Medicaid Long-Term Care
Few Transferred Assets before Applying for Nursing Home Coverage; Impact of Deficit Reduction Act on Eligibility Is Uncertain Gao ID: GAO-07-280 March 26, 2007The Medicaid program paid for nearly one-half of the nation's total long-term care expenditures in 2004. To be eligible for Medicaid long-term care, individuals may transfer assets (income and resources) to others to ensure that their assets fall below certain limits. Individuals who make transfers for less than fair market value (FMV) can be subject to a penalty that may delay Medicaid coverage. The Deficit Reduction Act of 2005 (DRA) changed the calculation and timing of the penalty period and set requirements for the treatment of certain types of assets. GAO was asked to provide data on the extent to which asset transfers for less than FMV occur. GAO examined (1) the financial characteristics of elderly nursing home residents nationwide, (2) the demographic and financial characteristics of a sample of Medicaid nursing home applicants, (3) the extent to which these applicants transferred assets for less than FMV, and (4) the potential effects of the DRA provisions related to Medicaid eligibility for long-term care. GAO analyzed data from the Health and Retirement Study (HRS), a national panel survey, and from 540 randomly selected Medicaid nursing home application files from 3 counties in each of 3 states (Maryland, Pennsylvania, and South Carolina). State and county selections were based on the prevalence of several factors, including population, income, and demographics.
Nationwide, HRS data showed that, at the time most elderly individuals entered a nursing home, they had nonhousing resources of $70,000 or less--less than the average cost for a year of private-pay nursing home care. Overall, nursing home residents covered by Medicaid had fewer nonhousing resources and lower annual incomes, and were less likely to have reported transferring cash than non-Medicaid-covered nursing home residents. Similar to the nationwide results, GAO's review of 540 Medicaid nursing home applications in three states showed that over 90 percent of the applicants had nonhousing resources of $30,000 or less and 85 percent had annual incomes of $20,000 or less. One-fourth of applicants owned homes, with a median home value of $52,954. Over 80 percent of applicants had been living in long-term care facilities for an average of a little over 4 months at the time of their application. Of the 540 applicants, 408 were approved for Medicaid coverage for nursing home services the first time they applied and 122 were denied. Of the denied applicants, 56 were denied for having income or resources that exceeded the standards, 41 of whom submitted subsequent applications and were eventually approved, primarily by decreasing the value of their nonhousing resources. For about one-third of these applicants, at least part of the decrease in nonhousing resources could be attributed to spending on medical or nursing home care. Approximately 10 percent of approved applicants in the three states (47 of 465) transferred assets for less than FMV, with a median amount of $15,152. The average length of the penalty period assessed for the 47 applicants was about 6 months. However, only 2 of these applicants experienced a delay in Medicaid eligibility as a result of the transfers because many applicants' assessed penalties had expired by the time they applied for coverage. The extent to which DRA long-term care provisions will affect applicants' eligibility for Medicaid is uncertain. DRA provisions regarding changes to penalty periods could increase the likelihood that applicants who transfer assets for less than FMV will experience a delay in Medicaid eligibility, but the extent of the delay is uncertain. Several factors could affect the extent to which DRA penalty period provisions actually delay eligibility for Medicaid. These factors include whether an applicant transferred assets for less than FMV before or after the DRA was enacted and a potential increase in requests for waived penalty periods due to undue hardship--circumstances under which individuals are deprived of medical care, food, clothing, shelter, or other necessities of life. Other DRA provisions may have limited effects on eligibility. For example, provisions pertaining to home equity may have limited impact because few applicants whose files GAO reviewed had home equity of sufficient value to be affected. CMS, Maryland, and South Carolina generally agreed with the report's findings; Pennsylvania did not provide comments.
GAO-07-280, Medicaid Long-Term Care: Few Transferred Assets before Applying for Nursing Home Coverage; Impact of Deficit Reduction Act on Eligibility Is Uncertain
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
March 2007:
Medicaid Long-Term Care:
Few Transferred Assets before Applying for Nursing Home Coverage;
Impact of Deficit Reduction Act on Eligibility Is Uncertain:
GAO-07-280:
GAO Highlights:
Highlights of GAO-07-280, a report to congressional requesters
Why GAO Did This Study:
The Medicaid program paid for nearly one-half of the nation‘s total
long-term care expenditures in 2004. To be eligible for Medicaid long-
term care, individuals may transfer assets (income and resources) to
others to ensure that their assets fall below certain limits.
Individuals who make transfers for less than fair market value (FMV)
can be subject to a penalty that may delay Medicaid coverage. The
Deficit Reduction Act of 2005 (DRA) changed the calculation and timing
of the penalty period and set requirements for the treatment of certain
types of assets. GAO was asked to provide data on the extent to which
asset transfers for less than FMV occur.
GAO examined (1) the financial characteristics of elderly nursing home
residents nationwide, (2) the demographic and financial characteristics
of a sample of Medicaid nursing home applicants, (3) the extent to
which these applicants transferred assets for less than FMV, and (4)
the potential effects of the DRA provisions related to Medicaid
eligibility for long-term care. GAO analyzed data from the Health and
Retirement Study (HRS), a national panel survey, and from 540 randomly
selected Medicaid nursing home application files from 3 counties in
each of 3 states (Maryland, Pennsylvania, and South Carolina). State
and county selections were based on the prevalence of several factors,
including population, income, and demographics.
What GAO Found:
Nationwide, HRS data showed that, at the time most elderly individuals
entered a nursing home, they had nonhousing resources of $70,000 or
less”less than the average cost for a year of private-pay nursing home
care. Overall, nursing home residents covered by Medicaid had fewer
nonhousing resources and lower annual incomes, and were less likely to
have reported transferring cash than non-Medicaid-covered nursing home
residents.
Similar to the nationwide results, GAO‘s review of 540 Medicaid nursing
home applications in three states showed that over 90 percent of the
applicants had nonhousing resources of $30,000 or less and 85 percent
had annual incomes of $20,000 or less. One-fourth of applicants owned
homes, with a median home value of $52,954. Over 80 percent of
applicants had been living in long-term care facilities for an average
of a little over 4 months at the time of their application. Of the 540
applicants, 408 were approved for Medicaid coverage for nursing home
services the first time they applied and 122 were denied. Of the denied
applicants, 56 were denied for having income or resources that exceeded
the standards, 41 of whom submitted subsequent applications and were
eventually approved, primarily by decreasing the value of their
nonhousing resources. For about one-third of these applicants, at least
part of the decrease in nonhousing resources could be attributed to
spending on medical or nursing home care.
Approximately 10 percent of approved applicants in the three states (47
of 465) transferred assets for less than FMV, with a median amount of
$15,152. The average length of the penalty period assessed for the 47
applicants was about 6 months. However, only 2 of these applicants
experienced a delay in Medicaid eligibility as a result of the
transfers because many applicants‘ assessed penalties had expired by
the time they applied for coverage.
The extent to which DRA long-term care provisions will affect
applicants‘ eligibility for Medicaid is uncertain. DRA provisions
regarding changes to penalty periods could increase the likelihood that
applicants who transfer assets for less than FMV will experience a
delay in Medicaid eligibility, but the extent of the delay is
uncertain. Several factors could affect the extent to which DRA penalty
period provisions actually delay eligibility for Medicaid. These
factors include whether an applicant transferred assets for less than
FMV before or after the DRA was enacted and a potential increase in
requests for waived penalty periods due to undue hardship”circumstances
under which individuals are deprived of medical care, food, clothing,
shelter, or other necessities of life. Other DRA provisions may have
limited effects on eligibility. For example, provisions pertaining to
home equity may have limited impact because few applicants whose files
GAO reviewed had home equity of sufficient value to be affected.
CMS, Maryland, and South Carolina generally agreed with the report‘s
findings; Pennsylvania did not provide comments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-280].
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:
Nationwide, Most Nursing Home Residents' Nonhousing Resources Were
Lower than Annual Nursing Home Costs:
Majority of Medicaid Applicants in Selected Counties in Three States
Had Few Nonhousing Resources and Were Approved upon Initial
Application:
Few Transfers below FMV Identified for Applications Reviewed and
Penalties Rarely Delayed Eligibility:
Extent to Which Some DRA Long-Term Care Provisions May Affect
Eligibility Is Uncertain:
Agency and State Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Centers for Medicare & Medicaid
Services:
Appendix III: Comments from the State of South Carolina Department of
Health and Human Services:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Types of Assets and Examples:
Table 2: Income and Resource Standards for Selected Ways of Becoming
Eligible for Medicaid, as of 2005:
Table 3: DRA Changes to Provisions Related to Transfers of Assets:
Table 4: New Provisions Introduced by the DRA Related to Medicaid
Eligibility for Long-Term Care and Asset Transfers:
Table 5: Amounts of Cash Transferred at Entry and Prior to Entry into
the Nursing Home Reported by Elderly Nursing Home Residents, by Payer
Source, 1992-2004:
Table 6: Percentage of Approved Applicants Whose Files Indicated They
Had Transferred Assets for Less than FMV, by State and Selected County:
Table 7: Percentage of Assets Transferred for Less than FMV by Type of
Asset for 47 Approved Applicants in Selected Counties in Three States:
Table 8: Clusters Used for State Sample Selection:
Table 9: Selected States and Counties, by County-Level Median Household
Income Group:
Table 10: Number of Files Reviewed, by Selected State and County:
Figures:
Figure 1: Distribution of Nonhousing Resources as Reported by Elderly
Nursing Home Residents at the Time They Entered the Nursing Home, 1992-
2004:
Figure 2: Distribution of Annual Income as Reported by Elderly Nursing
Home Residents at the Time They Entered the Nursing Home, 1992-2004:
Figure 3: Distribution of Nonhousing Resources of Medicaid Applicants
in Selected Counties in Three States:
Figure 4: Distribution of Annual Income of Medicaid Applicants in
Selected Counties in Three States:
Figure 5: Percentage of All Applicants in Selected Counties in Three
States, by Application Status (n=540):
Figure 6: Percentage of Initially Denied Applicants in Selected
Counties in Three States, by Reasons for Denial (n=122):
Figure 7: Median Nonhousing Resources and Median Annual Income of
Reviewed Applicants in Selected Counties in Three States Who Were
Initially Denied Only for Financial Reasons and Subsequently Approved,
at Time of Initial Application and Subsequent Application (n=41):
Figure 8: Percentage of Approved Applicants and Approved Applicants Who
Transferred Assets for Less than FMV, by Gender and Marital Status:
Figure 9: Median Nonhousing Resources and Income for Approved
Applicants and Approved Applicants Who Transferred Assets for Less than
FMV:
Figure 10: Distribution of 47 Approved Applicants Who Transferred
Assets for Less than FMV, by Length of Assessed Penalty Periods, in
Months:
Figure 11: Distribution of 47 Approved Applicants Who Transferred
Assets for Less than FMV, by Amount Transferred:
Figure 12: Distribution of 47 Approved Applicants Who Transferred
Assets for Less than FMV, by Number of Transfers:
Figure 13: Example of How the DRA Penalty Period Provisions Could Delay
Medicaid Eligibility for Applicants Who Transfer Assets for Less than
FMV:
Abbreviations:
ADL: activities of daily living:
CMS: Centers for Medicare & Medicaid Services:
CPI: Consumer Price Index:
DRA: Deficit Reduction Act of 2005:
FMV: fair market value:
HHS: Department of Health and Human Services:
HRS: Health and Retirement Study:
IADL: instrumental activities of daily living:
SSI: Supplemental Security Income:
United States Government Accountability Office:
Washington, DC 20548:
March 26, 2007:
The Honorable John D. Dingell:
Chairman:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Henry A. Waxman:
Chairman:
Committee on Oversight and Government Reform:
House of Representatives:
The Honorable Frank J. Pallone, Jr.
Chairman:
Subcommittee on Health:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Sherrod Brown:
United States Senate:
Long-term care is costly--particularly nursing home care, which is
estimated to average more than $70,000 a year for a private-pay
patient.[Footnote 1] Medicaid, the joint federal-state health care
financing program that covers certain categories of low-income
individuals, paid for nearly one-half of the nation's total long-term
care expenditures of about $193 billion in 2004. As such, long-term
care expenditures were a significant portion of total Medicaid
expenditures in 2004, comprising 32 percent of the total $296 billion
spent. As the nation's population ages and more individuals are likely
to need long-term care services, federal Medicaid spending is expected
to nearly double in size during the next 10 years.[Footnote 2] In light
of the associated increased demand and burden that these trends place
on federal and state budgets,[Footnote 3] it is important to ensure
that Medicaid coverage for long-term care is limited to those who are
truly eligible.
Individuals applying for Medicaid coverage for long-term care must meet
certain financial and functional eligibility criteria.[Footnote 4] To
meet the financial eligibility criteria, individuals must have assets-
-both income and resources--that fall below established standards,
which vary by state but are within standards set by the federal
government.[Footnote 5] Not all assets are counted in determining
financial eligibility for Medicaid. For example, states generally
exclude--within specified limits--the value of an individual's home,
car, and prepaid burial arrangements. Additionally, federal law
includes provisions to discourage individuals from artificially
impoverishing themselves--for example, by transferring their assets to
certain family members--in order to establish financial eligibility.
Specifically, the law states that those who transfer assets for less
than fair market value (FMV) during a specified "look-back" period--a
period of time before application for Medicaid in which an individual's
or couple's assets are reviewed--may be deemed ineligible for Medicaid
coverage for long-term care for a period of time, called the penalty
period.
Evidence on the extent to which individuals transfer assets for less
than FMV to become financially eligible for Medicaid coverage for long-
term care is generally limited and often based on anecdote. In
September 2005, we reported that none of the nine states we contacted
systematically tracked or analyzed data that would have provided
information on the incidence of asset transfers made for less than FMV
and the extent to which penalties were applied in their
states.[Footnote 6] We also reported that other methods of reducing
assets to qualify for Medicaid--such as using assets to reduce debt or
make home modifications--did not always result in a penalty period. You
asked us to expand on this work to provide more information on the
extent to which asset transfers for less than FMV occur.
Subsequent to your request, in February 2006, the Deficit Reduction Act
of 2005 (DRA), which amended certain existing provisions regarding
asset transfers for less than FMV and introduced new requirements
related to financial eligibility for Medicaid coverage for long-term
care, was enacted.[Footnote 7] For example, the DRA extended the look-
back period from 36 months to 60 months for transfers occurring on or
after its enactment, changed the calculation and timing of the penalty
period for those transfers, and introduced new federal requirements
regarding certain types of assets, including an individual's home.
Given your request and the passage of the DRA, for this report we (1)
examined the financial characteristics of elderly nursing home
residents nationwide, including the extent to which they transferred
cash; (2) for selected states, reviewed the demographic and financial
characteristics of elderly individuals who applied for Medicaid
coverage for nursing home care and if they applied more than once; (3)
determined the extent to which elderly Medicaid nursing home applicants
in selected states transferred assets for less than FMV and were
subject to penalty periods; and (4) assessed the potential effects of
the DRA provisions related to eligibility for Medicaid coverage for
long-term care.
To examine the financial characteristics of elderly nursing home
residents nationwide, including the extent to which they transferred
cash, we analyzed data from the 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. We
used HRS data from 1992 through 2004 to estimate the (1) level of
assets (nonhousing resources and income) held by elderly nursing home
residents[Footnote 8] and (2) the percentage of residents who
transferred cash or the deed to their home and the amount of the
transfer.[Footnote 9] We further analyzed the above based on the
reported source of payment to the nursing home--Medicaid or non-
Medicaid (self-pay, Medicare, or other third-party insurance)--and
assessed nonhousing resources relative to the average cost of a year of
private-pay nursing home care. Because HRS only addressed cash and home
deed transfers made to relatives, our analysis understates the
percentage of residents who transfer and the amount of transfers by
excluding transfers of other types of assets or transfers made to other
individuals.[Footnote 10] Because HRS did not inquire about the reason
for the transfers, no conclusions can be drawn regarding whether the
survey respondents made these transfers for purposes of establishing
eligibility for Medicaid coverage for nursing home care. To examine the
characteristics of elderly individuals who applied for Medicaid
coverage for nursing home care and the extent to which they transferred
assets for less than FMV, we reviewed 540 randomly selected Medicaid
nursing home application files from three selected counties in 3
selected states (180 files from each of the selected states).[Footnote
11] To select states, we assessed the prevalence of five factors in
each of the 50 states and the District of Columbia;[Footnote 12] on the
basis of this assessment, we ranked the states into three clusters
(low, medium, and high) based on the prevalence of the five factors and
judgmentally selected one state from each cluster.[Footnote 13] The 3
selected states were South Carolina (low), Maryland (medium), and
Pennsylvania (high). We then judgmentally selected three counties in
each state based on the prevalence of four factors.[Footnote 14] From
the 540 Medicaid nursing home application files, we collected and
analyzed data on the applicants' demographic characteristics, income,
nonhousing resources, and home value. We also collected and analyzed
data on the number of applicants who transferred assets for less than
FMV and the amount they transferred. Because of the parameters set in
our methodology, the data from the 540 Medicaid nursing home
application files can be generalized to the county level but cannot be
generalized to the state or national level.[Footnote 15] To assess the
potential effects of the DRA, we relied on data from HRS and the 540
Medicaid nursing home application files, as well as interviewing
officials from the 3 selected states regarding Medicaid eligibility
determination practices, including the process for identifying whether
applicants had transferred assets.[Footnote 16] We reviewed applicable
federal law related to Medicaid and asset transfers, as well as related
guidance from the Centers for Medicare & Medicaid Services (CMS). We
also spoke with researchers and CMS officials. We considered the HRS
data as well as data from the Medicaid application files to be
sufficiently reliable for our purposes. (See app. I for more
information about our scope and methodology.) We performed our work
from October 2005 through January 2007 in accordance with generally
accepted government auditing standards.
Results in Brief:
Nationwide, at the time most elderly individuals entered a nursing
home, they had nonhousing resources of $70,000 or less--which is less
than the average cost for a year of private-pay nursing home care.
According to data from HRS, median nonhousing resources for Medicaid-
covered elderly nursing home residents ($48) were lower than for the
non-Medicaid-covered elderly nursing home residents ($36,123).
Regarding income, approximately 90 percent of elderly nursing home
residents had annual incomes of $20,000 or less. Median annual income
for Medicaid-covered elderly nursing home residents ($9,719) was about
half that for non-Medicaid-covered residents ($18,600). Similarly, the
percentage of Medicaid-covered elderly nursing home residents who
reported transferring cash (9.2 percent) was less than half that for
non-Medicaid covered residents (23.2 percent) at time of entry into the
nursing home. However, the median amount of cash transferred as
reported by Medicaid-covered residents and non-Medicaid-covered
residents did not vary greatly.
Similar to the nationwide results, our review of 540 Medicaid nursing
home application files in selected counties in three states showed that
about 90 percent of the applicants had total nonhousing resources of
$30,000 or less and 85 percent had annual incomes of $20,000 or less.
Over 80 percent of applicants had been living in long-term care
facilities for an average of a little over 4 months at the time of
their Medicaid application. The majority of the applicants were single
females, and 25 percent of the applicants (137 applicants) owned homes.
For the 112 applicants for whom we were able to determine a value for
their homes, the median value was $52,954. Overall, 408 applicants (76
percent) were approved for Medicaid coverage for nursing home services
the first time they applied, and 465 applicants (86 percent) were
eventually approved. Of the 122 applicants who were denied eligibility,
56 were denied due to having income or resources that exceeded the
standards, 41 of whom submitted subsequent applications and were
eventually approved, primarily by decreasing the value of their
nonhousing resources. Specifically, their median nonhousing resources
decreased from $22,380 to $10,463, with a maximum decrease of $283,075.
For about one-third of these applicants, at least part of the decrease
in nonhousing resources could be attributed to spending on medical or
nursing home care.
Approximately 10 percent of the approved applicants (47 of 465) whose
files we reviewed had transferred assets for less than FMV during the
36-month look-back period; however, these applicants rarely experienced
a delay in Medicaid eligibility as a result of the transfers because
many applicants' assessed penalties had expired by the time they
applied for coverage. The proportion of approved applicants found to
have transferred assets for less than FMV varied, ranging from a high
of approximately 24 percent of approved applicants in a South Carolina
county to a low of approximately 4 percent in a Pennsylvania county.
Among the 47 approved applicants who transferred assets for less than
FMV, the average length of the penalty period assessed was about 6
months. However, only 2 of the applicants experienced a delay in their
eligibility for Medicaid coverage for nursing home services as a result
of transferring assets. The other applicants were either not assessed a
penalty, because the penalty would have been for less than 1 month of
coverage (9 applicants), or the penalty they were assessed had expired
by the time they submitted their Medicaid application (36 applicants).
The median amount of all assets transferred for less than FMV was
$15,152, and ranged from $1,000 to $201,516. Most of the asset
transfers involved the transferring of financial holdings, such as
gifts of cash or stocks, and applicants' children or grandchildren were
the most common recipients of the transfers.
The extent to which new long-term care provisions in the DRA may affect
applicants' eligibility for Medicaid coverage for long-term care is
uncertain. Primarily because the DRA changed the beginning date of the
penalty period, there is an increased likelihood that applicants who
transfer assets for less than FMV will experience delays in Medicaid
eligibility. For example, if the DRA penalty period provisions had been
in effect for the sample of applications we reviewed, all 47 of the
approved applicants who transferred assets for less than FMV would have
experienced a delay in eligibility for Medicaid coverage for nursing
home care, with a median delay of about 3 months. Since the new
provisions were not yet in effect, however, only 2 applicants actually
experienced delays obtaining Medicaid coverage because many applicants'
penalty periods had expired by the time they applied for coverage.
While the new provisions in the DRA have the potential to delay
eligibility for those who transfer assets for less than FMV during the
look-back period, changes in individuals' financial decision making--
specifically decisions regarding whether to transfer assets below FMV-
-could affect the extent to which such delays actually occur.
Additionally, individuals can request that the state waive their
penalty periods because the application of the penalty would result in
an undue hardship--that is, it would deprive the individual of
critically needed medical care, food, clothing, shelter, or other
necessities of life. Given the increases in the incidence or length of
penalty periods as a result of the DRA, more applicants may request
that the state waive their penalty periods. The effects of other DRA
provisions on individuals' eligibility for Medicaid may be limited. For
example, few applicants whose files we reviewed appeared to have home
equity of sufficient value to be affected by the DRA provisions.
We received comments on a draft of this report from CMS and state
officials from Maryland and South Carolina. In commenting, CMS,
Maryland, and South Carolina generally agreed with our findings.
Technical comments from CMS were incorporated as appropriate.
Background:
To qualify for Medicaid coverage for long-term care, individuals must
be within certain eligibility categories, such as children or those who
are aged or disabled, and meet functional and financial eligibility
criteria. Within broad federal standards, states determine if an
individual meets the functional criteria by assessing limitations in an
individual's ability to carry out activities of daily living (ADL) and
instrumental activities of daily living (IADL). The financial
eligibility criteria are based on individuals' assets--income and
resources together. The Medicaid statute requires states to use
specific income and resource standards in determining eligibility;
these standards differ based on whether an individual is married or
single. If a state determines that an individual has transferred assets
for less than FMV, the individual may be ineligible for Medicaid
coverage for long-term care for a period of time.
Financial Eligibility for Medicaid Coverage for Long-Term Care:
Most individuals requiring Medicaid coverage for long-term care
services become financially eligible for Medicaid in one of three ways:
1. Individuals who participate in the Supplemental Security Income
(SSI) program, which provides cash assistance to aged, blind, or
disabled individuals with limited income and resources, generally are
eligible for Medicaid.[Footnote 17]
2. Individuals who incur high medical costs may "spend down" into
Medicaid eligibility because these expenses are deducted from their
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.
3. 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
eligible for Medicaid.[Footnote 18] 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 19] The
National Association of State Medicaid Directors reported that, as of
2003, at least 38 states had elected this option.[Footnote 20]
Medicaid policy bases its characterization of assets--income and
resources--on SSI policy. 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 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.) In establishing policy for determining
financial eligibility for Medicaid coverage for long-term care, 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 21]
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 income over a defined period of time
for an initial payment of principal. The principal of an annuity may be
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 coverage for
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 depending on the way an individual becomes
eligible for Medicaid (see table 2).
Table 2: Income and Resource Standards for Selected Ways of Becoming
Eligible for Medicaid, as of 2005:
Mandatory coverage.
Ways of becoming eligible for Medicaid: SSI[A];
Income standard: Less than $579 per month for an individual and less
than $869 per month for a couple[B];
Resource standard: Countable resources of less than $2,000 for an
individual, and less than $3,000 for a couple.
State-elected coverage (optional).
Ways of becoming eligible for Medicaid: 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 lower than countable
resources of less than $2,000 for an individual or $3,000 for a couple.
Ways of becoming eligible for Medicaid: 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) for an individual[C];
Resource standard: Same as SSI.
Sources: 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), 30.
[A] Not all SSI recipients automatically qualify for Medicaid. Under
Section 1902(f) of the Social Security Act, states may use more
restrictive Medicaid eligibility standards than 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.
[B] In 2007, the standard was less than $623 per month for an
individual and less than $934 per month for a couple.
[C] In 2007, the standard was no higher than $1869 per month.
[End of table]
Spousal Impoverishment Protections:
The Medicaid statute requires states to use specific minimum and
maximum resource and income 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 eligible for Medicaid
while leaving the community spouse with sufficient assets to avoid
impoverishment.
* 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 22] 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 23] The amount that the community
spouse is allowed to retain is generally referred to as the community
spouse resource allowance.[Footnote 24]
* Income. The community spouse is allowed to retain all of his or her
own income. States establish a minimum amount of income--a minimum
needs allowance[Footnote 25]--that a community spouse is entitled to
retain.[Footnote 26] Prior to the DRA, if the community spouse's income
was less than the minimum needs allowance, then states could allow the
difference to be made up in one of two ways: by requiring the transfer
of 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
resources could be used to generate more income (the resource-first
approach).[Footnote 27] Under the DRA, states must apply the income-
first method.[Footnote 28]
Transfers of Assets:
Federal law limits Medicaid payments for long-term care services for
persons who transfer assets for less than FMV within a specified time
period. 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 individual (or his or her spouse, if married)
transferred assets to another person or party and, if so, whether the
transfer was for less than FMV.[Footnote 29] If a transfer of assets
for less than FMV is detected, the individual is ineligible for
Medicaid coverage for long-term care 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 $10,000
in assets, and private facility costs averaged $5,000 per month in the
state, the penalty period would be 2 months.
Federal law exempts certain transfers for less than FMV from the
penalty provisions even if they are made within the look-back period.
Exemptions include transfers of assets to the individual's spouse,
another individual for the spouse's sole benefit, or a child who is
considered to be disabled under federal law. Additional exemptions from
the penalty provisions include the transfer of a home to an
individual's spouse, or minor or disabled child who meets certain
criteria; an adult child residing in the home who has been caring for
the individual for a specified time period; or a sibling residing in
the home who meets certain conditions.[Footnote 30] Transfers do not
result in a penalty if the individual can demonstrate to the state that
the transfer was made exclusively for purposes other than qualifying
for Medicaid.[Footnote 31] Additionally, a penalty would not be applied
if the state determined that application of the penalty 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.
Prior to the DRA, the look-back period for asset transfers was
generally 36 months.[Footnote 32] If the state identified transfers for
less than FMV during this period, then the state was required to impose
a penalty period that began at approximately the date of the asset
transfer.[Footnote 33] As a result, some individuals' penalty periods
had already expired by the time they applied for Medicaid coverage for
long-term care and therefore they were eligible when they applied.
The DRA:
The DRA modified some of the eligibility requirements for Medicaid
coverage for long-term care, including provisions related to asset
transfers, and introduced new requirements. Most, but not all, of these
DRA provisions became applicable on the date the law was enacted,
February 8, 2006. In general, these DRA provisions do not apply to
transfers that occurred prior to the law's enactment.
The DRA extended the look-back period, changed the beginning date of
the penalty period, and provided additional conditions on the
application process for undue hardship waivers. (See table 3.)
Table 3: DRA Changes to Provisions Related to Transfers of Assets:
Topic: Look-back period;
Provisions prior to the DRA: 36 months for most assets, 60 months for
transfers involving certain types of trusts, from the date the
individual was institutionalized and applied for Medicaid;
DRA provisions: 60 months for all assets, from the date the individual
was institutionalized and applied for Medicaid[A].
Topic: Beginning date of penalty period;
Provisions prior to the DRA: Approximately the date of the asset
transfer[B];
DRA provisions: Generally, the later of (1) the first day of a month
during or after an individual transfers assets for less than FMV or (2)
the date on which the individual is eligible for Medicaid and would
otherwise be receiving coverage for long-term care services, were it
not for ineligibility due to the imposition of the penalty period.
Topic: Undue hardship;
Provisions prior to the DRA: Penalty period for asset transfers would
not be applied if the state determines that the denial of eligibility
would create an undue hardship as determined on the basis of criteria
established by the Secretary of Health and Human Services (HHS);
DRA provisions:
* Undue hardship exists if application of the penalty period would
deprive an 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[C];
* Allows the long-term care facility to apply for an undue hardship
provision on behalf of a resident, with that resident's consent.
Source: GAO analysis of the Social Security Act before and after the
DRA.
[A] The DRA provides that only transfers of assets made on or after
February 8, 2006, are subject to the 60-month look-back period. Thus,
transfers made prior to February 8, 2006, could result in a penalty
period only if they occur within 36 months from the date an
institutionalized person submitted an application. In contrast,
transfers made on or after February 8, 2006, could result in a penalty
period if they occur within 60 months of the date of application. Given
this, as a practical matter, the look-back period will gradually
increase from 36 to 60 months and will reach the full 60 months on
February 8, 2011.
[B] States had the option to begin the penalty period on either the
first day of the month in which the asset was transferred for less than
FMV or the first day of the month following the month of transfer.
[C] The criteria for determining undue hardship are the same as those
that had previously been established by the Secretary of HHS in
Medicaid guidance, namely The State Medicaid Manual.
[End of table]
The DRA also introduced several new provisions, which are summarized in
table 4.
Table 4: New Provisions Introduced by the DRA Related to Medicaid
Eligibility for Long-Term Care and Asset Transfers:
Asset review and verification.
DRA provision: Annuities;
Description:
* States are required to treat the purchase of an annuity as a transfer
for less than FMV unless the annuity names the state as either (1) the
remainder beneficiary in the first position for at least the total
amount of Medicaid expenditures paid on behalf of the annuitant or (2)
a remainder beneficiary in the second position after the community
spouse or minor or disabled child;
* Annuities purchased by or on the behalf of an individual who applied
for Medicaid coverage for long-term care shall be treated as a transfer
of assets for less than FMV unless the annuity is irrevocable,
nonassignable, actuarially sound, and provides for payments in equal
amounts during the term of the annuity, with no deferral and no balloon
payments;
* Annuities purchased by or on the behalf of an individual who applied
for Medicaid coverage for long-term care services that are considered
as individual retirement accounts or purchased with the proceeds of
certain retirement accounts and meet certain federal tax code
requirements are not considered transfers for less than FMV.
DRA provision: Continuing care retirement communities;
Description: States are required to consider certain entrance fees for
continuing care retirement communities or life care communities as
countable resources.
DRA provision: Home equity;
Description: An individual with an equity interest in his/her home of
more than $500,000 is excluded from eligibility for Medicaid payment
for long-term care. (A state can elect to increase this value up to
$750,000.) However, an individual would not be excluded from
eligibility if his/her spouse, child under age 21, or child who is
considered blind or disabled lives in the home.
DRA provision: Income-first rule;
Description: When calculating the community spouse's minimum needs
allowance, states are required to allocate the available income of the
institutionalized spouse before allocating any available resources to
the community spouse.
DRA provision: Life estates;
Description: A purchase of a life estate interest in another person's
home is treated as a transfer of assets for less than FMV unless the
purchaser lived in the home for at least 1 year after the date of
purchase.[A].
DRA provision: Notes and loans;
Description: States are required to consider funds used to purchase a
promissory note, loan, or mortgage as a transfer of assets for less
than FMV unless the repayment terms are actuarially sound, provide for
payments to be made in equal amounts during the term of the loan with
no deferral or balloon payments, and prohibit the cancellation of the
balance upon the death of the lender.
Imposition of penalty period.
DRA provision: Imposition of partial months of ineligibility;
Description: A state cannot "round down" or disregard any fractional
period of ineligibility when determining the penalty period.
DRA provision: Treatment of multiple transfers;
Description: For an individual or an individual's spouse who makes
multiple fractional transfers of assets (i.e., transfers for less than
FMV that are worth less than 1 month of nursing home cost of care)
during the look-back period, states may determine the penalty period by
treating the total, cumulative uncompensated value of all the assets
transferred as one transfer.
Source: GAO analysis of the DRA.
[A] A life interest, or life estate, is an interest in real property
that gives the owner of the interest the right to use and possess the
property only for the duration of the life of a person, usually the
person who occupies the premises.
[End of table]
Nationwide, Most Nursing Home Residents' Nonhousing Resources Were
Lower than Annual Nursing Home Costs:
Nationwide, most elderly individuals had nonhousing resources valued
under $70,000 at the time they entered the nursing home; nursing home
care is estimated to cost over $70,000 a year for a private-pay
patient.[Footnote 34] In general, Medicaid-covered elderly nursing home
residents had lower nonhousing resources and income at the time of
entry than non-Medicaid-covered residents. The percentage of Medicaid-
covered elderly nursing home residents who reported transferring cash
was lower and the median amounts they reported transferring were
similar to those for non-Medicaid-covered residents.
Medicaid-Covered Nursing Home Residents Generally Had Fewer Assets than
Those Not Covered by Medicaid:
According to data from the HRS, nursing home residents covered by
Medicaid had fewer assets than residents not covered by Medicaid. Over
70 percent of all elderly nursing home residents had nonhousing
resources of $70,000 or less at the time they entered the nursing home,
which is less than the estimated average annual cost for nursing home
care.[Footnote 35] Median nonhousing resources for all elderly nursing
home residents were $5,794 at the time they entered the nursing
home.[Footnote 36] (See fig. 1.) Sixty-two percent of all elderly
nursing home residents had nonhousing resources of $25,000 or less
while 11 percent had nonhousing resources of $300,000 or above. Median
nonhousing resources for Medicaid-covered elderly nursing home
residents ($48) were lower than for non-Medicaid-covered residents
($36,123). Approximately 92 percent of Medicaid-covered residents had
nonhousing resources of $25,000 or less compared to 46 percent of non-
Medicaid-covered residents.
Figure 1: Distribution of Nonhousing Resources as Reported by Elderly
Nursing Home Residents at the Time They Entered the Nursing Home, 1992-
2004:
[See PDF for image]
Source: GAO analysis of data from the Health and Retirement Study, 1992-
2004.
Note: The data for this analysis are from multiple years; therefore, we
converted all dollar figures into 2004 dollars, using the current
methods series of the Consumer Price Index (CPI) for all urban
consumers.
[End of figure]
Approximately 92 percent of all elderly nursing home residents had an
annual income of $50,000 or less at the time they entered the nursing
home; about 65 percent of elderly nursing home residents had incomes of
$20,000 or less. Median annual income for elderly nursing home
residents was $14,480 at the time of entry.[Footnote 37] (See fig. 2.)
Median annual income of Medicaid-covered elderly nursing home residents
($9,719) was about half that of non-Medicaid-covered residents
($18,600). Approximately 90 percent of Medicaid-covered elderly nursing
home residents had annual incomes of $20,000 or less compared to
approximately 53 percent of non-Medicaid-covered residents.
Figure 2: Distribution of Annual Income as Reported by Elderly Nursing
Home Residents at the Time They Entered the Nursing Home, 1992-2004:
[See PDF for image]
Source: GAO analysis of data from the Health and Retirement Study, 1992-
2004.
Note: The data from this analysis are from multiple years; therefore,
we converted all dollar figures into 2004 dollars, using the current
methods series of the CPI for all urban consumers.
[End of figure]
Nationwide, Fewer Medicaid-Covered Nursing Home Residents Reported
Transferring Cash Compared with Non-Medicaid-Covered Residents:
Nationwide, the percentage of Medicaid-covered elderly nursing home
residents who reported transferring cash was about half that of non-
Medicaid-covered residents at the time they entered the nursing home
and during the 4 years prior to entry. For example, at the time they
entered the nursing home, 9.2 percent of Medicaid-covered residents
reported transferring cash, compared with 23.2 percent of non-Medicaid-
covered residents. However, the median amount of cash transferred as
reported by Medicaid-covered residents and non-Medicaid-covered
residents did not vary greatly.[Footnote 38] (See table 5.)
Table 5: Amounts of Cash Transferred at Entry and Prior to Entry into
the Nursing Home Reported by Elderly Nursing Home Residents, by Payer
Source, 1992-2004:
Time in relation to entry into the nursing home: At entry;
Payer source: Medicaid;
Percentage of residents who transferred cash: 9.2;
Amount of cash transferred (in 2004 dollars): Minimum: $1;
Amount of cash transferred (in 2004 dollars): Median (midpoint):
$2,194;
Amount of cash transferred (in 2004 dollars): Mean (average): $5,439;
Amount of cash transferred (in 2004 dollars): 95th percentile: $23,174;
Amount of cash transferred (in 2004 dollars): Maximum: $23,174.
Time in relation to entry into the nursing home: At entry;
Payer source: Non-Medicaid;
Percentage of residents who transferred cash: 23.2;
Amount of cash transferred (in 2004 dollars): Minimum: 12;
Amount of cash transferred (in 2004 dollars): Median (midpoint): 2,194;
Amount of cash transferred (in 2004 dollars): Mean (average): 9,328;
Amount of cash transferred (in 2004 dollars): 95th percentile: 30,986;
Amount of cash transferred (in 2004 dollars): Maximum: 383,928.
Time in relation to entry into the nursing home: 2 years prior to
entry;
Payer source: Medicaid;
Percentage of residents who transferred cash: 12.4;
Amount of cash transferred (in 2004 dollars): Minimum: 6;
Amount of cash transferred (in 2004 dollars): Median (midpoint): 2,194;
Amount of cash transferred (in 2004 dollars): Mean (average): 4,655;
Amount of cash transferred (in 2004 dollars): 95th percentile: 14,873;
Amount of cash transferred (in 2004 dollars): Maximum: 43,380.
Time in relation to entry into the nursing home: 2 years prior to
entry;
Payer source: Non-Medicaid;
Percentage of residents who transferred cash: 23.8;
Amount of cash transferred (in 2004 dollars): Minimum: 116;
Amount of cash transferred (in 2004 dollars): Median (midpoint): 2,194;
Amount of cash transferred (in 2004 dollars): Mean (average): 5,935;
Amount of cash transferred (in 2004 dollars): 95th percentile: 23,174;
Amount of cash transferred (in 2004 dollars): Maximum: 74,366.
Time in relation to entry into the nursing home: 4 years prior to
entry;
Payer source: Medicaid;
Percentage of residents who transferred cash: 12.0;
Amount of cash transferred (in 2004 dollars): Minimum: 46;
Amount of cash transferred (in 2004 dollars): Median (midpoint): 1,239;
Amount of cash transferred (in 2004 dollars): Mean (average): 2,278;
Amount of cash transferred (in 2004 dollars): 95th percentile: 9,915;
Amount of cash transferred (in 2004 dollars): Maximum: 15,493.
Time in relation to entry into the nursing home: 4 years prior to
entry;
Payer source: Non-Medicaid;
Percentage of residents who transferred cash: 25.1;
Amount of cash transferred (in 2004 dollars): Minimum: 110;
Amount of cash transferred (in 2004 dollars): Median (midpoint): 1,859;
Amount of cash transferred (in 2004 dollars): Mean (average): 6,119;
Amount of cash transferred (in 2004 dollars): 95th percentile: 19,614;
Amount of cash transferred (in 2004 dollars): Maximum: 301,266.
Source: GAO analysis of data from the Health and Retirement Study, 1992-
2004.
Note: The data from this analysis are from multiple years; therefore,
we converted all dollar figures into 2004 dollars, using the current
methods series of the CPI for all urban consumers.
[End of table]
Majority of Medicaid Applicants in Selected Counties in Three States
Had Few Nonhousing Resources and Were Approved upon Initial
Application:
Similar to the nationwide results, the majority of the 540 applicants
whose Medicaid nursing home application files we reviewed in selected
counties in three states (Maryland, Pennsylvania, and South Carolina)
had few nonhousing resources.[Footnote 39] The majority of applicants
(approximately 65 percent) were single females. About 76 percent of all
applicants were approved the first time they applied, while the
remaining applicants (23 percent) were initially denied, often for
financial reasons--having income or resources that exceeded the states'
financial eligibility standards. About three-quarters of the applicants
initially denied only for financial reasons were subsequently approved,
primarily after the value of their nonhousing resources decreased. For
the applicants who were initially denied for financial reasons, the
time span between their initial and subsequent applications averaged a
little over 5 months. During this time, their median nonhousing
resources decreased from $22,380 to $10,463, with a maximum decrease of
$283,075. For about one-third of these applicants who were initially
denied for financial reasons and were subsequently approved, at least
part of the decrease in their nonhousing resources could be attributed
to spending on medical or nursing home care.
Majority of Medicaid Applicants Reviewed Were Single, Female, and Had
Nonhousing Resources of Less than $30,000:
Of the 540 Medicaid nursing home application files we reviewed in
selected counties in three states, about 75 percent of the applicants
were female, most of whom were single. Over 80 percent of the
applicants were already living in a long-term care facility. These
individuals had been living in facilities for an average of a little
over 4 months at the time of application. About 90 percent--488
applicants--had total nonhousing resources of $30,000 or less. (See
fig. 3.) Eleven percent--59 applicants--did not have any nonhousing
resources, while about 5 percent had total nonhousing resources of
$60,000 or more. For all applicants whose files we reviewed, median
nonhousing resources were $3,365.[Footnote 40] Married applicants, who
made up about 21 percent of the applicants, had higher median
nonhousing resources ($8,407) than single applicants.[Footnote 41] Of
the single applicants, females, who made up approximately 65 percent of
all applicants, had higher median nonhousing resources ($3,109) than
males ($1,628), who made up about 14 percent of all applicants.
Figure 3: Distribution of Nonhousing Resources of Medicaid Applicants
in Selected Counties in Three States:
[See PDF for image]
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
Note: For purposes of determining eligibility for Medicaid coverage for
nursing home care, an applicant's resources are considered to be both
those of the applicant and those of the spouse.
[End of figure]
Eighty-five percent of the Medicaid applicants whose files we reviewed
(459 applicants) had annual incomes of $20,000 or less. The median
annual income of all applicants was $11,382.[Footnote 42] (See fig. 4.)
Single male applicants generally had higher annual incomes than single
females.
Figure 4: Distribution of Annual Income of Medicaid Applicants in
Selected Counties in Three States:
[See PDF for image]
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
Note: For purposes of determining eligibility for Medicaid coverage for
nursing home care, only the income of an applicant is considered,
regardless of the applicant's marital status.
[End of figure]
Applicants had several different types of nonhousing resources, some of
which were not counted toward determining eligibility for Medicaid
coverage for nursing home care. For example, a little over half (53
percent) of all applicants whose files we reviewed had prepaid burial
or funeral arrangements, with a median value of $2,614. Additionally,
about 38 percent of the applicants had life insurance. Whether the
burial arrangements or life insurance policies counted toward
determining Medicaid eligibility depended on their type and value as
well as the state in which the applicant applied.[Footnote 43]
Of the 540 applicants whose files we reviewed, 137 applicants (25
percent) owned homes and 83 of the home owners (about 61 percent) were
single. Based on the applications we reviewed, home ownership varied by
state, with 32 percent of the applicants we reviewed in selected
counties in South Carolina owning homes, compared with 28 percent and
16 percent in Pennsylvania and Maryland, respectively. For the 112
applicants in all selected counties for whom we were able to determine
a value for their homes, the median value was $52,954.[Footnote 44]
Most Medicaid Applicants Reviewed Were Approved upon Initial
Application:
About 76 percent of the Medicaid applicants whose files we reviewed
were approved upon initial application (408 applicants), while 23
percent (122 applicants) were denied.[Footnote 45] The majority of the
approved applicants were single and female. Of the 122 applicants who
were initially denied, 57 were approved upon submitting a subsequent
application.[Footnote 46] Therefore, 465 applicants, or 86 percent of
all applicants whose files we reviewed, were eventually
approved.[Footnote 47] Figure 5 provides a breakdown of applicants by
application status.
Figure 5: Percentage of All Applicants in Selected Counties in Three
States, by Application Status (n=540):
[See PDF for image]
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
Note: Percentages do not add to 100 due to rounding.
[A] At the time of our application file reviews, 65 of the applicants
whose initial applications were denied did not have a subsequent
approved application in their files. We do not know if they submitted
applications after the time of our review and were subsequently
approved.
[End of figure]
Almost half of the denied applicants (56 of 122) were denied only for
financial reasons--having income or resources that exceeded the
standards, most having to do with resources exceeding the standards.
For those applicants who were denied for having excess resources, their
resources exceeded the standards by an average of $25,116; the median
amount of excess resources was $13,260.[Footnote 48] Other reasons for
denial included failing to provide the requested documentation, not
being in a nursing home or meeting functional eligibility criteria, or
a combination of two or more of these reasons. (See fig. 6.)
Figure 6: Percentage of Initially Denied Applicants in Selected
Counties in Three States, by Reasons for Denial (n=122):
[See PDF for image]
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
[End of figure]
Majority of Medicaid Applicants Reviewed Who Were Initially Denied Only
for Financial Reasons Were Eventually Approved:
Of the 56 applicants who were initially denied only for financial
reasons, 41 (73 percent) reapplied and were later approved. The time
span between their initial and subsequent applications averaged a
little over 5 months and ranged from less than 1 month to 31 months.
Of the 41 applicants who were initially denied only for financial
reasons and were subsequently approved, their nonhousing resources
generally decreased between the initial and subsequent applications,
while their annual incomes stayed about the same. (See fig. 7.) Between
the two applications, median nonhousing resources decreased from
$22,380 to $10,463, with a maximum decrease of $283,075. For most of
these applicants, the overall decrease in nonhousing resources was
specifically due to a decrease in financial holdings such as checking
or savings accounts, stocks, and mutual funds.[Footnote 49] For
example, a married applicant initially applied and was denied for
having countable resources that exceeded the state standards by
$51,213. The applicant applied again just over 9 months later and had
resources within the state standards. Therefore, the applicant was
approved.
Figure 7: Median Nonhousing Resources and Median Annual Income of
Reviewed Applicants in Selected Counties in Three States Who Were
Initially Denied Only for Financial Reasons and Subsequently Approved,
at Time of Initial Application and Subsequent Application (n=41):
[See PDF for image]
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
[End of figure]
Some of the files of applicants who were initially denied for financial
reasons and were subsequently approved indicated that the applicants
spent at least some of their resources on medical expenses or nursing
home care, although this was not the case for all of them. In the files
we reviewed for 13 of these applicants (32 percent), there were
indications that the applicant had spent at least some of his or her
resources on medical expenses, nursing home care, or both. For example,
one applicant sold stock and received cash in exchange for a life
insurance policy, spending about $12,150 for 3 more months of nursing
home care before being approved for Medicaid. In the remaining 28
applicants' files (68 percent), there was no indication that their
resources were used for medical or nursing home care. For example, one
married applicant was initially denied for having resources of $205,440
above the state's standard. The file indicated that when the applicant
reapplied and was approved about 6 months later, $140,000 of the
applicant's resources was used to purchase an annuity to create an
income stream for the community spouse, which was not counted toward
the applicant's eligibility.[Footnote 50]
Few Transfers below FMV Identified for Applications Reviewed and
Penalties Rarely Delayed Eligibility:
Few of the approved applicants whose files we reviewed in selected
counties in three states were found to have transferred assets for less
than FMV during the 36-month look-back period,[Footnote 51] and those
who did transfer assets for less than FMV rarely experienced a delay in
eligibility for Medicaid coverage for nursing home care as a
result.[Footnote 52] The proportion of approved applicants found to
have transferred assets for less than FMV varied both within and among
the three states, and the variation may be due, in part, to counties'
or states' Medicaid application review procedures. At the time these
applicants applied for Medicaid--state fiscal year 2005 or earlier--
none of the three states reviewed imposed penalties for partial months,
and the penalty period began at the time of the asset transfer; under
these circumstances, only two of the applicants received a penalty that
delayed their eligibility for Medicaid coverage for nursing home care
as a result of transferring assets for less than FMV. The other
applicants were either not assessed a penalty, because the penalty
would have been for less than 1 month of coverage, or the penalty they
were assessed had expired by the time they submitted their Medicaid
application. Thus, these applicants did not experience a delay in their
Medicaid coverage as a result of transferring assets for less than FMV.
The total amount of assets transferred for less than FMV varied by
applicant, as did the number of transfers each applicant made. In terms
of the kinds of assets transferred for less than FMV, applicants most
commonly transferred financial holdings such as cash or stocks, and
their children or grandchildren were the most common recipients of the
transfer.
Approximately 10 Percent of Approved Applicants Transferred Assets for
Less than FMV:
Of the 465 approved applicants whose files we reviewed from selected
counties in three states, the files for 47 applicants (10 percent)
indicated that the applicants had transferred assets for less than FMV
during the 36-month look-back period.[Footnote 53] The proportion of
approved applicants found to have transferred assets for less than FMV
varied both within and among the states reviewed, ranging from a high
of approximately 24 percent of approved applicants in Orangeburg
County, South Carolina, to a low of approximately 4 percent in
Allegheny County, Pennsylvania (see table 6).
Table 6: Percentage of Approved Applicants Whose Files Indicated They
Had Transferred Assets for Less than FMV, by State and Selected County:
State: Maryland;
County: Baltimore;
Approved applicants: Number who transferred assets for less than FMV:
11;
Approved applicants: Total: 57;
Approved applicants: Percentage who transferred assets for less than
FMV: 19.3%.
County: Baltimore City;
Approved applicants: Number who transferred assets for less than FMV:
3;
Approved applicants: Total: 48;
Approved applicants: Percentage who transferred assets for less than
FMV: 6.3.
County: Montgomery;
Approved applicants: Number who transferred assets for less than FMV:
3;
Approved applicants: Total: 58;
Approved applicants: Percentage who transferred assets for less than
FMV: 5.2.
County: Subtotal;
Approved applicants: Number who transferred assets for less than FMV:
17;
Approved applicants: Total: 163;
Approved applicants: Percentage who transferred assets for less than
FMV: 10.4.
State: Pennsylvania;
County: Allegheny;
Approved applicants: Number who transferred assets for less than FMV:
3;
Approved applicants: Total: 72;
Approved applicants: Percentage who transferred assets for less than
FMV: 4.2.
County: Montgomery;
Approved applicants: Number who transferred assets for less than FMV:
3;
Approved applicants: Total: 30;
Approved applicants: Percentage who transferred assets for less than
FMV: 10.0.
County: Philadelphia;
Approved applicants: Number who transferred assets for less than FMV:
3;
Approved applicants: Total: 65;
Approved applicants: Percentage who transferred assets for less than
FMV: 4.6.
County: Subtotal;
Approved applicants: Number who transferred assets for less than FMV:
9;
Approved applicants: Total: 167;
Approved applicants: Percentage who transferred assets for less than
FMV: 5.4.
State: South Carolina;
County: Charleston;
Approved applicants: Number who transferred assets for less than FMV:
9;
Approved applicants: Total: 46;
Approved applicants: Percentage who transferred assets for less than
FMV: 19.6.
County: Greenville;
Approved applicants: Number who transferred assets for less than FMV:
8;
Approved applicants: Total: 72;
Approved applicants: Percentage who transferred assets for less than
FMV: 11.1.
County: Orangeburg;
Approved applicants: Number who transferred assets for less than FMV:
4;
Approved applicants: Total: 17;
Approved applicants: Percentage who transferred assets for less than
FMV: 23.5.
County: Subtotal;
Approved applicants: Number who transferred assets for less than FMV:
21;
Approved applicants: Total: 135;
Approved applicants: Percentage who transferred assets for less than
FMV: 15.6.
Total;
County: [Empty];
Approved applicants: Number who transferred assets for less than FMV:
47;
Approved applicants: Total: 465;
Approved applicants: Percentage who transferred assets for less than
FMV: 10.1%.
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
[End of table]
The variation in the proportion of applicants who were identified as
having transferred assets for less than FMV may be due, in part, to
states' ability to identify transfers not reported by the applicant.
About half of the assets transferred for less than FMV by applicants in
South Carolina were identified by the eligibility workers as opposed to
being reported by an applicant. Eligibility workers in Maryland and
Pennsylvania identified 9 percent and 4 percent of transfers,
respectively.
The approved applicants who transferred assets for less than FMV were
predominately single females. Although single females accounted for 65
percent of approved applicants, they accounted for over 78 percent of
the approved applicants who transferred assets for less than FMV. (See
fig. 8.) Additionally, 89 percent of approved applicants who
transferred assets for less than FMV resided in a long-term care
facility before applying for Medicaid. These individuals were in the
facility for an average of over 5 months before they applied for
Medicaid coverage.
Figure 8: Percentage of Approved Applicants and Approved Applicants Who
Transferred Assets for Less than FMV, by Gender and Marital Status:
[See PDF for image]
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
[End of figure]
Approved applicants who transferred assets for less than FMV were
better off financially (i.e., they had higher income and resources),
even after excluding the amount transferred, compared with the universe
of approved applicants. For example, approved applicants who
transferred assets had higher median nonhousing resources ($8,138)
compared with all approved applicants ($2,940). (See fig. 9.)
Figure 9: Median Nonhousing Resources and Income for Approved
Applicants and Approved Applicants Who Transferred Assets for Less than
FMV:
[See PDF for image]
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
Note: The amount of nonhousing resources for the approved applicants
who transferred assets for less than FMV reflects the amount after
excluding the assets transferred.
[End of figure]
Transfers for Less than FMV Rarely Delayed Medicaid Eligibility:
Transfers for less than FMV rarely led to delays in eligibility for
Medicaid coverage for nursing home care, as most applicants' assessed
penalty periods expired before they applied for Medicaid. Among the 47
approved applicants who transferred assets for less than FMV, the
length of the penalty period assessed averaged about 6 months, with a
median penalty period of 2 months. (See fig. 10.) At the time these
applicants applied for Medicaid (state fiscal year 2005 or earlier),
the three states in which we reviewed applications did not assess
penalties for partial months; that is, the length of penalties assessed
was rounded down to the closest whole month.[Footnote 54] As a result,
9 of the 47 approved applicants who transferred assets for less than
FMV (about 19 percent) were not assessed a penalty because they
transferred assets valued at less than the cost of a month of nursing
home coverage for a private-pay patient in their state.[Footnote 55]
Furthermore, because penalty periods began at approximately the date of
the asset transfer, 36 applicants' penalty periods expired prior to the
submission of their application for Medicaid coverage for nursing home
care.[Footnote 56] Thus, only 2 applicants experienced delays in
Medicaid coverage resulting from their transfers of assets for less
than FMV; the delays were for 1 and 6 months, respectively.
Figure 10: Distribution of 47 Approved Applicants Who Transferred
Assets for Less than FMV, by Length of Assessed Penalty Periods, in
Months:
[See PDF for image]
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
[End of figure]
Amounts of Assets Transferred for Less than FMV Varied:
Among those who transferred assets for less than FMV, the total amount
of the assets transferred varied, with a median amount of
$15,152.[Footnote 57] The applicant with the lowest total transfer
amount made a onetime cash gift of $1,000 to her child, while the
applicant with the highest total transfer amount used funds from a
trust established for her care to buy and resell property. Since the
trust fund should have only been used for the applicant's care, the use
of the funds to pay real estate fees, which totaled $201,516, was
considered a transfer of assets for less than FMV. Figure 11 shows the
distribution of the amounts of transfers for less than FMV per approved
applicant. Nearly half of the applicants who transferred assets for
less than FMV (22 of 47) transferred $10,000 or less; 10 of the 22
applicants transferred $5,000 or less. In contrast, 6 of the 47
applicants (about 13 percent) transferred more than $80,000 in assets.
Figure 11: Distribution of 47 Approved Applicants Who Transferred
Assets for Less than FMV, by Amount Transferred:
[See PDF for image]
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
[End of figure]
The number of transfers for less than FMV made by applicants also
varied, averaging slightly over two transfers per applicant.
Specifically, 23 applicants made a single transfer and 1 applicant made
eight transfers (see fig. 12). The eight transfers spanned a 1½-year
period and ranged from an over $4,000 cash gift to a grandchild to a
stock transaction in which the applicant gave a relative over $33,000
of her stock.
Figure 12: Distribution of 47 Approved Applicants Who Transferred
Assets for Less than FMV, by Number of Transfers:
[See PDF for image]
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
[End of figure]
The majority of asset transfers for less than FMV (approximately 84
percent) involved the transferring of financial holdings such as cash
or stocks. However, the types of assets transferred varied by state
(see table 7). This variation may be related, in part, to differences
in counties' or states' Medicaid application review procedures.
Specifically, based on our review of the files, county officials in
South Carolina conducted searches of real property tax databases, which
likely allowed South Carolina eligibility workers to identify property
transfers that were not reported by the applicant. For example, a South
Carolina applicant was penalized because the eligibility worker
identified that the applicant had transferred property for less than
FMV--a house valued at $84,700 to her son for $5. In contrast, although
Maryland eligibility workers could search the state's property tax
records, state officials told us that workers' searching abilities were
limited because they needed to know the county and street name of the
property. As a result, it likely would be difficult for Maryland
eligibility workers to identify unreported transfers of property.
Table 7: Percentage of Assets Transferred for Less than FMV by Type of
Asset for 47 Approved Applicants in Selected Counties in Three States:
Asset type: Financial holdings[A];
Maryland: 95.5%;
Pennsylvania: 82.6%;
South Carolina: 71.8%;
Total: 84.0%.
Asset type: Real property;
Maryland: 0;
Pennsylvania: 4.4;
South Carolina: 25.6;
Total: 10.4.
Asset type: Automobile;
Maryland: 2.3;
Pennsylvania: 8.7;
South Carolina: 0;
Total: 2.8.
Asset type: Other[B];
Maryland: 2.3;
Pennsylvania: 4.4;
South Carolina: 2.6;
Total: 2.8.
Source: GAO analysis of Medicaid nursing home application data from
nine counties as of July 2006.
Note: Percentages may not add to 100 because of rounding.
[A] Financial holdings includes items such as cash or stocks.
[B] Includes instances where the type of asset transferred was unknown.
[End of table]
Applicants most frequently transferred assets to their children and
grandchildren. Approximately 47 percent of transferred assets were
given to children or grandchildren, 15 percent were given to other
relatives, and 38 percent were given to other individuals.[Footnote 58]
Extent to Which Some DRA Long-Term Care Provisions May Affect
Eligibility Is Uncertain:
The extent to which some DRA long-term care provisions may affect
applicants' eligibility for Medicaid coverage for long-term care is
uncertain. Our review of a sample of Medicaid applications indicated
that the DRA penalty period provisions could increase the likelihood
that individuals who transfer assets for less than FMV on or after the
date of enactment will experience a delay in eligibility for Medicaid
coverage for long-term care. However, the extent of the delay is
uncertain. The effects on eligibility of other DRA provisions--
specifically those related to annuities, home equity, the allocation of
assets to community spouses, and life estates--may be limited because
they only apply to a few applicants, affect applicants in some states
but not in others, or both.
DRA Provisions Related to Penalty Periods Could Delay Eligibility for
Those Who Transfer Assets for Less than FMV, but the Extent of the
Delay Is Uncertain:
The DRA requires states to change when a penalty period is applied and
how it is calculated.[Footnote 59] First, the DRA changes the beginning
date of a penalty period from approximately the date of the transfer--
which could precede the date of a Medicaid application by days, months,
or years--to the later of (1) generally the first day of a month during
or after which an asset has been transferred for less than FMV or (2)
the date on which the individual is eligible for Medicaid and would
otherwise be receiving coverage for long-term care services, were it
not for ineligibility due to the imposition of the penalty period. All
applicants who transfer assets for less than FMV during the look-back
period on or after February 8, 2006 (the date the DRA was enacted) will
experience a delay in eligibility for Medicaid coverage for long-term
care, whereas before that date, some applicants' penalty periods
expired before they applied for Medicaid coverage.[Footnote 60] Second,
regarding the calculation of the penalty period, the DRA prohibits
states from "rounding down" or disregarding fractional periods of
ineligibility when determining the penalty period. This provision could
result in longer penalty periods for some applicants. (See fig. 13,
which illustrates the potential effects of the DRA penalty period
provisions.)
Figure 13: Example of How the DRA Penalty Period Provisions Could Delay
Medicaid Eligibility for Applicants Who Transfer Assets for Less than
FMV:
[See PDF for image]
Source: GAO.
[A] 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). In this example, we assumed that the average monthly private-
pay rate for nursing home care was $5,000.
[End of figure]
If these DRA penalty period provisions had been in effect for the
applicants whose files we reviewed, all 47 approved applicants who
transferred assets for less than FMV would have experienced a delay in
Medicaid coverage, compared with only 2 who actually experienced a
delay. Additionally, the penalty period would have been longer for 45
of the 47 approved applicants. The increase in the penalty period would
have ranged from less than 1 day to almost 6 months, with a median
increase of about 2½ weeks. As a result, the median delay in
eligibility would have been approximately 3 months and ranged from
about 1 week to over 47 months.[Footnote 61]
An increase in the number of applicants whose eligibility is delayed
may be mitigated by two factors. First, states may see an increase in
the number of approved applicants seeking to waive their penalty
periods because they would create an undue hardship--that is, the
application of the penalty would deprive the applicants of (1) medical
care that would endanger the applicants' health or life or (2) food,
clothing, shelter, or other necessities of life.[Footnote 62] Officials
from the three states in which we reviewed applications commented that
they received few undue hardship requests prior to the DRA but expected
to see an increase in requests as the DRA provisions are implemented.
Second, the extent to which individuals are subject to penalty periods
may change as individuals may make different decisions regarding the
transferring of assets as a result of the DRA.
Other DRA Provisions May Have Limited Effects on Eligibility:
The effects on eligibility for Medicaid coverage for long-term care of
other DRA provisions may be limited. This is primarily because few
Medicaid applicants appear to have resources that are specifically
addressed by the DRA, namely annuities, home equity of more than
$500,000, or life estates. Additionally, the provision on allocating
income and resources to the community spouse will only affect married
applicants in certain states, thus limiting the effects that the DRA
might have on eligibility.
* Annuities. The DRA added requirements for states regarding the
treatment of annuities. A state must treat the purchase of an annuity
as a transfer for less than FMV unless certain conditions, such as a
requirement that the state be named as a remainder beneficiary, are
met. However, the effect of this provision may be limited because few
Medicaid applicants appear to have annuities. We found that 3 percent
of the approved applicants (14 of 465) whose application files we
reviewed owned an annuity.[Footnote 63] These 14 applicants' annuities
would have been considered transfers for less than FMV under the DRA
because they did not name the state as a remainder beneficiary, had a
balloon payment, or both. While the incidence of annuities among
Medicaid beneficiaries is not nationally known, a January 2005 study
undertaken at the request of CMS estimated that, among the five states
examined, the percentage of Medicaid long-term care beneficiaries who
had an annuity ranged from less than 1 percent in two states to more
than 3 percent in one state.[Footnote 64]
* Home Equity. Under the DRA, certain individuals with home equity
greater than $500,000 are not eligible for Medicaid payment for long-
term care, including nursing home care.[Footnote 65] The effect of this
provision may be limited because it appears that few individuals who
apply for Medicaid coverage for nursing home care have homes valued at
more than $500,000. For example, 23 percent of the 465 approved
Medicaid nursing home applicants whose files we reviewed owned homes.
Of the homes for which we could determine values, the median value was
$57,600.[Footnote 66] Only one approved applicant owned a home valued
at more than $500,000. Although we do not know this applicant's equity
interest in the home, the applicant would not have been subject to the
DRA home equity provision, since the applicant's spouse lived in the
home. Additionally, our review of 2004 HRS data indicated that no
elderly nursing home residents owned a home valued at more than
$500,000.
* Life Estates. The DRA requires states to treat the purchase of
certain life estates as a transfer of assets for less than FMV unless
the purchaser (the applicant) lived in the house for at least 1 year
after the date of purchase.[Footnote 67] The effect of this provision
may be limited because we found that few approved Medicaid nursing home
applicants whose files we reviewed had life estates. Specifically, the
proportion of approved applicants who owned life estates ranged from
zero in Pennsylvania to 2 percent in South Carolina.[Footnote 68]
* Income First. The DRA's income-first provision has the potential to
affect married applicants in states that did not already use the income-
first methodology. Under the income-first methodology the difference
between a community spouse's income and his or her minimum needs
allowance is made up by transferring income from the institutionalized
spouse. According to CMS, approximately half of all states did not use
the income-first methodology before the passage of the DRA.[Footnote
69] Of the three states we reviewed, only Pennsylvania will be affected
by this provision.[Footnote 70] Among approved applicants in
Pennsylvania, 6 of the 42 married applicants whose files we reviewed
would have been affected by this change because these applicants had
retained resources in excess of the standards to create income streams
for their community spouses. Specifically, they created annuities for
the community spouses with values ranging from $7,372 to $77,531, with
a median value of $39,912. Pennsylvania officials told us that almost
all institutionalized spouses in their state have enough income to
supplement the income needs of their community spouses. As a result,
under the DRA, applicants would not be allowed to retain resources in
excess of the standards as they had previously through the creation of
annuities. Rather, resources in excess of those allowed by the Medicaid
program would need to be reduced in order for the institutionalized
spouse to be eligible for Medicaid.
Agency and State Comments and Our Evaluation:
We provided copies of a draft of this report to CMS and the three
states in which we reviewed Medicaid nursing home application files:
Maryland, Pennsylvania and South Carolina. We received written comments
from CMS (see app. II) and South Carolina (see app. III). Maryland
provided comments via e-mail, while Pennsylvania did not comment on the
draft report.
In its written comments, CMS generally agreed with our findings, but
noted the limited number of states in which we reviewed applications
and that study was done before the effects of the DRA could be
assessed. We agree that the actual effects of the DRA are not yet
known. However, our findings based on applications submitted prior to
the implementation of the DRA provide insight into what its effects may
be. CMS also commented that the DRA will be working as Congress
intended if applicants experience delays in Medicaid eligibility as a
result of transferring assets for less than FMV.
Maryland and South Carolina generally agreed with our findings. In
addition, Maryland emphasized the difficulties faced by Maryland
eligibility workers in identifying unreported transfers of assets due
to their limited ability to search the state's property tax records.
South Carolina highlighted our finding that 15.6 percent of the
approved applicants whose files we reviewed in South Carolina were
found to have transferred assets for less than FMV, as compared to 10.4
percent and 5.4 percent in the other two selected states. The state
attributed this difference to the effectiveness of South Carolina's
eligibility process and its training of eligibility workers to enable
them to identify transfers of assets not reported by an applicant. In
response to our finding that only 2 of the 47 approved applicants who
transferred assets for less than FMV experienced a delay in Medicaid
eligibility as a result of transferring assets, South Carolina
recommended that we clarify that this occurred despite the fact that
the states were adhering to federal requirements. We did not make a
change, as we believe the report clearly states why the other
applicants did not experience a delay in Medicaid eligibility.
Technical comments from CMS were incorporated into the report as
appropriate.
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 provide copies 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 IV.
Signed by:
Kathryn G. Allen:
Director, Health Care:
[End of section]
Appendix I: Scope and Methodology:
To examine the financial characteristics of elderly nursing home
residents nationwide, including the extent to which they transferred
cash, we analyzed data from the Health and Retirement Survey (HRS). 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 follow-up interviews over the telephone every second year
thereafter.[Footnote 71] HRS questions pertain to physical and mental
health status, insurance coverage, financial status, family support
systems, employment status, and retirement planning.[Footnote 72]
For this analysis, we used HRS data from 1992 to 2004.[Footnote 73] We
limited our analysis to elderly nursing home residents who had been
surveyed at least once before they entered a nursing home. We defined
an elderly individual as anyone 65 years of age or older. On the basis
of individuals' answers on HRS, we defined a nursing home resident as
anyone who met one of the following three criteria:
1. answered "yes" to permanently living in a nursing home;
2. answered "no" to permanently living in a nursing home but spent more
than 360 nights in a nursing home; or:
3. answered "no" to permanently living in a nursing home but spent 180
to 360 days in one and:
a. died in a later survey period;
b. had three or more limitations in activities of daily living (ADL);
or:
c. had cancer, lung disease, or heart disease and some difficulty
(rating of three or more) with mobility.[Footnote 74]
We used the HRS data from the 1,296 individuals who met these criteria;
this sample represented a population of 4,217,795 individuals. From
these data, we estimated the financial characteristics of elderly
nursing home residents as well as the percentage of residents who
transferred cash or deeds to their homes, the amount transferred, and
whether it varied by how they paid for their care (i.e., Medicaid-
covered or non-Medicaid-covered).[Footnote 75] This analysis
underestimates the percentage of elderly households that transferred
assets and the amount of assets transferred because HRS data included
only transfers of cash and deeds to the home. Additionally, HRS does
not assess whether the transfers relate to individuals' attempts to
qualify for Medicaid coverage for nursing home services.
In order to assess the reliability of the HRS data, we reviewed related
documentation regarding the survey and its methods of administration.
We also conducted electronic data tests to determine whether there were
missing data or obvious errors. On the basis of this review, we
determined that the data were sufficiently reliable for our purposes.
To analyze the demographic and financial characteristics of elderly
individuals who applied for Medicaid coverage for nursing homes and if
they applied more than once, as well as the extent to which they
transferred assets for less than fair market value (FMV) and were
subject to penalty periods, we reviewed Medicaid eligibility
determination practices and Medicaid nursing home application files in
three states. To select states, we assessed the ranking of five factors
for each of the 51 states.
1. The percentage of the population aged 65 and over, which we
determined using 2000 census data from the U.S. 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 U.S. Census Bureau using the 2000 and 2002 Current
Population Surveys.
4. The extent of Medicaid nursing home expenditures as reported by
states to the Centers for Medicare & Medicaid Services (CMS).[Footnote
76]
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).
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.
Sources: GAO analysis of data from the U.S. Census Bureau, CMS, the
MetLife Market Survey of Nursing Home & Home Care Costs, and the
National Association of Elder Law Attorneys.
[End of table]
We judgmentally selected one state from each cluster. In making this
selection, we excluded some states, such as states that did not have
the technical ability to generate the data needed to select Medicaid
nursing home application files for review. The states we selected were
South Carolina (low), Maryland (medium), and Pennsylvania (high).
To choose counties in our selected states, we considered four factors.
1. Number of individuals aged 65 and over who applied for, or were
enrolled in, Medicaid coverage for nursing home services.[Footnote 77]
2. Number of licensed nursing home beds.[Footnote 78]
3. Population aged 65 and over.[Footnote 79]
4. Median and range of household income.[Footnote 80]
For the first three factors, we ranked the counties within each
selected state from high to low. Separately, we ranked the counties by
median household income and split them into low, medium, and high
groups, using natural breaks in the data as parameters. Of the counties
that appeared in the top 10 ranking of each of the first three factors,
we matched them with their respective median household income groups.
Based on this assessment, we chose a county from each median household
income group for each of the three states (see table 9).
Table 9: Selected States and Counties, by County-Level Median Household
Income Group:
County-level median household income group: Low;
Selected states and counties: South Carolina: Orangeburg;
Selected states and counties: Maryland: Baltimore City;
Selected states and counties: Pennsylvania: Philadelphia.
County-level median household income group: Medium;
Selected states and counties: South Carolina: Charleston;
Selected states and counties: Maryland: Baltimore;
Selected states and counties: Pennsylvania: Allegheny.
County-level median household income group: High;
Selected states and counties: South Carolina: Greenville;
Selected states and counties: Maryland: Montgomery;
Selected states and counties: Pennsylvania: Montgomery.
Source: GAO.
[End of table]
We reviewed a total of 180 nursing home application files in each
selected state, for a total of 540 files. Within each selected state,
we based the number of application files reviewed in each county on the
proportion of the county's population of individuals aged 65 and over.
(See table 10.)
Table 10: Number of Files Reviewed, by Selected State and County:
Selected state: South Carolina;
Selected county: Orangeburg;
Number of files reviewed: 22.
Selected county: Charleston;
Number of files reviewed: 72.
Selected county: Greenville;
Number of files reviewed: 86.
Selected county: Total;
Number of files reviewed: 180.
Selected state: Maryland;
Selected county: Baltimore City;
Number of files reviewed: 51.
Selected county: Baltimore;
Number of files reviewed: 68.
Selected county: Montgomery;
Number of files reviewed: 61.
Selected county: Total;
Number of files reviewed: 180.
Selected state: Pennsylvania;
Selected county: Philadelphia;
Number of files reviewed: 70.
Selected county: Allegheny;
Number of files reviewed: 74.
Selected county: Montgomery;
Number of files reviewed: 36.
Selected county: Total;
Number of files reviewed: 180.
Selected state: Total;
Selected county: [Empty];
Number of files reviewed: 540.
Source: GAO.
[End of table]
Each selected state sent us a list of individuals aged 65 or over who
submitted an application for Medicaid coverage for nursing home care
during state fiscal year 2005. These lists also included individuals
who applied in previous years but whose files had activity during
fiscal year 2005.[Footnote 81] For example, an individual may have
applied in state fiscal year 2004, but had his or her application
approved in state fiscal year 2005. From the lists provided by the
states, we randomly selected application files by unique identifying
numbers. In order to compensate for application files that would need
to be skipped because they did not meet our criteria or lacked adequate
information, we requested additional files (10 to 15 percent) in each
county. Therefore, when we determined that an application file was
unusable, we included the next application file on our randomly
generated list.
We established a file review protocol whereby we reviewed and recorded
the earliest Medicaid application for nursing home services in each
file regardless of the date of the application. If the earliest
application was denied, then we recorded data from that application as
well as data from the earliest subsequently approved application, if
there was one. From each application, we collected and analyzed data on
the applicants' demographic characteristics, income, nonhousing
resources, and home value. We also collected and analyzed data on the
number of applicants who transferred assets for less than FMV and the
amount they transferred.
Since the selected counties used the information in these application
files to determine eligibility for Medicaid coverage for nursing home
services, we did not independently verify the accuracy of the
information contained in the files. However, to ensure that the
information we entered into our data collection instrument was
consistent with the information found in the application files, we
conducted independent file verifications, which resulted in a total
verification of at least 20 percent of entries. Additionally, we
conducted electronic tests of the data collected to determine whether
there were missing data or obvious errors. In some cases, we combined
variables to create new ones. For example, we collected and identified
several types of applicant resources but ultimately combined them into
two categories--housing and nonhousing resources. Based on these
procedures, we determined that the data were sufficiently reliable.
Moreover, these data can be generalized to the individual county level
but cannot be generalized to the state or national level.
To assess the potential effect of provisions of the DRA, we used (1)
HRS data and (2) data from our application file reviews. Specifically,
we used 2004 HRS data to identify the number of elderly individuals in
nursing homes who had houses in excess of $500,000 and could be
affected by the DRA home equity provision.[Footnote 82] Additionally,
we used the data from our review of Medicaid application files in three
counties in each of the three states to analyze the potential effects
of the DRA provisions pertaining to penalty periods, annuities, home
equity, and income-first.
We performed our work from October 2005 through January 2007 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Centers for Medicare & Medicaid
Services:
Department Of Health & Human Services:
Centers for Medicare & Medicaid Services:
Administrator:
Washington, DC 20201:
Date: Mar - 6 207:
To: Kathryn G. Allen:
Director, Health Care:
Government Accountability Office:
From: Leslie V. Norwalk, Esq.
Acting Administrator:
Centers for Medicare & Medicaid Services:
Subject: Government Accountability Office (GAO) Draft Report: "Medicaid
Long-Term Care: Few Transferred Assets before Applying for Nursing Home
Coverage; Impact of Deficit Reduction Act on Eligibility is Uncertain"
(GAO-17-280):
The Centers for Medicare & Medicaid Services (CMS) appreciates the
opportunity to review and comment on the above-mentioned GAO draft
report. Below are the technical changes that CMS would like to suggest
be made to the GAO draft report.
The CMS does not disagree with the findings in this report, although we
note that the number of States surveyed is very limited, and the study
was done before the effects of the new Deficit Reduction Act of 2005
(DRA) transfer of assets provisions could be accurately measured.
The GAO observed that "Primarily because DRA changed the beginning date
of the penalty period, there is an increased likelihood that applicants
who transfer assets for less than FMV will experience delays in
Medicaid eligibility." We wish to point out that if transfers of assets
for less than FMV occur, and applicants experience delays in Medicaid
eligibility as a result, this is exactly what Congress intended in
enacting the DRA provision and the law will be working as intended.
In an effort to make the report more technically accurate, though, we
would like to offer the following edits:
Page 2 - In the first paragraph, the discussion of "assets" for
Medicaid:
eligibility purposes is not technically correct. We recommend rewriting
the second and third sentences to read as follows: To meet the
financial eligibility criteria, individuals must have assets both
income and resources-that fall below established standards, which vary
by State but are within standards set by the Federal Government. Not
all assets-resources are counted in determining financial eligibility
for Medicaid. In conformance with this change, we suggest that footnote
5 should be moved to follow the last sentence of the paragraph. The
text of the footnote should be revised to include the following phrase
at the beginning of the footnote and prior to the word "Assets" "For
purposes of determining whether a transfer of assets has occurred..."
Page 2 -In footnote 5, the first sentence, the word "clothing" should
be deleted.
Page 8 - In footnote 16, the second sentence should read: "Under
Section 1902(1) of the Social Security Act, States may use more
restrictive Medicaid eligibility standards than they had in place in
1972 rather than rules than would otherwise apply under the
Supplemental Security Income (SSI) program."
Page 9 - Under the heading: Financial Eligibility for Medicaid Coverage
for Long-Term Care - #3 - "SSI benefit ($1,869 per month in 2007)."
Page 9 - In footnote 17, the word "countable" should be deleted.
Page 10-Under the heading: Table 1: Types of Assets and Examples -
footnote a. second and third sentences should read: "For example, an
annuity is a financial instrument that provides income over a defined
period of time for an initial payment of principal. The principal of an
annuity may be considered a resource, while the payments it generates
are considered income."
Page 10-Under the heading: Table 2: Income and Resource Standards for
Selected Ways of Becoming Eligible for Medicaid as of 2007 - in table
heading: Income standard should read: "Less than $623 per month for an
individual and less than $934 per month for a couple." In the fourth
cell in the same column, change the $1,737 per month to $1,869 per
month. Footnote at the bottom of the page should read: "Under Section
1902(f) of the Social Security Act, States may use more restrictive
Medicaid eligibility standards than they had in place in 1972 rather
than Federal SSI rules."
Page 11-Under the heading: Spousal Impoverishment Protections - Income.
The last sentence should read: "Prior to the DRA, if the community
spouse's income was less than the minimum needs allowance, then States
could allow the difference to be made up in one of two ways: by
requiring the transfer of income from the institutionalized spouse
before additional resources were allocated (called the "income-first"
approach) or by allowing the." In footnote 20, change the year to 2007
and change the Federal maximum to $101,640. In footnote 21, change the
year to 2007 and the Federal minimum to $20,328. In footnote 24, change
the date to January 1, 2007, and the allowance can be no lower than
$1,650.00 and no higher than $2,541.00.
Page 12-Continuation of the last sentence on page 11 should read -
community spouse to keep resources above the community spouse resource
allowance, without regard to whether the institutionalized spouse had
transferred as much income as possible to the community spouse, so that
the additional resources could be used to generate more income (the
"resource-first" approach)." Delete footnote 25. In footnote 27 -
should read: "Federal law requires States to apply the transfer of
asset provisions to institutionalized individuals, who are defined in
the Social Security Act as individuals who are inpatients in a nursing
facility or a similar institution or certain recipients of home and
community-based services. States have the option to apply."
[End of section]
Appendix III: Comments from the State of South Carolina Department of
Health and Human Services:
State of South Carolina:
Department of Health and Human Services:
Mark Sanford:
Governor:
Robert M. Ken:
Director:
February 9, 2007:
Ms. Carolyn Yocom:
Assistant Director:
US Government Accountability Office:
Washington, DC 20548:
RE: GAO-07-280 Medicaid and Asset Transfers:
Dear Ms. Yocom:
Thank you for the opportunity to comment on your draft report titled
Medicaid Long-Term Care: Few Transferred Assets before Applying for
Nursing Home Coverage; Impact of the Deficit Reduction Acton
Eligibility is Uncertain. In general the South Carolina Department of
Health and Human Services agrees with your findings and conclusions. We
would like to emphasize certain aspects of your review, which are
critical to understanding the complex issues surrounding long term care
for Medicaid beneficiaries. It is important that the GAO communicate
these issues to Congress to consider as it looks for ways to improve
the Medicaid program.
* It comes as no surprise that the GAO finds that the overwhelming
majority (90%) of the individuals receiving Medicaid for long term care
lack the resources to pay for their care, and therefore, the Medicaid
benefit is going to those who are truly eligible. Your report finds
little basis for the implication that people with substantial incomes
and/or assets are becoming eligible for Medicaid funded nursing home
care by improperly transferring these resources.
* Consequently, as you conclude, the extent to which the new long-term
care provisions in the DRA may affect applicants' eligibility for
Medicaid coverage for long-term care is uncertain. Even with a longer
"look-back" period and the greater likelihood of a penalty for
transferring assets at less than fair market value (FMV), the impact of
the DRA on long-term care costs may be immaterial.
As your report points out, if the DRA penalty period provisions had
been in effect for the sample of applications you reviewed, the net
result would have been a median delay of only three months for Medicaid
eligibility for those who transferred assets at less than FMV.
* The report states that of the 47 approved applicants (in the sample
for the three States) who transferred assets for less than FMV, only
two of the applicants experienced a delay in Medicaid eligibility as a
result. To an unsuspecting reader, it may appear that the States failed
to impose a penalty, when in fact all federal requirements had been
followed. Penalties were not assessed because it would have been for
less than one month, or the penalty period had expired by the time the
Medicaid application was submitted. We recommend that you strengthen
this section of the report to clarify that the penalty provisions in
effect at the time were, in fact, followed.
* Finally, the draft report found that of the 135 beneficiary records
sampled in South Carolina, 21 or 15.6% had transferred assets for less
than FMV, compared to 5.4% and 10.4% in the other States surveyed. We
unequivocally believe that the difference is due to South Carolina's
ability to identify transfers not reported by the applicant. We have
worked diligently to develop an effective eligibility process and to
improve training for eligibility workers so they know how to ask the
right questions and research each applicant. This kind of due diligence
on the part of States will continue to play a vital role in ensuring
that Medicaid benefits are used appropriately and effectively.
Once again, we appreciate the hard work you put into this report, and
we thank you for taking our comments under consideration.
Sincerely,
Signed by:
Robert M. Kerr:
Director:
[End of section]
Appendix IV: 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; Kaycee Misiewicz Glavich; Grace Materon; Kevin Milne;
Elizabeth T. Morrison; Daniel Ries; Michelle Rosenberg; Laurie Fletcher
Thurber; and Suzanne M. Worth made key contributions to this report.
FOOTNOTES
[1] 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
Metlife Mature Market Institute, The MetLife Market Survey of Nursing
Home & Home Care Costs (Westport, Conn.: September 2006).
[2] Congressional Budget Office, Medicaid Spending Growth and Options
for Controlling Costs, July 13, 2006, Statement before the Special
Committee on Aging, U.S. Senate.
[3] GAO, 21st Century Challenges: Transforming Government to Meet
Current and Emerging Challenges, GAO-05-830T (Washington, D.C.: July
13, 2005); GAO, Long-Term Care Financing: Growing Demand and Cost of
Services Are Straining Federal and State Budgets, GAO-05-564T
(Washington, D.C.: Apr. 27, 2005); and Long-Term Care: Aging Baby Boom
Generation Will Increase Demand and Burden on Federal and State
Budgets, GAO-02-544T (Washington, D.C.: Mar. 21, 2002).
[4] For this report, we focus on financial eligibility--specifically
financial eligibility for Medicaid coverage for long-term care.
However, individuals applying for Medicaid coverage for long-term care
must also meet functional eligibility criteria that are established by
each state and generally involve a degree of impairment measured by
limitations in an individual's ability to carry out activities of daily
living (ADL)--eating, bathing, dressing, using the toilet, getting in
and out of bed, and getting around the house--and instrumental
activities of daily living (IADL), such as preparing meals, shopping
for groceries, and getting around outside.
[5] Assets include income, which is anything received during a calendar
month that is used or could be used to meet food or shelter needs, and
resources, which are anything owned, such as savings accounts, stocks,
or property, that can be converted to cash. This terminology is based
on definitions provided in The State Medicaid Manual issued by the
Centers for Medicare & Medicaid Services, which specifies that assets
include both income and resources.
[6] GAO, Medicaid: Transfers of Assets by Elderly Individuals to Obtain
Long-Term Care Coverage, GAO-05-968 (Washington, D.C.: Sept. 2, 2005).
[7] See Pub. L. No. 109-171, §§ 6011-6016, 120 Stat. 4, 61-67.
[8] For the purpose of our analysis, we defined elderly nursing home
residents as individuals aged 65 or older who have been surveyed prior
to the survey period in which they entered into a nursing home and who
said they (1) lived permanently in a nursing home, (2) spent at least
360 nights in a nursing home, or (3) spent 180 to 360 days in a nursing
home and died in a later survey period; had at least 3 ADLs, cancer, or
lung disease; or had heart disease and reported some difficulty with
mobility. For those respondents who were couples, defined as both
married couples and a small percentage of nonmarried individuals living
together, we required that at least one person in the household meet
the above criteria.
[9] Since the data for this analysis are from multiple years, we
converted all dollar figures into 2004 dollars, using the current
methods series of the Consumer Price Index (CPI) for all urban
consumers.
[10] HRS asked respondents whether they had transferred cash to a
child/grandchild during the survey period prior to the interview.
Additionally, HRS asked respondents whether they had transferred the
deed to their home to a child/grandchild. The data we report here,
therefore, refer only to these transfers.
[11] The dates of the applications we analyzed ranged from March 1989
to April 2006. Ninety-eight percent of the applications we analyzed
were from 2005 or before. As a result, information regarding Medicaid
eligibility levels is provided for 2005, with notes added to explain
the 2007 levels when they differ.
[12] Throughout this report, the term state refers to the 50 states and
the District of Columbia.
[13] The five factors were (1) percentage of the population aged 65 and
over, (2) cost of a nursing home stay for a private room for a private-
pay patient, (3) proportion of elderly (aged 65 and over) with incomes
at or above 250 percent of the U.S. poverty level ($23,925 for a single-
person household in 2005), (4) reported Medicaid nursing home
expenditures, and (5) availability of legal services specifically to
meet the needs of the elderly and disabled.
[14] The four factors were (1) number of Medicaid applicants or
enrollments for nursing home coverage from individuals aged 65 and
over, (2) number of licensed nursing home beds, (3) population aged 65
and over, and (4) median household income.
[15] We included the following counties in our sample: South Carolina-
-Orangeburg (Low), Charleston (Medium), and Greenville (High);
Maryland--Baltimore City (Low), Baltimore (Medium), and Montgomery
(High); and Pennsylvania--Philadelphia (Low), Allegheny (Medium), and
Montgomery (High).
[16] The effects of the DRA provisions are not incorporated into our
other analyses because (1) the HRS data we used are from years prior to
the DRA's enactment, and (2) the data from the application file reviews
are from prior to the three states' implementation of the DRA.
[17] Not all SSI recipients automatically qualify for Medicaid. Under
Section 1902(f) of the Social Security Act, states may use more
restrictive Medicaid eligibility standards than 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.
[18] For 2007, 300 percent of the SSI benefit was $1,869 per month.
[19] A personal needs allowance is an amount, subject to a federal
minimum ($30 a month), excluded from an institutionalized individual's
income to pay for the individual's clothing and other personal needs.
[20] See National Association of State Medicaid Directors, Aged, Blind
and Disabled Eligibility Survey (Washington, D.C.: American Public
Human Services Association, 2002), Hyperlink,
http://www.nasmd.org/eligibility/default.asp (downloaded July 31,
2005).
[21] Although noncountable resources vary by state, for purposes of
determining Medicaid eligibility for long-term care, they generally
include an individual's home (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.
[22] States' maximum resource levels cannot exceed the maximum federal
standard. As of January 1, 2005, the federal maximum was $95,100; for
2007, it was $101,640.
[23] States' minimum resource levels cannot be less than the federal
minimum standard. As of January 1, 2005, the federal minimum was
$19,020; it was $20,328 in 2007.
[24] 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, 482-83 (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).
[25] The Social Security Act terms this the minimum monthly maintenance
needs allowance. Throughout this report, we refer to this as the
minimum needs allowance.
[26] 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; in 2007, the minimum needs allowance could range
from $1,650 to $2,541 per month.
[27] If the shortfall in income could not be made up completely using
one of the approaches, then a combination of both approaches could be
used.
[28] Prior to the DRA, approximately half of states required the use of
the income-first method.
[29] Federal law requires states to apply the transfer of asset
provisions to institutionalized individuals, who are defined in the
Social Security Act as individuals who are inpatients in a nursing
facility or a similar institution or certain recipients of home and
community-based services. See Social Security Act § 1917(e)(3). States
have the option to apply such provisions to noninstitutionalized
individuals.
[30] 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.
[31] According to CMS's State Medicaid Manual, an individual must
provide "convincing evidence" as to the specific purpose for which the
asset was transferred. Verbal assurances are not sufficient.
[32] For individuals in institutions, the look-back period was 36
months (or 60 months for certain types of trusts) from the date the
individual was institutionalized and applied for Medicaid.
[33] States had the option to begin the penalty period on either the
first day of the month in which the asset was transferred for less than
FMV or the first day of the month following the month of transfer.
[34] For the purpose of our analysis, "nonhousing resources" refers to
the net value of stocks, checking accounts, CDs, bonds, individual
retirement accounts/Keogh plans, other real estate, vehicles, business,
and other resources, excluding the home as well as mortgages and loans
on the home. Since the data for this analysis are from multiple years,
we converted all dollar figures into 2004 dollars, using the current
methods series of the CPI for all urban consumers.
[35] For couples, nonhousing resources are assessed at the household
level.
[36] Mean (average) nonhousing resources were $121,201 and ranged from
less than zero to $6,625,498. Ninety-five percent of all elderly
nursing home residents had nonhousing resources of $622,506 or below.
An individual or household can have resources valued at less than zero
if debt is greater than the value of resources.
[37] Mean (average) annual income for all elderly nursing home
residents was $22,182 and it ranged from zero to $556,357 at the time
they entered the nursing home. Ninety-five percent of all elderly
nursing home residents had annual income of $58,773 or below.
[38] Very few elderly nursing home residents (approximately 5 percent
or less) reported transferring the deeds to their homes to their
children or grandchildren.
[39] We were unable to obtain home values for about 18 percent of
applicants (25 applicants) who reported owning homes. Therefore, for
this analysis, we focused on total nonhousing resources--which include
all resources except for the value of an applicant's home--instead of
total resources--which includes the home value. Total nonhousing
resources include nonhousing resources that are counted and those that
are generally not counted toward determining financial eligibility for
Medicaid.
[40] Mean (average) nonhousing resources were $13,440, and ranged from
$0 to $355,387.
[41] For purposes of determining Medicaid eligibility, an applicant's
resources are considered to be both those of the applicant and those of
the spouse.
[42] Mean (average) annual income was $13,083 and ranged from $0 to
$47,316. All three states in which we reviewed applications have
provisions that allow certain applicants to obtain Medicaid coverage
for nursing home care even if their income exceeds the standards. For
example, South Carolina requires such applicants to place excess income
in an income trust, which is used to pay for the applicant's care. In
addition, based on federal law, a portion of a married applicant's
income may be contributed to the community spouse's minimum needs
allowance, thereby decreasing the applicant's income stream.
[43] For example, with regard to life insurance policies, Maryland and
Pennsylvania do not count an applicant's life insurance policies if
they have a combined face value of $1,500 or less. If the policies have
a combined face value of more than $1,500, then Maryland counts the
total cash value of the policies, while Pennsylvania counts the total
cash value of the policies less $1,000. South Carolina counts the total
cash value of an applicant's life insurance policies if those policies
have a combined face value of more than $5,000.
[44] Mean home value was $70,668 and ranged from less than zero to
$535,500. One applicant had a home valued at $535,500 while the rest of
the applicants had homes with values of $358,600 or below. An applicant
can have a home valued at less than zero if his or her debt is greater
than the value of the home.
[45] Two percent of the applicants withdrew their applications before
receiving an eligibility determination. These percentages do not add to
100 because of rounding.
[46] At the time of our application file reviews, 65 of the applicants
whose initial applications were denied did not have a subsequent
approved application in their files. We do not know if they submitted
applications after the time of our review and were subsequently
approved.
[47] The number of approved applicants varied by state. Specifically,
of the files we reviewed, approximately 75 percent of applicants in
South Carolina were approved, compared to 91 percent and 93 percent in
Maryland and Pennsylvania, respectively.
[48] The amount of these applicants' excess resources ranged from $75
to $205,440.
[49] Additionally, 9 of the 41 applicants owned homes at the time of
their initial application; 2 of these applicants sold them prior to
applying again.
[50] The file did not indicate how the applicant spent the remaining
$65,440.
[51] Prior to the DRA, the look-back period for asset transfers was
generally 36 months.
[52] When discussing asset transfers for less than FMV, we are
referring to transfers that the state determined would be subject to
the penalty provisions. We are not referring to transfers that, under
federal law, are exempt from the penalty provisions. Such exemptions
include transfers of assets to the individual's spouse, transfers to
another individual for the spouse's sole benefit, or transfers to a
disabled child. Additionally, transfers do not result in a penalty
period if the individual can show that the transfer was made
exclusively for purposes other than qualifying for Medicaid.
[53] Our analysis of asset transfers focused on applicants who were
approved for Medicaid coverage, because if an applicant appears likely
to be denied Medicaid coverage, states might not conduct a complete
review to determine if an applicant transferred assets for less than
FMV.
[54] Pennsylvania began assessing partial-month penalties during its
2006 fiscal year, specifically in August 2005. With the passage of the
DRA, all states are required to assess partial-month penalties.
[55] In state fiscal year 2005, the average monthly cost for a private-
pay patient in a nursing facility--the figure used for calculating the
penalty period--was $4,300.00 in Maryland, $5,787.38 in Pennsylvania,
and $4,234.00 in South Carolina.
[56] The DRA changed the timing of the penalty period. For transfers
made on or after February 8, 2006, the penalty period will begin on the
later of (1) the first day of the month during or after which an
individual transfers assets for less than FMV or (2) the date on which
the individual is eligible for Medicaid and would otherwise be
receiving coverage for long-term care services, were it not for
ineligibility due to the imposition of the penalty period.
[57] The mean amount of all assets transferred for less than FMV was
$30,246 and ranged from $1,000 to $201,516.
[58] "Other individuals" includes instances where the recipient of the
transfer was unknown.
[59] Additionally, the DRA gives states the option of treating an
applicant's total, cumulative value of all assets transferred for less
than FMV as one transfer when determining the applicant's penalty
period.
[60] The DRA provides that only transfers of assets made on or after
February 8, 2006, are subject to the 60-month look-back period. Thus,
transfers made prior to February 8, 2006, could result in a penalty
period only if they occur within 36 months from the date an
institutionalized person submitted an application. In contrast,
transfers made on or after February 8, 2006, could result in a penalty
period if they occur within 60 months of the date of application. Given
this, as a practical matter, the look-back period will gradually
increase from 36 to 60 months and will reach the full 60 months on
February 8, 2011.
[61] This analysis assumes the DRA penalty period provisions had been
in effect at the time the applicants made the transfers. However, if an
applicant transfers assets before the date of enactment, then the
transfer will be subject to the rules for transfers before the DRA was
enacted. In contrast, if an applicant transfers assets on or after the
date of enactment, then the transfer will be subject to the DRA rules.
If an applicant transfers assets both before and on or after the date
of enactment, then the pre-DRA rules apply to the earlier transfer and
the DRA rules apply to the latter.
[62] Under the DRA, states are required to establish procedures to
allow nursing homes (or other long-term care facilities) to file a
request to waive a resident's penalty period if it would create an
undue hardship for that resident.
[63] Among the approved applications we reviewed, there were eight
applicants with annuities in Maryland, three in Pennsylvania, and three
in South Carolina. We were unable to determine annuity values for one
of the approved applicants who owned annuities. Of the annuities for
which we could determine values, the median value was $18,000, the mean
value was $77,073, and the values ranged from $1,147 to $565,000.
[64] See R.A. Levy et al., Analysis of the Use of Annuities to Shelter
Assets in State Medicaid Programs (January 2005).
[65] An individual with equity in his or her home of greater than
$500,000 may still be eligible for Medicaid payment for long-term care
if the individual has a spouse, child under age 21, or child who is
considered blind or disabled living in the home. States have the option
to increase the home equity limit up to $750,000. As of summer 2006,
all three of the states included in our review elected to keep the
threshold at $500,000.
[66] We were unable to determine home values for approximately 18
percent (19 of 108) of all approved applicants who owned homes. Of the
homes for which we could determine values, the mean value was $77,276
and the values ranged from $200 to $535,000. This analysis does not
account for any debt that applicants may have on their homes.
[67] A life estate is an interest in real property that gives the owner
of the interest the right to use and possess the property only for the
duration of the life of a person, usually the person who occupies the
premises.
[68] We were not able to assess whether the DRA provision on the
treatment of life estates would apply to the life estates that these
approved applicants had.
[69] These data are based on a telephone survey conducted by CMS in
2001.
[70] Before enactment of the DRA, Pennsylvania allowed married
applicants to allocate resources to the community spouse before
allocating the institutionalized spouse's income. The other two states,
Maryland and South Carolina, already used the income-first methodology.
[71] HRS defines each 2-year survey period as a wave. Each wave
corresponds to the second year of a survey period in which the survey
was conducted (wave one--1992--up to wave seven--2004).
[72] For more information about HRS, see Hyperlink,
http://hrsonline.isr.umich.edu/ (accessed on Dec. 8, 2006).
[73] Since the data from this analysis are from multiple years, we
converted all dollar figures into 2004 dollars, using the current
methods series of the Consumer Price Index (CPI) for all urban
consumers.
[74] Mobility is a summary index using five limitations: walking one
block, walking several blocks, walking across a room, climbing one
flight of stairs, and climbing several flights of stairs. The mobility
rating is on a scale of zero (no difficulty or limitations with summary
measurements) to five (some difficulty or limitation in all five
summary measurements).
[75] Payer source for non-Medicaid-covered residents could include self-
pay, Medicare, or other third-party insurance.
[76] Each quarter, states submit Medicaid program expenditures to CMS
using the CMS-64 form. Our analysis used fiscal year 2000 nursing home
expenditures as reported on the CMS-64.
[77] To select counties, we used information sent from state officials
in the three states. For Maryland and Pennsylvania, we used data on the
number of applicants, while for South Carolina we used data on the
number of enrollees.
[78] We used information from the Medicare Nursing Home Compare Web
site, Hyperlink,
http://www.medicare.gov/NHCompare/Include/DataSection/Questions/SearchCr
iteria.asp, for Pennsylvania (accessed on Apr. 24, 2006) and South
Carolina (accessed on Apr. 24, 2006), and the "Long Term Care in
Maryland: A Pocket Chartbook, 2005" (Baltimore, Md.: Maryland Health
Care Commission, June 2005), Hyperlink,
http://mhcc.maryland.gov/longtermcare/_longtermcare.htm (accessed on
Mar. 10, 2006) for Maryland.
[79] We used information from J. Billings and R.M. Weinick, Monitoring
the Health Care Safety Net--Book II (Rockville, Md.: Agency for
Healthcare Research and Quality, 2003), 334-336 for Pennsylvania;
Billings and Weinick, Monitoring the Health Care Safety Net--Book II,
320-321, and the Maryland Association of Counties Web site, Hyperlink,
http://www.mdcounties.org/counties/demographics.cfm (accessed on Mar.
22, 2006) for Maryland; and Billings and Weinick, Monitoring the Health
Care Safety Net--Book II, 336-337, and the U.S. Census Bureau (2004
estimates) for South Carolina.
[80] We used Billings and Weinick, Monitoring the Health Care Safety
Net--Book II, 532-534 for Pennsylvania, 518-519 for Maryland, and 534-
535 for South Carolina.
[81] Therefore, the actual dates of the applications we analyzed ranged
from March 1989 to April 2006. Ninety-nine percent of the applications
we analyzed were from 2000 or later.
[82] The data collection period for the 2004 HRS data was March 2004 to
February 2005. The data we used were from a sample of 11,114
individuals that represented a population of 20,179,826 individuals.
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