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

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:

• Training Outline: Medicaid Provisions in the Deficit Reduction Act of 2005 (revised  to show 2010 transfer penalty rates 1/15/2010)
• Summary of Changes to Medicaid in the Deficit Reduction Act of 2005 (revised 10/4/2007; shorter summary of above outline)

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.

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:

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:

The 2010 regional nursing 2011 home transfer penalty rates  in 11MA001 - Medicaid Regional Rates for Calculating Transfer Penalty Periods for 2011 

This article was authored by the Evelyn Frank Legal Resources Program of Selfhelp Community Services, Inc.