You asked for a summary of the Medicaid long-term care transfer of asset provisions in the recently passed federal Deficit Reduction Act of 2005 and how they may affect Connecticut.

This report focuses on six of the major changes in the law. All except the last one took effect on the act's passage date (February 8, 2006) and apply to asset transfers made on or after that date.

SUMMARY

The Deficit Reduction Act of 2005 (PL 109-171) makes six changes in the law regarding transfers of assets for Medicaid long-term care eligibility. Specifically, it:

1. increases from 36 months to five years the period of time states must “look back” when determining whether individuals applying for Medicaid long-term care have transferred assets solely to qualify for Medicaid;

2. changes the start date of penalty periods (Medicaid ineligibility) states must impose when they determine such transfers have occurred,

3. requires states to impose penalty periods that include individual days of Medicaid ineligibility,

4. codifies federal guidance on when states may waive penalty periods when their imposition will pose a hardship for the person transferring the asset,

5. requires states to use a more restrictive methodology when determining the amount of support the spouse of a Medicaid recipient living in the community may receive, and

6. prohibits states from granting Medicaid to individuals who have substantial equity in home property.

Connecticut has already instituted items 3 and 5 and part of 4.

TRANSFER OF ASSET PROVISIONS

Increasing the “Look-Back” (§ 6011)

Federal law presumes that someone who transfers assets for less than fair market value during a certain period of time before applying for Medicaid long –term care (look-back) does so in order to qualify for assistance. If these transfers occur, and they are not successfully rebutted, states must impose periods of Medicaid eligibility based on the value of the uncompensated asset.

Prior law required states to look back 36 months for most transfers but 60 months for transfers made to certain trusts. The act requires a 60-month look back for all transfers.

This provision applies to transfers made on or after February 8, 2006.

Start Date of Penalty Period (§ 6011(b))

By law, if Medicaid applicants are found to have made transfers for less than fair market value within the look back period solely to qualify for Medicaid, states must impose periods of Medicaid ineligibility. The duration of the penalty is determined by dividing the uncompensated value of the asset in question by the average monthly cost of care in a nursing home.

Applicants who transferred assets early enough before they applied for Medicaid tended not to be penalized. This was because the penalty period began from the date the asset was transferred. For example, if someone's penalty was two months, and he transferred the asset a year before applying for Medicaid, the transfer would be scrutinized, but the penalty would expire 10 months before the person applied.

The act changes the start date of the penalty period to the later of (1) the first day of a month during or after which the assets have been transferred or (2) the date on which the person transferring the asset is eligible for Medicaid and would otherwise be receiving institutional care based on an approved application but for the application of the penalty period.

This provision was effective on February 8, 2006.

Imposing Partial Months of Ineligibility (§ 6016(a))

The act prohibits states from rounding down or otherwise disregarding any fractional period of ineligibility. Previously, when states calculated the penalty period (value or uncompensated asset/average cost of care in nursing facilities) and the quotient was a fraction, the law allowed them to round down or not include in the ineligibility period the quotient amounts that were less than one month. For example, if the average cost of care was $ 5,000 and the asset was valued at $ 56,000, the quotient would be 11. 2 months of ineligibility. States could round this down to 11 months. Under the act, they must include the additional days in the penalty period.

DSS already imposes partial months of ineligibility so this provision should have no effect in Connecticut.

Hardship Waivers (§ 6011 (d)(e))

The act codifies federal guidance on when states may grant waivers of the penalty periods when the penalty will create a hardship on the person transferring the asset (transferor). Specifically, the waiver should be granted if a state finds that the penalty would deprive the individual of medical care to the extent that his health or life would be endangered or he would be deprived of food, clothing, shelter, or other life necessities.

The act requires states to provide for (1) notice to recipients that an opportunity for a hardship exception exists, (2) a timely process for determining whether a waiver will be granted, and (3) a process for appealing an adverse determination. It permits nursing facilities to file the hardship waiver applications on the resident's behalf, with consent. Department of Social Services (DSS) regulations already provides for hardship waivers (Uniform Policy Manual, Section 3028. 25). But the nursing facilities' authority to request the waivers is new.

If applications for waivers meet established criteria (to be set by the secretary of HHS), states have the option of providing up to 30 days of payments to nursing facilities to hold the resident's bed while the application is pending. DSS indicates that it does not intend to do this.

Codifying “Income First” Methodology for Protecting Community Spouse

Existing Law. In 1988, Congress changed the Medicaid law to financially protect couples when one spouse entered an institution while the other remained in the community. The “spousal impoverishment” provisions were designed to give the “community” spouse a minimum amount of assets and monthly income with which to maintain herself without having to resort to institutional care herself.

The law exempts all of the community spouse's income (e. g. , Social Security) from being considered available to the institutionalized spouse for Medicaid eligibility purposes. It also establishes a minimum monthly needs allowance (MMNA) to ensure she has enough resources to meet her monthly living costs.

States must also allocate a portion of a couple's combined assets to the community spouse, with the remainder going towards the institutionalized spouse's care costs. To establish the “community spouse protected amount” (CSPA), assets of both spouses are combined and then divided evenly, with the institutionalized spouse's share going directly into paying for the care (before Medicaid will pay) while the community spouse keeps her share, up to a specified limit.

States must attribute income to each spouse according to their ownership interest. Then, the state compares the community spouse's monthly income to the MMNA. If the community spouse's income is less than the MMNA, the institutionalized spouse can choose to transfer an amount of his income or assets to make up the shortfall.

Changing MMNA. If a community spouse wants to raise her income to the MMNA level, she appeals through a state's fair hearing process (DSS holds these in Connecticut). The state can then decide whether to allocate more of the institutionalized spouse's income or assets to her.

States have generally used two different methods when making these decisions. The “income first” methodology requires that the institutionalized spouse's income first be allocated to the community spouse, with the remainder, if any, going to pay for the institutionalized spouse's care costs. Unless the transferred income is insufficient to raise the community spouse's income to the agreed-upon level, using this method, the assets of the institutionalized spouse (e. g. , an annuity or other income producing asset) cannot be transferred to her to raise her income. This method generally requires the couple to deplete a larger share of their assets, as the share the institutionalized spouse retains must be spent on his care before Medicaid pays.

Under the “resource first” method, the couple's assets are protected first for the community spouse's benefit to the extent necessary to ensure that her total income, including income generated by the CSPA meets (or exceeds, if allowed) the MMNA. Additional income from the institutionalized spouse that may be, but has not been, made available to the community spouse would be used toward the institutionalized spouse's care costs, making this spouse eligible for Medicaid more quickly.

The Deficit Reduction Act requires states to use the income first methodology. This change went into effective on February 8, 2006. Connecticut law (CGS § 17b-261(h)) has required DSS to use the income first approach since 2003.

Disqualification for Medicaid for Couples with Substantial Home Equity (§ 6014)

Under prior law, the value of an individual's home was not included in determining Medicaid eligibility. If an individual and a spouse (if any) moved out of the home with no intention of returning, the home became a countable resource, since it was no longer the individual's principal residence. In this instance, he would have to make a good faith effort to sell the home and Medicaid would pay for his care costs. Once he sold the home, Medicaid would stop and the proceeds would be used to pay for his care. When they were depleted, Medicaid coverage would resume.

If an individual left the home to live in an institution, the home was still considered to be the individual's principal place of residence, regardless of whether he intended to return, as long as the spouse or dependent relative continued to live there.

The federal act excludes from Medicaid long-term care eligibility individuals with an equity interest in the home of more than $ 500,000, but it allows states to raise this amount to $ 750,000. (These caps increase beginning in 2011. ) This effectively means that the individual must sell the home and spend the proceeds on his care before Medicaid will pay. The act creates a hardship waiver and requires the federal government to establish a waiver process. As under prior law, the exclusion does not apply to individuals whose spouse or children who are under 21, blind, or disabled lawfully reside in the house.

The act does not prevent someone from using a reverse annuity mortgage to reduce his equity interest in the home.

This provision applies to individuals who are determined eligible for Medicaid based on an application filed on or after January 1, 2006. But DSS is still in the process of determining how it will implement it.

RC: ts