to 29 states over the
past year. The types of technical assistance provided to these states
ranged from confirming existing Medicaid policy to advising them on
ways to address specific asset transfer methods. When asked for
examples of the specific issues for which states sought technical
assistance, officials in seven regional offices said they had responded
to states' questions about annuities. Other issues for which states
requested technical assistance included the treatment of trusts, the
policy on spousal impoverishment, and promissory notes.
Officials from the majority of CMS regional offices noted that the
states in their regions could benefit from additional guidance.
Additionally, the majority of states we contacted concurred that
guidance related to transfers of assets would be helpful. These states
and regional office officials indicated a need for more guidance on
topics such as annuities, trusts, and the relationship between asset
divestment and spousal impoverishment. CMS central office officials
said that the agency faces challenges in issuing guidance that would be
applicable to all situations given the constantly changing methods
individuals use to transfer assets in a manner that avoids the
imposition of a penalty period. CMS officials said that states' efforts
to identify and address asset transfer issues are constantly changing,
as methods for reducing countable assets are identified, increase in
use, and then diminish. For example, CMS officials cited the use of
personal care agreements, where the individual applying for Medicaid
long-term care coverage hires a family member to perform services, as a
practice that at one time was frequently used to transfer assets. In
some cases, these agreements paid exorbitant fees for the services
provided, and CMS officials provided technical assistance to states to
help them limit the use of such agreements, at which point the practice
diminished in use. CMS officials maintain that blanket guidance from
the agency cannot necessarily address all of the issues that states
face.
Agency and State Comments:
We provided CMS and the nine states in our sample an opportunity to
comment on a draft of this report. We received written comments from
CMS (see app. V). We also received technical comments from CMS and
eight of the nine states, which we incorporated as appropriate.
CMS noted that the Medicaid program will only be sustainable if its
resources are not drained to provide health care assistance to those
with substantial ability to contribute to the costs of their own care.
CMS acknowledged, however, the difficulty of gathering data on the
extent and cost of asset transfers to the Medicaid program. In
particular, CMS commented that the law is complex and that the
techniques individuals and attorneys devise to divest assets are ever-
changing. CMS reiterated the President's budget proposal to tighten
existing rules related to asset transfers, and associated estimated
savings, which we had noted in the draft report. CMS further noted one
limitation to our analysis that we had disclosed in the draft report--
that the HRS only addressed cash transfers provided to relatives or
other individuals. CMS commented that it believes that substantial
amounts of assets are sheltered by individuals who transfer homes,
stocks and bonds, and other noncash property. We agree with CMS's view
that information on such noncash transfers would be valuable, but as we
noted in the draft report the HRS does not include such data.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date. At that time, we will send copies of this report
to the Administrator of the Centers for Medicare & Medicaid Services.
We will also make copies available to others upon request. In addition,
the report will be available at no charge on the GAO Web site at
http://www.gao.gov.
If you or your staffs have any questions about this report, please
contact me at (202) 512-7118 or allenk@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix VI.
Signed by:
Kathryn G. Allen:
Director, Health Care:
[End of section]
Appendix I: Information about the Health and Retirement Study:
The Health and Retirement Study (HRS) is a longitudinal national panel
survey of individuals over age 50 sponsored by the National Institute
on Aging and conducted by the University of Michigan. HRS includes
individuals who were not institutionalized at the time of the initial
interview and tracks these individuals over time, regardless of whether
they enter an institution. Researchers conducted the initial interviews
in 1992 in respondents' homes and conducted follow-up interviews over
the telephone every second year thereafter. HRS questions pertain to
physical and mental health status, insurance coverage, financial
status, family support systems, employment status, and retirement
planning.
For this report, we used the most recent available HRS data (2002), for
which the data collection period was February 2002 through March 2003.
These data include information for over 18,000 Americans over the age
of 50. We limited our analysis to data for households with at least one
elderly individual, which we defined as an individual aged 65 or older.
Thus, the data we used were from a sample of 10,942 individuals (8,379
households) that represented a population of 28.1 million households.
From these data we estimated the nationwide level of assets held by
households with at least one elderly individual, the extent to which
these households transferred cash, and the amounts transferred. Our
analysis underestimates the extent to which elderly households
transferred assets and the amounts of assets transferred because the
study data included only cash transfers, not other types of transfers.
HRS also did not assess whether the transfers were related to
individuals' attempts to qualify for Medicaid coverage for long-term
care services.
To assess the reliability of the HRS data, we reviewed related
documentation regarding the survey and its method of administration,
and we conducted electronic data tests to determine whether there were
missing data or obvious errors. On this basis, we determined that the
data were sufficiently reliable for our purposes.
[End of section]
Appendix II: Methodology for Selecting Sample States:
To select a sample of states to review in more detail regarding their
Medicaid eligibility determination practices, including the process for
identifying whether applicants had transferred assets, we assessed the
prevalence of five factors in each of the 51 states.
1. The percentage of the population aged 65 and over, which we
determined using 2000 census data from the Census Bureau.
2. The cost of a nursing home stay for a private room for a private-pay
patient based on data from a 2004 survey conducted for the MetLife
Company.
3. The proportion of elderly (aged 65 and over) with incomes at or
above 250 percent of the U.S. poverty level, which was based on
information from the Census Bureau using the 2000 and 2002 Current
Population Surveys.
4. Medicaid nursing home expenditures as reported by states to
CMS.[Footnote 59]
5. The availability of legal services specifically to meet the needs of
the elderly and disabled, based on membership data from the National
Academy of Elder Law Attorneys.
For each factor, we ranked the states from low to high (1 to 51) and
then summed the five rankings for each state. On the basis of these
sums, we grouped the states into three clusters (low, medium, and high)
using natural breaks in the data as parameters (see table 8). We then
selected three states from each cluster using randomly generated
numbers, for a total sample of nine states.
Table 8: Clusters Used for State Sample Selection:
Cluster: Low;
States: Arkansas, Georgia, Idaho, Louisiana, Mississippi, Montana, New
Mexico, South Carolina, South Dakota, Utah, Vermont, Wyoming.
Cluster: Medium;
States: Alabama, Alaska, Arizona, Colorado, Delaware, District of
Columbia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine,
Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New
Hampshire, North Carolina, North Dakota, Oklahoma, Oregon, Rhode
Island, Tennessee, Texas, Virginia, Washington, West Virginia.
Cluster: High;
States: California, Connecticut, Florida, Massachusetts, New Jersey,
New York, Ohio, Pennsylvania, Wisconsin.
Source: GAO analysis of data from the Census Bureau, CMS, The MetLife
Market Survey of Nursing Home & Home Care Costs, and the National
Association of Elder Law Attorneys.
Note: States in bold are the states in our sample.
[End of table]
[End of section]
Appendix III: Characteristics of Medicaid Long-Term Care Application
Processes, by State:
State: Alabama;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes.
State: Alaska;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes[C].
State: Arizona;
Application asks for comprehensive information about assets[A]: No;
Application asks for general information on assets: [D];
Interview is required as part of application process[B]: Yes[C].
State: Arkansas;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes.
State: California;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: [C].
State: Colorado;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes.
State: Connecticut;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: [C].
State: Delaware;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes[C].
State: District of Columbia;
Application asks for comprehensive information about assets[A]: [E];
Application asks for general information on assets: Yes;
Interview is required as part of application process[B]: No.
State: Florida;
Application asks for comprehensive information about assets[A]: No;
Application asks for general information on assets: Yes;
Interview is required as part of application process[B]: [F].
State: Georgia;
Application asks for comprehensive information about assets[A]: No;
Application asks for general information on assets: [D];
Interview is required as part of application process[B]: Yes[C].
State: Hawaii;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes.
State: Idaho;
Application asks for comprehensive information about assets[A]: [E];
Application asks for general information on assets: Yes;
Interview is required as part of application process[B]: Yes[C].
State: Illinois;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: Indiana;
Application asks for comprehensive information about assets[A]: No;
Application asks for general information on assets: [D];
Interview is required as part of application process[B]: Yes.
State: Iowa;
Application asks for comprehensive information about assets[A]: No;
Application asks for general information on assets: Yes;
Interview is required as part of application process[B]: [C].
State: Kansas;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: Kentucky;
Application asks for comprehensive information about assets[A]: [G];
Application asks for general information on assets: [G];
Interview is required as part of application process[B]: Yes[C].
State: Louisiana;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes.
State: Maine;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes.
State: Maryland;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes[C].
State: Massachusetts;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: Michigan;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: Minnesota;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: Mississippi;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes.
State: Missouri;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: Montana;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: Nebraska;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes[C].
State: Nevada;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: New Hampshire;
Application asks for comprehensive information about assets[A]: [E];
Application asks for general information on assets: Yes;
Interview is required as part of application process[B]: Yes.
State: New Jersey;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: [C].
State: New Mexico;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes[C].
State: New York;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes[C].
State: North Carolina;
Application asks for comprehensive information about assets[A]: [G];
Application asks for general information on assets: [G];
Interview is required as part of application process[B]: Yes.
State: North Dakota;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: Ohio;
Application asks for comprehensive information about assets[A]: No;
Application asks for general information on assets: Yes;
Interview is required as part of application process[B]: Yes.
State: Oklahoma;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes[C].
State: Oregon;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes.
State: Pennsylvania;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: Rhode Island;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: South Carolina;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: [C].
State: South Dakota;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: Tennessee;
Application asks for comprehensive information about assets[A]: No;
Application asks for general information on assets: [D];
Interview is required as part of application process[B]: Yes[C].
State: Texas;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes.
State: Utah;
Application asks for comprehensive information about assets[A]: No;
Application asks for general information on assets: Yes;
Interview is required as part of application process[B]: Yes.
State: Vermont;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes.
State: Virginia;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: [C].
State: Washington;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes[C].
State: West Virginia;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes[C].
State: Wisconsin;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: No.
State: Wyoming;
Application asks for comprehensive information about assets[A]: Yes;
Application asks for general information on assets: No;
Interview is required as part of application process[B]: Yes.
Total;
Application asks for comprehensive information about assets[A]: 38;
Application asks for general information on assets: 7;
Interview is required as part of application process[B]: 30.
Source: GAO analysis of state and county information, June and July
2005.
Note: In June and July 2005, we asked state officials to provide their
current applications for Medicaid long-term care coverage. Where states
asked for clarification or had multiple applications for Medicaid long-
term care coverage, we asked for applications appropriate for nursing
home coverage.
[A] Applications were considered to have asked for comprehensive
information on assets if they required applicants to respond to
questions regarding whether they had certain types of assets. For
example, applications required applicants to indicate whether they had
checking and savings accounts, stocks and bonds, retirement accounts,
burial insurance, real estate, and vehicles, along with other assets.
[B] States were asked whether they required an interview as part of the
application process. In our analysis, we considered an interview as
either a face-to-face meeting or a telephone conversation with either
the applicant or an appointed representative. States that do not
require an interview may allow interviews at the discretion of the
applicant or the Medicaid eligibility case worker.
[C] In this state, we were referred to a county eligibility office for
information about the interview; therefore, interview requirements in
this state are based on the response of the official from the county
eligibility office.
[D] The state had a brief application that did not ask about assets.
[E] While the state asked applicants to respond to whether they had
certain types of assets, the application was limited with respect to
the types of assets applicants were required to address. For example,
the application may have only asked about cash, bank accounts, life
insurance, real property, and "other."
[F] The state required interviews for applicants who the state deemed
to have complex assets, including those who reported transferring
assets.
[G] The state had applicants complete their application during the
interview process with eligibility case workers.
[End of table]
[End of section]
Appendix IV: Characteristics of Medicaid Long-Term Care Applications
Related to Transfers of Assets, by State:
State: Alabama;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Alaska;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: Arizona;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: [B].
State: Arkansas;
Application asks about transfers within previous 36 months[A]: [C];
Application asks about transfers within previous 60 months[A]: [C].
State: California;
Application asks about transfers within previous 36 months[A]: [D];
Application asks about transfers within previous 60 months[A]: No.
State: Colorado;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: Connecticut;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Delaware;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: [B].
State: District of Columbia;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: No.
State: Florida;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: Georgia;
Application asks about transfers within previous 36 months[A]: [E];
Application asks about transfers within previous 60 months[A]: [E].
State: Hawaii;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: Idaho;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: [B].
State: Illinois;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Indiana;
Application asks about transfers within previous 36 months[A]: [E];
Application asks about transfers within previous 60 months[A]: [E].
State: Iowa;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: Kansas;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: Kentucky;
Application asks about transfers within previous 36 months[A]: [F];
Application asks about transfers within previous 60 months[A]: [F].
State: Louisiana;
Application asks about transfers within previous 36 months[A]: [G];
Application asks about transfers within previous 60 months[A]: [G].
State: Maine;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: [B].
State: Maryland;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Massachusetts;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Michigan;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: [B].
State: Minnesota;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Mississippi;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: No.
State: Missouri;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: Montana;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Nebraska;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: Nevada;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: [B].
State: New Hampshire;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: New Jersey;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: [B].
State: New Mexico;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: [B].
State: New York;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: North Carolina;
Application asks about transfers within previous 36 months[A]: [F];
Application asks about transfers within previous 60 months[A]: [F].
State: North Dakota;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: Ohio;
Application asks about transfers within previous 36 months[A]: [E];
Application asks about transfers within previous 60 months[A]: [E].
State: Oklahoma;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Oregon;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Pennsylvania;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Rhode Island;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: South Carolina;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: South Dakota;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Tennessee;
Application asks about transfers within previous 36 months[A]: [E];
Application asks about transfers within previous 60 months[A]: [E].
State: Texas;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: [B].
State: Utah;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Vermont;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Virginia;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: Washington;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: West Virginia;
Application asks about transfers within previous 36 months[A]: No;
Application asks about transfers within previous 60 months[A]: Yes.
State: Wisconsin;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: Yes.
State: Wyoming;
Application asks about transfers within previous 36 months[A]: Yes;
Application asks about transfers within previous 60 months[A]: [B].
Total;
Application asks about transfers within previous 36 months[A]: 28;
Application asks about transfers within previous 60 months[A]: 30.
Source: GAO analysis of state and county information.
Note: In June and July 2005, we asked state officials to provide their
current applications for Medicaid long-term care coverage. Where states
asked for clarification or had multiple applications for Medicaid long-
term care coverage, we asked for applications appropriate for nursing
home coverage.
[A] Under federal law, states generally must withhold payments for long-
term care services for persons who dispose of assets for less than fair
market value within a specified time period to satisfy financial
eligibility requirements. As a result, states generally conduct a
review, or "look-back," to determine whether the applicant (or his or
her spouse, if married) transferred assets and, if so, whether the
transfer was made for less than fair market value. Generally, the look-
back period is 36 months, but for certain trusts the look-back period
is 60 months.
[B] The state's application had a specific question about trusts that
could be used to indicate whether further review for a transfer of
assets was necessary.
[C] While the state's application did not include specific questions
regarding transfer of assets, it included a separate form for the
applicant to report any transfers of assets, including the date of such
transfers.
[D] The state's application asked about transfers within 30 months.
Prior to the Omnibus Budget Reconciliation Act of 1993, the federally
mandated look-back period for transfers of assets was 30 months.
[E] The state's application did not ask about transfers of assets.
[F] The state had applicants complete their application during the
interview process with eligibility case workers.
[G] The state's application asked if an applicant had ever transferred
assets.
[End of table]
[End of section]
Appendix V: Comments from the Centers for Medicare & Medicaid Services:
DEPARTMENT OF HEALTH & HUMAN SERVICES:
Centers for Medicare & Medicaid Services:
Administrator:
Washington, DC 20201:
DATE: AUG 29 2005:
TO: Kathryn G. Allen:
Director, Health Care:
Government Accountability Office:
FROM: Mark B. McClellan, M.D., Ph.D.,
Administrator:
Signed by: Mark B. McClellan:
SUBJECT: Government Accountability Office's (GAO) Draft Report:
MEDICAID: Transfer of Assets by Elderly Individuals to Obtain Long-Term
Care Coverage (GAO-05-968):
Thank you for the opportunity to review and comment on the above
referenced GAO draft report. While the report was prepared on a fast
track and the data set addressed only some aspects of asset transfers,
we are pleased with the opportunity for timely analysis and comment on
the report.
The Medicaid program will only be sustainable if its resources are not
drained to provide health care assistance to those with substantial
ability to contribute to the costs of their own care. Unfortunately,
there are many examples of complex asset transfer schemes which have
the effect of shielding substantial financial assets for certain
individuals who consequently qualify for Medicaid coverage for long-
term care. Assuring that Medicaid resources are available to those who
truly need them by preventing such asset transfer schemes is a
difficult challenge. Current law is complex, and the complexity
provides opportunities for creative attorneys and individuals to devise
approaches that comply with the letter of the law but not the overall
intent of Medicaid policy. These schemes are ever-changing, and data
that quantifies the precise extent and cost of asset transfers to the
Medicaid program has been difficult to gather, as the GAO report notes.
Despite these challenges, CMS actuaries and the independent analysts at
CBO have concluded that specific legislative steps that address some
aspects of these asset transfer schemes would save billions of dollars
of state and Federal Medicaid spending by helping to ensure that those
with resources can contribute them to the cost of their long-term care.
This would improve the sustainability of the Medicaid program and
reduce the burden on states of providing access to long-term care for
individuals who truly need help.
The President's Budget proposal on this issue takes an important step
to prevent individuals from using creative estate planning to shelter
assets. The proposal would change the start of the period of
ineligibility for Medicaid long-term care services for those who
transfer assets for less than fair market value. Under the proposal,
the period of ineligibility would begin upon the later of (1) the asset
transfer, or (2) the point at which an individual is eligible for
Medicaid and is receiving long-term care services either in an
institution or, in certain circumstances, in the community. This
proposal would encourage more individual long-term care planning and
help focus Medicaid's resources on those who need it most. It is
estimated that the proposal would save $99 million in FY 2006 and $1.48
billion over five years.
An important limitation to GAO's analysis, noted in the report, was the
absence of available data related to transfer of non-cash assets. GAO
analyzed data from the 2002 Health and Retirement Study, a longitudinal
study that measures only cash transfers. CMS underscores GAO's caveat
that its analysis understates the extent and amount of all transfer of
assets.
Substantial amounts of assets are sheltered by individuals transferring
homes, stocks and bonds, and other non-cash property. Some of these non-
cash assets, such as homes, are generally not counted for the purposes
of determining Medicaid eligibility. However, in most circumstances,
the transfer of financial and other non-cash assets do affect
eligibility for Medicaid for the applicant or recipient of long-term
care coverage. Consequently, inclusion of data on non-cash transfers
would have significantly added to the value of the report for
addressing the topic of the occurrence of transfers of assets to obtain
Medicaid long-term care coverage. Additionally, the report could have
been more robust if GAO had additional time to investigate asset
transfers and penalties applied at the beneficiary level.
Thank you again for the opportunity to respond to the report.
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Kathryn G. Allen (202) 512-7118 or allenk@gao.gov:
Acknowledgments:
In addition to the contact named above Carolyn Yocom, Assistant
Director; JoAnn Martinez-Shriver; Kaycee Misiewicz; Elizabeth T.
Morrison; Michelle Rosenberg; Sara Sills; LaShonda Wilson; and Suzanne
M. Worth made key contributions to this report.
FOOTNOTES
[1] In addition to nursing home services, other health care services
for long-term care include home health, personal care services,
assisted living, and noninstitutional group living arrangements.
[2] Congressional Budget Office, The Budget and Economic Outlook:
Fiscal Years 2006 to 2015 (Washington, D.C.: January 2005).
[3] The functional eligibility criteria are established by each state
and generally involve a degree of impairment measured by the level of
assistance an individual needs to perform activities of daily living
(ADL) such as eating, bathing, dressing, using the toilet, getting in
and out of bed, and getting around the house, as well as instrumental
activities of daily living (IADL) such as preparing meals, shopping for
groceries, and getting around outside.
[4] This terminology is based on definitions provided in the State
Medicaid Manual issued by CMS, which specifies that assets include both
income and resources.
[5] Congressional Budget Office, The Cost and Financing of Long-Term
Care Services, April 19, 2005, Statement before the Subcommittee on
Health, Committee on Ways and Means, U.S. House of Representatives; and
Metropolitan Life Insurance Company, The MetLife Market Survey of
Nursing Home & Home Care Costs (Westport, Conn.: September 2004).
[6] HRS asked respondents whether they had transferred cash to another
individual during the 2 years prior to the interview. The data we
report here, therefore, refer only to these transfers.
[7] Throughout this report, the term state refers to the 50 states and
the District of Columbia.
[8] The five factors were (1) percentage of the population aged 65 and
over, (2) cost of a nursing home for a private-pay patient, (3)
proportion of elderly with income at or above 250 percent of the
federal poverty level ($23,925 for a single-person household in 2005),
(4) reported Medicaid nursing home expenditures, and (5) availability
of legal services through elder law attorneys specifically to meet the
needs of individuals who are elderly or disabled.
[9] We excluded the primary residence from this analysis because
states' Medicaid programs generally do not include a residence as a
countable resource. The median total resources for all elderly
households, including the primary residence, were $150,000.
[10] States are required to provide certain mandatory services and may,
at their option, offer additional services. Mandatory services include
inpatient and outpatient hospital care; physician services; nursing
home care; laboratory and x-ray services; immunizations and other early
and periodic screening, diagnostic, and treatment services for
children; family planning services; health center and rural health
clinic services; and nurse midwife and nurse practitioner services.
Services that are optional include outpatient prescription drugs,
institutional care for persons with mental retardation, personal care,
and dental and vision care for adults.
[11] A chronic physical or mental disability may occur at any age, but
as a person ages the likelihood increases that a disability will
develop or worsen.
[12] Not all SSI recipients automatically qualify for Medicaid. Under
Section 1902(f) of the Social Security Act, states may use Medicaid
eligibility standards that they had in place in 1972 rather than rules
that would otherwise apply under the SSI program. As of June 2003, 11
states had opted to use these standards. These states are often
referred to as 209(b) states because the origin of this provision was
§209(b) of the Social Security Amendments of 1972, Pub. L. No. 92-603,
86 Stat. 1329, 1381.
[13] A personal needs allowance is an amount, subject to a federal
minimum ($30), excluded from an institutionalized individual's
countable income to pay for the individual's clothing and other
personal needs.
[14] See National Association of State Medicaid Directors, Aged, Blind
and Disabled Eligibility Survey (Washington, D.C.: American Public
Human Services Association, 2002). Downloaded from
http://www.nasmd.org/eligibility/default.asp on July 31, 2005.
[15] Although noncountable resources vary by state, for purposes of
determining Medicaid eligibility for long-term care, they generally
include an individual's primary residence (typically if the individual
expresses the intent to return home), an automobile, household goods
and personal effects, burial spaces, and life insurance and burial
arrangements up to a certain value, among other things.
[16] States' maximum resource levels must be within federal standards.
As of January 1, 2005, the federal maximum was $95,100.
[17] States' minimum resource levels must be within federal standards.
As of January 1, 2005, the federal minimum was $19,020.
[18] Technically, the community spouse resource allowance is the amount
of additional resources that the community spouse keeps above the
spousal share of resources. Generally, however, the community spouse
resource allowance is used to refer to the total resources that the
community spouse is permitted to retain. See 42 U.S.C. § 1396r-5(f)(2);
see also Wisconsin Department of Health and Family Services v. Blumer,
534 U.S. 473, 482-3 (2001). According to CMS, the community spouse
resource allowance means "the amount of a couple's combined jointly and
separately-owned resources . . . allocated to the community spouse and
considered unavailable to the institutionalized spouse when determining
his or her eligibility for Medicaid." 66 Fed. Reg. 46763, 46768 (2001).
[19] As of July 1, 2005, federal standards specified that the minimum
needs allowance can be no lower than $1,603.75 and no higher than
$2,377.50 per month.
[20] If the shortfall in income cannot be made up completely using one
of the approaches, then a combination of both approaches may be used.
[21] Federal law requires states to apply the transfer of asset
provisions to institutionalized individuals, who are defined in the
State Medicaid Manual as individuals who are inpatients in a nursing
facility or a similar institution or recipients of home and community-
based services. States have the option to apply such provisions to
noninstitutionalized individuals.
[22] For individuals in institutions, the look-back period is 36 months
from the date the individual is institutionalized and applies for
Medicaid. For those who are not institutionalized, the look-back period
is 36 months before the later of (1) the date the individual applies
for Medicaid or (2) the date the person disposed of his or her assets
for less than fair market value. For certain types of trusts, the look-
back period is 60 months.
[23] States have the option to begin the penalty period on either the
first day of the month in which the asset was transferred for less than
fair market value or the first day of the month following the month of
transfer.
[24] For the transfer of a home to a sibling to be exempt from transfer
penalty provisions, the sibling must have an equity interest in the
home and must have resided in the individual's home for at least 1 year
immediately prior to the date the individual became institutionalized.
[25] We analyzed HRS data at the "household" level. Household refers to
either a single individual living alone or more than one individual
living together. Elderly households are those in which at least one
member is aged 65 or over.
[26] For the purpose of our analysis, we defined disabled elderly
households as those in which the HRS respondent was both elderly and
had at least one limitation in ADLs.
[27] For the purpose of our analysis, we defined couples as both
married couples and a small percentage of nonmarried individuals living
together.
[28] For the purpose of our analysis, we defined severely disabled
elderly households as those in which the survey respondent was both
elderly and had at least three limitations in ADLs.
[29] A household can have resources valued at less than zero if its
debt is greater than the value of its resources.
[30] A similar relationship existed between limitations in IADLs and
household assets. As the number of limitations in IADLs increased, the
household's income and resources decreased.
[31] Furthermore, as limitations in IADLs increased, the likelihood
that a household transferred cash decreased.
[32] Elderly households that transferred cash had median total
resources of $255,000, ranging from less than zero to $21,101,000, and
a primary residence with a median net value of $100,000, ranging from
less than zero to $20,000,000.
[33] Couples also may seek to increase the minimum needs allowance, the
state-established minimum amount of income that the community spouse is
permitted to retain. Generally, this would only be allowed if the
couple could prove that the state-established needs allowance is too
low to cover the community spouse's living expenses. As with increases
in the resource allowance, increasing the minimum needs allowance would
require approval from a court or fair hearings process but would not
result in a penalty period.
[34] A combination of these approaches may be used if the shortfall in
income cannot be made up completely using only one of the approaches.
[35] CMS guidance included in the State Medicaid Manual indicates that
states must determine what constitutes sufficient proof that an asset
was transferred exclusively for a purpose other than to qualify for
Medicaid. However, the manual states that verbal assurances are not
sufficient and that there must be convincing evidence about the purpose
for the asset transfer. According to officials from some of the nine
states we contacted, individuals who gave gifts before they could know
of a need for long-term care must prove that the transfer was for a
purpose other than qualifying for Medicaid. For example, if an
individual gave his or her child a down payment on a house or
grandchild money for school and later had a stroke that led to the
individual's need for long-term care, the individual may be able to
prove that the gift was not made in order to qualify for Medicaid long-
term care coverage.
[36] Under the Medicaid statute, the penalty period is calculated by
dividing the dollar amount of the assets transferred by the average
monthly private-pay rate for nursing home care in the state (or the
community, at the option of the state). Thus, a transfer for less than
the average monthly nursing home private-pay rate would result in a
penalty period of less than 1 month. None of our nine sample states
imposed penalties for less than 1 month.
[37] For example, a single elderly male with $50,000 in resources gives
one-half of his resources away, leaving him with $25,000. He uses the
remaining $25,000 in resources to pay privately for his long-term care
costs. Assuming that the average private payment for a nursing home is
$5,000 per month, his $25,000 in resources would cover 5 months of
care--which is equal to the same amount of time as any penalty period
that would be calculated and imposed by the state. He would then become
eligible for Medicaid long-term care coverage, assuming his need for
nursing home care continued.
[38] See National Association of State Medicaid Directors, The Role of
Annuities in Medicaid Financial Planning: A Survey of State Medicaid
Agencies (Washington, D.C.: American Public Human Services Association,
October 2003).
[39] Although CMS acknowledged that annuities are used in this manner
in some states, CMS officials told us that an annuity should be
considered a countable resource if it can be converted to cash, for
example, by being sold for a lump sum.
[40] Individuals living in states with a medically needy program may be
eligible for Medicaid if their income is less than their monthly long-
term care costs.
[41] To determine whether an annuity is actuarially sound, states are
to use the life expectancy tables included in the State Medicaid
Manual, which are based on information published by the Office of the
Actuary of the Social Security Administration.
[42] Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66,
§13611, 107 Stat. 312, 622-27.
[43] The treatment of trusts is detailed in the Medicaid statute and
the State Medicaid Manual issued by CMS. Generally, to the extent that
assets in a trust are available to an individual, they are counted in
determining Medicaid eligibility. Assets in a trust that are not
available to the individual generally are considered to be transferred
for less than fair market value and thus could be subject to the
transfer of asset penalties. Certain types of trusts, such as certain
trusts established for the benefit of a disabled child or individual or
certain trusts in which the state is the remainder beneficiary, are
exempt from transfer of asset penalties.
[44] Individuals also are allowed to transfer ownership of their home
without penalty to (1) a child of any age who is disabled, (2) a
sibling with an equity interest in the home who resided in the home for
at least 1 year before the individual's institutionalization, and (3)
an adult child who resided in the home for at least 2 years immediately
prior to the individual's institutionalization and provided care to the
individual that allowed him or her to reside in the home.
[45] An example provided in CMS guidance assumes that the individual
transferring the home does not receive any compensation for the
difference between the life estate and the value of the home. The value
of the life estate is determined using a table indexed for age provided
by CMS.
[46] In such cases, eligibility of the institutionalized spouse will
not be denied provided the state has a legal right to obtain support
from the community spouse for the care provided to the
institutionalized spouse.
[47] According to CMS officials, under SSI policy, which serves as the
basis for Medicaid policy on the treatment of assets, promissory notes
are a countable resource. These officials said, however, that some
states are treating promissory notes in a way similar to how they treat
annuities, that is, they are not treating the value of the note as a
countable resource. As issues arise, CMS is telling states that they
can count a promissory note as a countable resource.
[48] As with the small monthly transfers, forgiving a loan for an
amount less than the average monthly nursing home private-pay rate
would result in a penalty period of less than 1 month, which some
states do not impose.
[49] The amount of assets transferred are added together if (1)
transfers occurred in the same month, (2) transfers occurred in
consecutive months, (3) the penalty periods for the transfers would
overlap, or (4) a penalty period ended in the month immediately prior
to the transfer.
[50] In June and July 2005, we asked state officials to provide their
current applications for Medicaid long-term care coverage. Where states
asked for clarification or had multiple applications for Medicaid long-
term care coverage, we asked for applications appropriate for nursing
home coverage.
[51] These six states either had applicants complete their application
during the interview process with eligibility case workers or had brief
applications that did not ask about assets.
[52] Some states referred us to a county eligibility office for
information about the Medicaid application process. As such, the
information about the interview requirement in these states is based on
the response of the official from the county eligibility office.
[53] Several states that did not ask about transfers in the past 60
months had a specific question on their application form about trusts
that could be used as an indication for whether further review is
necessary.
[54] Prior to the Omnibus Budget Reconciliation Act of 1993, the
federally mandated look-back period for transfers of assets was 30
months.
[55] Revocable trusts are trusts that, under state law, can be revoked
by the individual creating the trust. In contrast, an irrevocable trust
cannot be revoked after its creation.
[56] The policy relating to funeral and burial arrangements had been
previously communicated to state Medicaid directors in a letter in
1996.
[57] See Robert A. Levy et al., The CNA Corporation, under contract
with CMS, Analysis of the Use of Annuities to Shelter Assets in State
Medicaid Programs (Alexandria, Va.: January 2005). The study presents
information from analyses of (1) interviews conducted with Medicaid
policy officials, county eligibility workers, and consumer and industry
representatives; (2) focus groups with potential nursing home
beneficiaries; and (3) the modeling and simulation of actual Medicaid
case files from 11 counties within a total of five states.
[58] To estimate the proportion of the nonpoor (i.e., those above the
federal poverty level) Medicaid beneficiaries in nursing homes who had
annuities and the cost of annuities to the Medicaid program, Levy, et
al. collected Medicaid case files from a sample of five states. Using
information from these case files and various other factors, such as
nursing home costs and income and resource constraints on Medicaid
eligibility, the researchers developed a model to estimate the costs of
annuities in the five states. Using these estimates and an analysis of
how restrictive states' policies were regarding the use of annuities,
the researchers estimated a national cost of annuities to the Medicaid
program. The study acknowledges that its estimates of these costs are
likely to be less than the costs perceived by most Medicaid officials.
[59] Each quarter, states submit Medicaid program expenditures to CMS
using the CMS-64 form. Our analysis used the fiscal year 2000 nursing
home expenditures as reported on the CMS-64.
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