INCOME MAINTENANCE PROGRAMS; MEDICAID;

WELFARE - MEDICAL ASSISTANCE - ELIGIBILITY;

You asked us to describe how the Medicaid transfer of assets law works currently and how it will change if (1) the federal government approves the waiver application the Department of Social Services (DSS) submitted in 2002 and (2) DSS implements the provisions in PA 03-3, June 30 Special Session.

As you requested, this report will look specifically at four aspects of the law. They are the effects of (1) tying the start date of the penalty period to the date the client actually becomes eligible for Medicaid, (2) increasing the “look-back” period for real property transfers from 36 to 60 months, (3) creating thresholds to exempt smaller transfers from the penalty provisions, and (4) requiring applicants to present clear and convincing evidence to rebut the presumption that a transfer was made for the sole purpose of qualifying for Medicaid. The first three were incorporated into the waiver request, while all were required by legislation enacted in either 2000 or 2003. (Other aspects of the 2003 changes, such as the creation of a debt on the transferee, will be addressed in a separate memo. )

The Office of Legislative Research is not authorized to render legal opinions and this report should not be considered one.

SUMMARY

Federal Medicaid law generally requires states to impose periods of Medicaid ineligibility (penalty periods) when an institutionalized individual or his spouse transfers assets for less than fair market value less than 36 months (60 months for transfers to certain trusts) before applying for Medicaid. (This is commonly referred to as the “look-back period. ”) The law exempts a number of transfers from these penalties but requires the applicant or spouse to prove that a transfer during the look-back period is exempt.

In the last few years, the state legislature has amended the law to make it easier for the state to impose these penalties. In 2000, the legislature directed DSS to move the start date for the penalty period from the date the transfer occurred to the date someone is determined eligible for Medicaid. Having a later start date would allow DSS to impose more penalties. Since this would be contrary to federal law, DSS has asked CMS to waive this provision and cannot implement the state law until CMS approves the waiver.

Although not part of the 2000 legislation, DSS also included in its waiver application a request to extend the look-back period from 36 to 60 months for real property transfers. And it has asked for permission to establish threshold levels so that small transfers made within the look-back period will not be subject to penalties. PA 03-3, June 30 SS directed DSS to make these changes. But once again, the agency must wait to implement the law until CMS approves the waiver. As of this writing, the waiver request is still awaiting CMS approval.

The 2003 legislation also (1) establishes in statute a rebuttable presumption that all asset transfers made within 36 months of Medicaid applications that would result in a penalty were made to qualify for Medicaid and (2) requires clear and convincing evidence to avoid the penalty. These provisions appear to be codifications of existing DSS regulations, rather than policy changes. The inability for DSS to impose penalties due to the penalty start-date has likely prevented the department from using the clear and convincing standard, which may explain why some view this statutory language as new.

TRANSFER OF ASSETS LAW

Changing the Start Date of the Penalty Period

Three years ago, the legislature passed a law to tighten what many perceive as a loophole in federal Medicaid law. This loophole prevents DSS from saving money in the Medicaid program as a result of imposing penalty periods on people who make transfers for less than fair market value for the sole purpose of qualifying for Medicaid long term care services.

Federal law currently requires the penalty period to run from the date the asset was transferred, rather than from when the person is determined eligible for Medicaid. Thus, penalty periods for transfers made far enough back in time expire before people apply for and become eligible for Medicaid. State law changes the start date of the penalty period to the date someone is determined otherwise eligible for Medicaid (§ 17b-261a). DSS cannot implement this change unless CMS grant its waiver request.

Increasing the Look-Back for Real Property Transfers from 36 to 60 Months

Currently federal law requires states to “look-back” 36 months from the time someone applies for Medicaid and scrutinize property transfers made within that period. (States must look back five years for transfers made to certain trusts. ) DSS’s waiver application includes a request to increase the look-back for real property transfers from 36 months to 60 months, although state law was not changed to reflect this until the legislature passed PA 03-3, June 30 SS. (Certain real property transfers are currently exempt from penalties, such as those made to spouses in the community. These types of transfers remain exempt under the new law. )

After receiving the waiver request, CMS asked DSS to more clearly define real property. In its response, DSS stated that real property includes both land and buildings.

Thresholds for Small Transfers of Real Property and to Trusts

Federal law uniformly penalizes asset transfers, regardless of their value. In its waiver request, DSS acknowledges that delaying the imposition of a penalty period could penalize people who make small transfers in the 36 months (60 months for certain trusts and real property if CMS approves the expansion of the look-back period) before applying for Medicaid. To address this, DSS has asked CMS to permit it to establish asset threshold levels, which would allow DSS to base the imposition of penalties on the value of the assets and at what point in the look-back period they were transferred. Assets with values below these threshold levels could be transferred for less than fair market value without triggering the penalty provisions. Like the real property change, DSS proposed this change before the law was changed to reflect it in PA 03-3, June 30 SS. Table 1 presents these thresholds.

Table 1:

(1) When the transfers occurred between three and five years of Medicaid application, this threshold category would apply only to transfers to trusts and possibly real property transfers

Rebuttable Presumption—“Clear and Convincing Contrary Evidence”

Until August 2003, state law was silent on what proof was required to rebut a presumption that a transfer of non-exempt assets during the look-back period was for the purpose of obtaining or maintaining Medicaid coverage. Section 62 of PA 03-3, June 30 Special Session states that the presumption can be rebutted only by clear and convincing evidence that initial or ongoing Medicaid eligibility was not a basis for the transfer.

We looked at both the federal and state law to determine whether this is a policy change or merely a codification, and whether federal approval for using such a standard would be necessary. It appears to be a codification of existing DSS regulations which does not require CMS approval.

Federal Law—“Satisfactory Showing. ” As we wrote above, in general, federal law requires states to impose a penalty period when transfers are made within the look-back period. But the law recognizes several instances where assets have been transferred for other reasons and prohibits states from imposing penalties when these types of transfers occur. For example, states cannot assess a penalty when the asset is a home and it is transferred to a spouse or a child under age 21.

There are three instances in which states can require an institutionalized persons or his spouse to make a “satisfactory showing” why a particular non-exempt asset transfer should not be subject to a penalty. Specifically, federal law requires this when the person who transferred the assets claims:

1. he intended to dispose of it either at fair market value or for other valuable consideration,

2. the assets were transferred exclusively for a purpose other than to qualify for Medicaid, or

3. all of the assets transferred have been returned to him.

In addition, the law prohibits states from imposing a penalty period that would work an undue hardship on the individual (i. e. , the individual would be deprived of medical care or necessities of life so that his health or life would be jeopardized) (42 USC § 1396p(c(2)(C)).

CMS’s State Medicaid Manual. The State Medicaid Manual, published by CMS, provides guidance to state Medicaid agencies to use when responding to rebuttals in the scenarios described above. It generally restates the federal law, repeating the need for those rebutting the presumption to make a “satisfactory showing. ” It also states that pending publication of regulations that will provide guidelines on what is meant by the phrase, states must determine what it means. CMS has not promulgated these regulations yet.

The manual provides further guidance as to the standard for making a satisfactory showing with respect to the first two scenarios. With regard to transfers where the transferor claims his intent was to receive fair market value or other valuable consideration, the manual directs states to “require that the individual establish, to your satisfaction, the circumstances which caused him or her to transfer the asset for less than fair market value. ” It also makes it clear that verbal statements alone are “generally” insufficient, requiring the individual to submit written evidence of his attempt to dispose of the asset for fair market value, as well as proof of the value of the asset at the time it was transferred.

For the second type of transfer, the manual states that verbal assurances that the transferor was “not considering Medicaid” when he made the transfer are not adequate. But here, states must require “convincing evidence” of the purpose for which the assets were transferred (State Medicaid Manual, § 3258. 10).

State Law. For years, state Medicaid law has mirrored part of the federal law, making institutionalized individuals eligible for Medicaid, provided they have not transferred property for less than fair market value for the purpose of establishing Medicaid eligibility, in accordance with the federal rules (CSG § 17b-261). The 2003 legislation adds the burden of proof standard.

State Regulations—Transfers for Which No Penalty Imposed. Since much of the state’ s Medicaid policy is not in statute, we attempted to determine whether the provision in PA 03-3, June 30 SS constituted an actual policy change or was simply a codification of existing regulation. DSS asserts that it is simply a codification and points to its regulations on the subject to corroborate its assertion.

DSS regulations enumerate the types of transfers made within the look-back period that are not subject to a penalty. Included in this section are the three types of transfers that we described above. The regulations state that an institutionalized individual or his spouse can transfer assets without penalty if either can provide clear and convincing evidence that (1) the transfer was made exclusively for a purpose other than qualifying for Medicaid, (2) he intended to dispose of the asset at fair market value, or (3) he or she intended to dispose of the asset in return for other valuable consideration.

This section also mirrors the federal provisions regarding the prohibition of penalties in the case of (1) returns of assets, (2) undue hardship, (3) transfers of homes to certain family members, (4) transfers to benefit spouses, (3) transfers to disabled children, and (5) transfers to trusts benefiting certain disabled individuals (DSS Uniform Policy Manual, § 3028. 10).

State Regulations—Notification and Rebuttal. Another part of this same section of the regulations deals specifically with DSS notification of what it deems to be an inappropriate transfer and the opportunity for rebuttal.

This section directs DSS to notify the institutionalized individual or his spouse of the “inappropriateness” of the transfer. Either individual can rebut the presumption before DSS actually imposes the penalty. But the regulations require the rebuttal to include (1) a statement from either the person transferring the asset, or his spouse, as to the reason for the transfer and (2) objective evidence, either oral or written, which rational people would agree is real or valid. DSS procedures, which provide futher guidance to DSS staff reviewing the rebuttals, to take into consideration all of the evidence presented, weigh it, and record the analysis and result of the rebuttal (DSS Uniform Policy Manual, Policy Section 3028. 35 and Procedures Section 3028. 25).

Advocate Concerns. We reviewed the March 7, 2003 public hearing testimony to determine whether attorneys representing Medicaid clients commented on the use of the clear and convincing evidence standard. Greg Barringer of the Elder Law Section of the Connecticut Bar Association testified that the use of this standard would make the presumption that the transfer was improper “virtually impossible to overcome,” arguing further that the clear and convincing standard was “typically associated with severe sanctions just short of criminal penalties. ”

CMS Input. We asked CMS, as the federal agency that must approve what states do in their Medicaid programs, if clear and convincing evidence is an acceptable standard. The agency’s Barbara Collins stated that she could see no reason why CMS would disapprove this policy, pointing to the lack of a definition of “satisfactory showing” in the federal law and the discretion states have to set these standards.

RC: ro/eh