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Transfer of Asset Rules in Medicaid -- The Deficit Reduction Act of 2005

Views: 38725
Posted: 11 May, 2009
by David Silva (New York Legal Assistance Group)
Updated: 26 Aug, 2014
by Valerie Bogart (New York Legal Assistance Group)

On February 8, 2006, former President Bush signed into law the Deficit Reduction Act of 2005 (DRA).  Among other things, this Federal law made major changes to financial eligibility rules of the Medicaid program.  The main changes were to the transfer penalty rules for nursing home coverage.  (Note that NY State has threatened to implement a transfer penalty for COMMUNITY coverage as well, but this has not happened.  See GIS 06 MA/016.)

Selfhelp published the following training materials explaining the effects of the DRA on New York State's Medicaid program, including strategies for avoiding or minimizing transfer penalties:

Because the DRA is a Federal law, it was implemented differently in each State.  CMS, the Federal agency administering Medicaid, issued guidance to the States on implementing the DRA (see State Medicaid Director Letter #06-018, and enclosures).

The New York State Department of Health issued its own guidance implementing the DRA (see 06 OMM/ADM-5).  The procedures in this guidance took effect August 1, 2006.

Selfhelp published this guide summarizing the above guidance.

For a public policy perspective on the DRA, see the Kaiser Family Foundation's website.

NOTE that these rules on transfer penalties apply to people who are Disabled, Aged 65+ or Blind (DAB).   People who are not in this category or who do not have Medicare are in the  "MAGI" Medicaid category.  If they need nursing home care, the rules are slightly different.  See this link.

Calculating the Look-Back Period

One of the changes in the DRA was to lengthen the look-back period for transfers of assets for nursing home Medicaid applications.  When you apply for Medicaid coverage of a nursing home stay, the old rule was that you would be asked for the last 36 months (3 years) of financial documentation (bank statements, etc.)  Transfers to a trust were subject to a 60-month (5-year) look-back period.  The local district would review these to find any uncompensated transfers of assets (aka "gifts"), which are presumed to have been made in order to qualify for Medicaid.  The total amount of transfers found is divided by the monthly regional nursing home rate (determined by the State DOH), and the quotient is the number of months that Medicaid will not pay for your nursing home stay (aka "the transfer penalty").

The DRA lengthened the look-back period from 36 months to 60 months for all transfers (not just to trusts).  However, this change is being phased in gradually so that transfers made before the effective date of the DRA are not subject to the new rules.  This can make it difficult to tell what the applicable look-back period is.  The following table attempts to illustrate which look-back period applies based on the date of the Medicaid application:

Date of Nursing Home Medicaid Application: Before 2/1/2006 2/1/2006 - 1/31/2009 2/1/2009 - 1/31/2011 After 2/1/2011

Length of Look-Back Period:
(i.e., amount of bank statements that must be produced)

36 months 36 months Back to 2/1/2006 60 months

Applying the Transfer Penalty

In addition, the DRA changed how the transfer penalty itself is imposed.  It used to be that the penalty period would begin to run at the date of the transfer (which may have occurred long before the applicant is in the nursing home and applying for Medicaid).  With the DRA, the penalty period does not begin to run until the applicant is in the nursing home, is otherwise eligible for Medicaid (i.e., is below the asset limit), and has submitted an application for Medicaid (which will inevitably be denied, because of the transfers).  This new rule only applies for transfers that occurred after the effective date of the DRA.  This table attempts to illustrate which penalty period rule applies, based on the date of the transfer:

Date of Transfer: Before 2/1/2006 After 2/1/2006
Penalty Period for that Transfer Begins to Run: Date of transfer Date that applicant is in nursing home, is otherwise eligible for Medicaid, and has submitted a Medicaid application.

The  regional nursing home transfer penalty rates change annually in "General Information System" (GIS) messages posted at http://www.health.ny.gov/health_care/medicaid/publications/index.htm.    The 2014 rates are published in GIS 14 MA/03: Medicaid Regional Rates for Calculating Transfer Penalty Periods for 2014 (PDF)

Impact of the Affordable Care Act on Transfer Penalties, Medicaid Liens and other Medicaid Rules

The Affordable Care Act (ACA) did not change the rules on transfer penalties described above for most people who need institutional (nursing home) Medicaid, since most people needing nursing home care are "Disabled, Aged 65+ or Blind" (known as "DAB.")  The DAB budgeting rules were not changed by the ACA.  This category is also known as "non-MAGI," as opposed to the "MAGI" category whose eligibility for Medicaid was significantly changed by the ACA.  Generally, the "MAGI" are people who are not on Medicare. See articles on MAGI here.    Even MAGI people -- those under age 65 who do not have Medicare and who are not disabled -- sometimes need nursing home care.  For them, the State issued special rules on asset transfers, liens, and institutional budgeting.  See NYS DOH GIS 14 MA/016: Long Term Care Eligibility Rules and Estate Recovery Provisions for MAGI Individuals -- PDF

Under the GIS, MAGI individuals who are "medically frail" may receive coverage for medically necessary nursing facility services. The need for nursing facility services qualifies the individual as "medically frail" and no further documentation is required.  Individuals whose eligibility is determined under MAGI rules are not subject to a resource test for purposes of determining Medicaid eligibility.”  However, MAGI Medicaid recipients are still subject to the transfer penalty, home equity limit, and estate recovery (but only for “the cost of nursing facility services, home and community-based services, and related hospital and prescription drug services received on or after the MAGI individual's 55th birthday”).  However, they do NOT have to pay a NAMI, and a lien cannot be placed on their home.

This article was authored by the Evelyn Frank Legal Resources Program of New York Legal Assistance Group.


Attached files
file DRA Summary.pdf (272 kb)
file OutlineDRA.pdf (533 kb)
file Analysis of DRA guidance.pdf (110 kb)

Also read
document Income and Resource Limits for New York State Public Health Insurance Programs
document When Documentation of Resources and Income is Required for Medicaid Applications & Renewals - and When is "Attestation" Enough?
document How to use funeral planning to become eligible for Medicaid (updated fact sheet - 2015)
document Maintaining Community Medicaid (Non-Chronic Care) Budgeting During Temporary Nursing Home Stays
document NYS Directives on Medicaid changes under the Affordable Care Act

External links
Deficit Reduction Act of 2005 (S.1932)
CMS, State Medicaid Director Letter #06-018 (July 27, 2006)
DOH, 06 OMM/ADM-5 (July 20, 2006)
Kaiser Family Foundation - Articles on the DRA

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