Bullet: Untangling the
Deficit Reduction Act
Wednesday, July 26, 2006
LTC Comment: When
Congress passes and the President signs a law, the hard work of
interpreting and implementing it begins.
See what a struggle that is for the DRA's complicated changes to
Medicaid and long-term care, after the ***news.***
*** TODAY'S WALL STREET JOURNAL contains a
fascinating article by Barry Newman titled "Who Will Care For U.S.
Elderly If Border Closes?" (7/26/6, Page B1, http://online.wsj.com/article/SB115387348405817231.html?mod=hps_us_editors_picks)
To access the article online, you'll need a subscription to the WSJ
pick up a hard copy. This
article raises a lot of tough questions about who will provide LTC to
boomers and for how much paid by whom or what. All the more reason for everyone to plan early and save,
invest or insure for long-term care. ***
*** WHAT I BELIEVE ABOUT LONG-TERM CARE.
Listen to Steve Moses's speech of that title at http://www.centerltc.com/speakers/what_i_believe_about_ltc.MP3
. A transcript of the same
speech, delivered at The
Sixth Annual Intercompany LTCi Conference in Anaheim, California on
February 28, 2006, is available at http://www.centerltc.com/speakers/what_i_believe_about_ltc.htm.
*** NOTE FROM CONGRESSMAN ROSCOE BARTLETT (R, MD):
"Dear Stephen: You
were really great at the Small Business Roundtable in Hagerstown,
Maryland. The event was
very successful and it would not have been so without your testimony.
Thanks again, Roscoe." ***
LTC BULLET: UNTANGLING
THE DEFICIT REDUCTION ACT
LTC Comment: The
Center for Long-Term Care Reform has come into possession of a
fascinating 43-page document. It
describes questions raised by the ETAG (Eligibility Technical Advisory
Group) state Medicaid representatives and answers provided by the
Centers for Medicare and Medicaid Services (CMS) about the meaning and
applicability of dozens of provisions in the Deficit Reduction Act.
Its title is "Deficit Reduction Act of 2005:
Summary of Effect of Long-Term Care Medicaid Eligibility
below are some excerpts exemplifying the content, complexity and tone of
the document and the excruciating task it represents.
Our purpose in passing on this information is to
elucidate the complicated process that the federal and state partners
who both partially fund Medicaid and who oversee and administer the
program, respectively, are currently going through.
We will not make the whole document available.
Nor will we answer questions of interpretation about it, so
please don't ask. That
could (and probably will) keep an army of analysts busy for years.
Read what follows, make the best sense of it you can, and
understand why it may be a good, long time before the provisions in the
DRA bearing on Medicaid eligibility and long-term care partnerships
finally wend their way from statute to policy to regulation to
implementation in the field.
But as you read this convoluted material, consider
these quotes about Medicaid eligibility laws and regulations:
Court Justice Powell: "Byzantine"
and "among the most intricate ever drafted by Congress."
Court Justice Burger: "a
morass of bureaucratic complexity," a "maze"
court judges: "an
aggravated assault on the English language, resistant to attempts to
understand it" and "so drawn that they have created a
Serbonian bog from which the agencies are unable to extricate
Friendly: "a Byzantine
construction making it almost unintelligible to the uninitiated."
Governors' Association, quoted in New York Times, 8/4/92:
"The evolution of Medicaid . . . has made the program so
complex that it is incomprehensible to recipients and providers and
unmanageable for governors and states."
And one last thought:
Considering the complexity of Medicaid eligibility documented by
these quotes and exemplified in the following excerpts, where do critics
of long-term care insurance get off criticizing that product for being
too complicated for consumers to understand?
At least consumers decide whether they wish to
purchase the LTCi product and when they do they have a contract
enforceable in a court of law. People
who end up on Medicaid on the other hand, have no say in whether they
qualify or what they get. Those
decisions are made by legislators, policy wonks, technical specialists,
field eligibility workers, and hearings officers.
Whether or not any particular applicant qualifies for help from
Medicaid at any given time often depends on nothing more than the whim
or ideological leaning of a government functionary tasked with the
responsibility to examine an application, compare it to loose, nearly
unfathomable rules, and make a decision that could often be positive or
negative depending only on the official's personal preference.
Excerpts from "Deficit Reduction Act of 2005:
Summary of Effect of Long-Term Care Medicaid Eligibility
Comments from general discussion:
"CMS is going to avoid using examples when it
feels that providing additional examples would limit State flexibility.
CMS is interested in learning from states what
requests/challenges applicants are making to the state’s
implementation of each of the requirements."
"Since the effective dates are embedded into
the statute, CMS will not be providing best practice guidance on how to
contend with the various effective dates.
From historical memory, no one can recall a state being audited
for noncompliance with a new statutory requirement.
This should not be construed as an assurance from CMS that this
will not happen, but no one on the 2/22/06 call could remember such an
"New state plan pages will be issued in draft
form as soon as possible (no date or month identified)."
"Note from ETAG State Representatives:
Many states have concerns about the effective date for the
different provisions associated with divestment and asset transfers.
All states are receiving calls from estate planners and attorneys
asking questions about the effective dates and when the provisions will
be implemented. It appears
to the ETAG state members that CMS will allow a reasonable amount of
time to implement. Each
state will need to make its own policy decisions about implementation
based upon its own state laws, rules, implementation constraints,
does CMS expect to provide States with templates for state Medicaid plan
changes related to the DRA?
As soon as possible."
6011(a) FIVE YEAR LOOK-BACK
the look back period for the transfer or disposal of all assets to 60
months (5 years).
Could we be provided with further clarification as to what should be
counted? For example
holiday/birthday gifts, donations to charity or church, etc.
Can the state set a dollar minimum as to what should be counted
in determining the transfer?
Under the DRA there is no authority for states to adopt
eligibility policies to establish a minimum dollar amount or type of
gift. This means that
States cannot adopt regulations or statutes that specifically exempt
such transfers and still comply with DRA provisions.
However, as an operational matter, states have flexibility to
implement this provision according to the general 'rules of reason' and
to give workers procedural guidance as to how to explore or document
past financial transactions that might have been asset transfers."
6011(b) PENALTY PERIOD
the start date of the penalty period for all transfers to the first day
of a month during or after which assets have been transferred for less
than fair market value, or the date on which the individual is eligible
for Medicaid, whichever is later, and does not occur during any other
period of ineligibility as a result of an asset transfer.
What happens if an individual who has transferred assets for less than
fair market value within the look back period and the individual then
becomes eligible for long term care services under Medicaid, the
divestment applies, they are eligible for Medicaid (although Medicaid
won't pay for their long term care services) for three months.
At the end of three months, the Medicaid recipient leaves the
nursing home, returns to community and their Medicaid eligibility ends.
Six months later the individual enters a nursing home and applies
for Medicaid, they are determined eligible.
Is the penalty period shortened by 3 months? Does the same penalty period apply again?
The penalty period does not start and stop and pick up at a later
point. It's the same as
under current law: once
eligibility has been determined and a penalty period has begun to run,
it continues until expiration."
What would happen when we find that someone has divested
before the enactment date and then divested again after the enactment
Ms. Henry gives $10,000 worth of U.S. Savings Bonds to her niece
on January 3, 2006. On
February 15th, 2006, Mr. Henry gives $15,000 worth of stocks
to her nephew.
States must apply two different laws: the pre-DRA transfer
penalty provisions (old law) apply to the transfer of savings bonds; the
post-DRA transfer penalty provisions (new law) apply to the transfer of
Regarding (b)(2)(ii) of Section 6011--Is this saying that for
non-institutionalized individuals the date a disqualification begins is
the month during or after the transfer was made, and for
institutionalized individuals the date a disqualification begins is the
later of either the month during or after the transfer was made and the
date the individual would have been eligible for Medicaid but for the
transfer? In other words,
is the start date different depending on whether the individual is
institutionalized or not?
The start date occurs when an individual has made an asset
transfer, is receiving an institutional level of care, and would be
eligible for Medicaid except for the application of the penalty period.
If an individual has not begun receiving institutional level of
care, the penalty period does not start."
6011(d) HARDSHIP WAIVERS
Does undue hardship apply to the CS's [community spouse's] circumstances
or just the long-term care Medicaid applicant?
Transfers made by the spouse are subject to penalty against the
IS [institutionalized spouse]. Undue hardship may be requested by IS,
even though it was the CS that made the transfer.
The CS is not protected by the hardship waiver unless also
applying for LTC Medicaid services.
The statute refers to undue hardship depriving the 'individual'
of medical care, food, shelter, etc."
Does undue hardship just apply to a lack of payment for medical care?
No-it also applies to loss of food, clothing, shelter or other
necessities of life. However, Section 6011(d) does not make the mere assertion of
undue hardship by the applicant sufficient evidence. States may put the burden on the applicant to prove the
hardship and specify the kinds of documentation or other proof required
to meet the burden. (e.g.
New Jersey's requirement that applicants prove they've gone to court and
exhausted all remedies)."
Does the requirement that a state "permit the facility in
which the institutionalized individual is residing to file an undue
hardship waiver" mean that the facility is being authorized to
represent the resident throughout the entire request process including
the administrative hearing or other appeal process?
Will nursing homes be able to evict a person for non-payment?
If yes, can you point out the citation?
If the nursing home cannot discharge an individual unless health
and safety issues are addressed, can you provide any examples of when
undue hardship would be met?
State and federal laws govern eviction from nursing homes for
nonpayment. At least one
federal provision appears to permit discharges for nonpayment after
reasonable notice. Social
Security Act section 1919 (c)(2)(A)(v) [42 USC 1396r(c)(2)(A)(v)]."
Mandates the disclosure and treatment of annuities;
Mandates that the purchase of an annuity be treated as a disposal of an
asset for less than fair market value unless the State is named as the
remainder beneficiary in the first position for at least the total
amount of Medicaid expenditures paid or is name as such a beneficiary in
the second position after the community spouse and/or minor or disabled
Mandates that an annuity shall be treated as a disposal of assets for
less than fair market value unless it is irrevocable and non-assignable,
actuarially sound, and provide for payments in equal amounts during the
term of the annuity, with no deferral and no balloon payments. [Also
note IRS code requirements]
State may require the issuer of the annuity to notify the State when
there is a change in the amount of income or principal withdrawn from
Twice in the body of (e)(1) the term 'similar financial
instrument' is used. This
appears to give CMS some authority to classify other similar assets as
annuities for purposes of this section.
Will CMS consider assets, such as IRAs or irrevocable burial
agreements under these provisions?
Not at this time, though it gives CMS authority to do so in the
future. CMS recognizes that as new Medicaid planning techniques arise,
states will share this information with CMS and request that CMS
consider the applicability of this provision.
When specific examples are available, CMS will respond to them.
With respect to the examples in this question, federal guidance
already exists concerning IRAs [20 CFR §416.1202 (pension funds)] and
treatment of burial agreements [e.g., POMS SI
section link: http://policy.ssa.gov/poms.nsf/lnx/0501130420!opendocument"
Can the state go further than the federal law to further restrict
annuities? For instance,
could a state prohibit annuities between family members?
To the extent that state law regulates who can market an annuity,
states could probably prohibit private annuities."
In a situation where an individual with such an annuity moves
from a state to Florida and has named the previous state the first
remainder beneficiary, does Florida need to require the applicant to
amend the annuity contract to name Florida the remainder beneficiary in
the second place?
This is one solution. Another
solution could be to apportion the remainder based on the relative
liability of each state (see State Medicaid Manual, Section 3259.7).
States have considerable flexibility and should work together to
determine how to approach this, in light of the facts of the case
The DRA requires annuities (as well as notes and loans) be
actuarially sound but does not specify how, or even if periodic payments
are to be made. If
non-periodic payments are permitted over the course of life expectancy,
they could well be missed in the calculation of income spend down due to
the 10-day reporting period and the 10-day notice requirements for
purposes of increasing the income spenddown or calculating excess
resources. Will CMS clarify
that payments must be monthly?
No. CMS cannot
specify that payments must be 'monthly' since that is more restrictive
than the language in the statute prescribing 'periodic payments.'
However 1917(e)(2)(B) requires the issuer to alert the state of
changes in the annuity."
Concerning annuities and requiring an applicant/recipient to name
the State as remainder beneficiary, does this provision apply to
individuals with total resource protection under a Partnership for Long
Term Care plan? Does this
provision apply to individuals with Dollar for Dollar resource
If the state is interested in extending the protection to
annuities and it includes remainder interest in annuities under its
state law for estate recovery, then money from the annuity will be
protected. If the state is
not named as a remainder beneficiary, then the state must consider the
annuity a transfer subject to penalty."
6013 INCOME FIRST
that any transfer or allocation made from an institutionalized spouse to
meet the need of a community spouse for a minimum monthly income
allowance be first made from income of the institutionalized spouse.
A State must consider that all income of the institutionalized
spouse that could be made available to a community spouse ... has been
made been made available before the State allocates...'
If there are no encumbrances on the institutionalized spouse's
income, is the income considered as being all income that could be made
available to the community spouse?
income-first approach is described and contrasted with the
resource-first approach in Wisconsin v. Blumer, 534 US 473 (2002).
The decision is available at this link:
Elder Law attorneys are advising their clients to circumvent federal and
state spousal impoverishment laws by instructing the clients to seek a
support order from the local domestic relations court prior to applying
for Medical Assistance - Long-Term Care ('MA-LTC'). These orders authorize the distribution of the
institutionalized spouse's income and the couple's resources to the
community spouse ('CS'), with no regard to federal and state spousal
impoverishment limits. When
the application for MA-LTC is filed, the couple provides the support
order and demands that the state adhere to the allocation of income and
resources as ordered by the court.
The Elder Law attorneys argue that income, pursuant to 42 U.S.C.A.
§ 1396r-5(d)(5) ('Court ordered support'), and resources, pursuant to
42 U.S.C.A. § 1396r-5(f)(3) ('Transfers under court orders'), permit
this practice. If this
practice is permissible, both federal and state spousal impoverishment
laws would be rendered meaningless and civil court judges would be
authorizing unlimited transfers of spousal income and resources to the
CS, a determination that should be made the sole state agency authorized
by CMS to administer the medical assistance program.
Now that the 'Income First' Rule (42 U.S.C.A. § 1396r-5(d)(6))
is mandatory, how should the state treat a community spouse who shelters
income and resources for himself/herself through court-ordered support?
Court orders have always been the 'wild card' under spousal
impoverishment, and the DRA did not change that.
Court-ordered support is specifically provided for under the
spousal impoverishment provisions, and a court order will often trump
other spousal provisions dealing with allocation of income and
6014 HOME EQUITY
is not a limitation on eligibility; it's a limitation on payment for LTC
services. House would not
be counted as a resource under regular community Medicaid rules. If there is a legal impediment it would still render the
person ineligible for LTC services, unless the person showed undue
Individuals with an equity interest in their home of greater than
$500,000 or up to $750,000 at State option are ineligible for nursing
facility and other long-term care services.
Does the home equity provision apply at redeterminations of
eligibility or only to new applicants?
This section applies to all applications for nursing facility
services or other long-term care services received after January 1,
2006. For those who apply
after January 1, 2006, this provision applies to the first determination
of eligibility as well as at future redeterminations. The home equity provision does not apply to individuals who
applied and were determined eligible before January 1, 2006 and have no
break in LTC eligibility after January 1, 2006.
Will the SSI definition of home be used for this determination,
which would include the home and property?
We are trying to determine the impact on applicants who still
have an interest in the family farm.
The language of (f)(1)(A) 'Notwithstanding any other provision of
this title . . . ' does not seem to allow other exemptions to apply.
Yes it includes the home and connected property as defined in the
Social Security Administration's Program Operations Manual System (POMS)
Supplemental Security Income (SSI) section SI 01130.100 "The
Home". The POMS is
online at: http://policy.ssa.gov/poms.nsf/aboutpoms
[The specific POMS section defining 'home' is available by
cutting and pasting this link into your browser:
the family farm meets the home definition, this provision may limit the
availability for LTC services payments.
States should also look at the POMS guidance to determine if the
farm property could be treated not as a home but under the requirements
to be excluded as "property essential to self support. See the specific POMS sections by cutting and pasting these
links into your browser: http://policy.ssa.gov/poms.nsf/lnx/0501130500
How should we determine the home equity interest?
Should we base this on the tax assessment value or on the fair
market value in the geographic area?
It should be based on fair market value.
States could rely on tax assessments if that works.
Whatever the state requires now for verifying values of real
estate, states can continue to do.
Does the home equity provision in section 6014 apply to
individuals with total resource protection through the use of a
Partnership for Long Term Care policy?
What about under Dollar for Dollar Asset Protection plans?
The home equity is not protected per se under the partnership
rules. A person can take
out a home equity loan converting equity into an otherwise countable
resource, and then the equity will be treated as any other resource will
Comment: All right, you've
suffered enough. The
document continues in this same vein for many more pages of increasingly
esoteric and complicated exegesis.
Hopefully, we'll never see a long-term care insurance policy nor
a reverse mortgage that creates such a tangled web of interpretation.