LTC 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,  To access the article online, you'll need a subscription to the WSJ Online.  Alternatively, 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 .  A transcript of the same speech, delivered at The Sixth Annual Intercompany LTCi Conference in Anaheim, California on February 28, 2006, is available at *** 

*** 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 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 Changes."  Following 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: 

Supreme Court Justice Powell:  "Byzantine" and "among the most intricate ever drafted by Congress."   

Supreme Court Justice Burger:  "a morass of bureaucratic complexity," a "maze" 

District 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 themselves." 

Judge Friendly:  "a Byzantine construction making it almost unintelligible to the uninitiated." 

National 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 Changes." 

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 audit occurring." 

"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, etc." 

"When does CMS expect to provide States with templates for state Medicaid plan changes related to the DRA?   

"Answer:  As soon as possible." 

"Section 6011(a)  FIVE YEAR LOOK-BACK
(Applies to transfers made on or after Feb 8 06)

"Lengthens the look back period for the transfer or disposal of all assets to 60 months (5 years). 

"1. 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?   

"Answer:  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." 

(Applies to transfers made on or after Feb 8 06.)

"Changes 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.    

"1. 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?   

"Answer:  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." 

"5.  What would happen when we find that someone has divested before the enactment date and then divested again after the enactment date?  Example:  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. 

"Answer:   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 stock." 

"8.  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? 

"Answer:  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." 

"Section 6011(d)  HARDSHIP WAIVERS
(Applies to transfers made on or after Feb 8 06)

"1. Does undue hardship apply to the CS's [community spouse's] circumstances or just the long-term care Medicaid applicant?   

"Answer:  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." 

"7. Does undue hardship just apply to a lack of payment for medical care?   

"Answer:  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)." 

"13.  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?      

"Answer:   Yes, if the resident or resident's 'personal representative' consents.  States may develop forms for ensuring that the resident or representative has authorized the facility to represent the individual for the whole process."     

"17.  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?  

"Answer:   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)]."  

"Section 6012  ANNUITIES
(Applies to transactions (including the purchase of an annuity) made on or after Feb 8 06)

* 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 child and

* 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 the annuity." 

"3.  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?  

"Answer:   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  01130.420]  POMS section link:!opendocument

"23.  Can the state go further than the federal law to further restrict annuities?  For instance, could a state prohibit annuities between family members?   

"Answer:  To the extent that state law regulates who can market an annuity, states could probably prohibit private annuities."   

"29.  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?  

"Answer:    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 involved."    

"37.  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?   

"Answer:  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." 

"42.  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 protection?" 

"Answer:  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." 

"Section 6013  INCOME FIRST
(Applies to transfers and allocations made on or after Feb 8 06)

Requires 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.  

"1.  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? 

"Answer:  Yes.  The 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:

"2.  Situation:  Aggressive 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. 

"Question:  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? 

"Answer:  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 resources." 

"Section 6014  HOME EQUITY
(Applies to individuals who are determined eligible for Medicaid with respect to nursing facility services or other long-term care services based on an application filed on or after January 1, 2006.)

"This 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 hardship." 

1.  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? 

"Answer:  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.  

"2.  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.  

"Answer:  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:  [The specific POMS section defining 'home' is available by cutting and pasting this link into your browser:!opendocument

"If 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: and]" 

"22.  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? 

"Answer:  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. 

"23.  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?    

"Answer:   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 be treated." 


LTC 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.