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

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Posted: 11 May, 2009
by David Silva (New York Legal Assistance Group)
Updated: 05 Dec, 2017
by Valerie Bogart (New York Legal Assistance Group)

 The Deficit Reduction Act of 2005 (DRA, enacted in 2006, made major changes to  the transfer penalty rules for nursing home coverage. 

There is NO transfer penalty for applying for Medicaid for inpatient or outpatient care, for Managed Long Term Care or any other home care services, for Assisted Living Program, or for waiver programs.    NY State has threatened to exercise a federal option to implement a transfer penalty for COMMUNITY coverage, but this has not happened.  See GIS 06 MA/016

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).

Two key New York State Department of Health directives give NYS policy on transfers of assets:

  1.  2006 OMM/ADM-5 -- implementing the DRA --.  The guidance took effect August 1, 2006. 
  2.  1996-ADM-08 Provisions on Transfers & Trusts  also continues to apply regarding transfer penalties and their exceptions. .

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, they do have a "loopback" and transfer penalty, but the rules are slightly different.  See this link below.

The Evelyn Frank Legal Resources Program published these training materials explaining the effects of the DRA on New York State's Medicaid program, including strategies for avoiding or minimizing transfer penalties:

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).  

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 2018 rates are published in  

Exceptions to the Transfer Penalty

The general exceptions to the transfer penalty are as follows.  For more detailed information consult an elder law attorney.


Transfer of the home by applicant or spouse in 5-Year Lookback Period triggers a transfer penalty for NH Medicaid unless home transferred to:

  1. Spouse

  2. Child under 21 or certified blind/disabled child of any age – May be child over age 65 -  See GIS 08MA036 - Disability Reviews for Adult Children over 65

  3. Sibling with an equity interest in the home who has resided in the home for at least ONE year immediately prior to the applicant’s most recent institutionalization; or

  4. Caretaker Adult Child  -- who resided in the home for at least  2 years, immediately prior to the most recent institutionalization and who provided care to the applicant which permitted her or him to reside at home rather than in a medical facility. It is presumed that the child “provided care” unless there is evidence to the contrary. 


Transfer of asset penalties are not imposed when an asset other than the individual’s home is transferred by the applicant or spouse to

  1. spouse, or to another for the sole benefit of the individual’s spouse (may not be to a trust or annuity with a remainderman/ beneficiary other than the spouse) 

  2. individual’s child who is certified blind or disabled (may transfer cash, does not require in trust);  May be over age 65 -  ,GIS 08MA036 - Disability Reviews for Adult Children over 65 (December 29, 2008)

  3. a trust established solely for the benefit of an individual under 65 years of age who is disabled (Does NOT have to be applicant’s child or even related)(Can be supplemental needs trust for oneself if <65).

  4. Transfer of an exempt asset has no penalty – ie Holocaust restitution, assets under $14,850. 18 NYCRR § 360-4.4 (c)(1)(ii).

  5. Applicant/spouse intended to dispose of the asset for its fair market value or exchange it for other consideration of similar value;

  6. Transfer was made exclusively for a purpose other than to qualify for Medicaid nursing home coverage.  See factors in 1996-ADM-08; Sandoval v. Shah, 131 A.D.3d 1254, 17 N.Y.S.3d 450 (2nd Dept. 2015)

  7. All of the assets transferred for less than the fair market value have been returned to the individual.  Gift can be returned by private-paying for nursing home care, but not home care, rent, or other expenses.    Partial return reduces penalty proportionally  2006 ADM, p. 18.  See Weiss v Suffolk County DSS, 121 A.D.3d 703, 993 N.Y.S.2d 368 (2d Dept. 2014) (family paying for Assisted Living did not  “return” assets so did not cancel transfer penalty)

  8. Denial of Medicaid would cause an UNDUE HARDSHIP.  Undue hardship may be found where individual is:

A.  Otherwise eligible for Medicaid (citizenship, assets within limits, etc.);

B.   Unable to have the resources returned despite his/her best efforts, or to obtain fair market value for them, or to void a trust (if transfer was to a trust)(FH No. 6660774R, Suffolk Co. 3/12/2014 an undue hardship exemption was granted when, the Appellant’s representatives were in close contact with the DSS, apprising them of all developments and difficulties encountered in obtaining the Appellant's spousal financial documentation. AND

C.  EITHER (1) Unable to obtain appropriate medical care such that the individual’s health or life would be endangered without Medicaid for nursing home services; OR  (2) The transfer of assets penalty would deprive the individual of food, clothing, shelter, or other necessities of life. 

EXAMPLES:  No hardship found where Appellant not threatened with discharge from nursing home. FH No. 6657601M Albany Co. 3/10/2014, FH No. 67841713Z, Schenectady  Co. 7/21/2014;
But see FH No. 6660774R, Suffolk Co. 3/12/2014 (Finds hardship where NH affidavit indicated would be discharged if Medicaid not secured.)

1996-ADM-08 Provisions on Transfers & Trusts at 23;  2006 OMM/ADM-5 at 19-20;
18 NYCRR § 360- 4.4(d)(2)(iii) 


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
item DRA Summary.pdf (272 kb) Download
item OutlineDRA.pdf (533 kb) Download
item Analysis of DRA guidance.pdf (110 kb) Download

Also read
item Income and Resource Limits for New York State Public Health Insurance Programs
item When Documentation of Resources and Income is Required for Medicaid Applications & Renewals - and When is "Attestation" Enough?
item How to use funeral planning to become eligible for Medicaid (updated fact sheet - 2015)
item The Various Types of Medicaid Home Care in New York State
item Holocaust or Nazi Victim Reparations -- Effect on Medicaid, SSI and other Federally Funded and New York State Benefits
item Managed Long Term Care
item Medicaid Home-and-Community-Based Waiver Programs in New York State
item Medicaid Assisted Living Programs (ALP) in NYS
item NYS Directives on Medicaid changes under the Affordable Care Act

External links
http://www.wnylc.com/health/client/images/icons/article_out.svg Deficit Reduction Act of 2005 (S.1932)
http://www.wnylc.com/health/client/images/icons/article_out.svg CMS, State Medicaid Director Letter #06-018 (July 27, 2006)
http://www.wnylc.com/health/client/images/icons/article_out.svg Enclosures
http://www.wnylc.com/health/client/images/icons/article_out.svg DOH, 06 OMM/ADM-5 (July 20, 2006)
http://www.wnylc.com/health/client/images/icons/article_out.svg Kaiser Family Foundation - Articles on the DRA

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