Let’s say that two years ago your mom gave you $70,000. You used $40,000 to make down payment on a home, and put the other $30,000 in a bank account.
Now, your mom is in a nursing home and she has spent all of her savings paying for her care. You apply for Medicaid Medical Assistance (MA) benefits to pay for mom’s care. But the County Assistance Office (CAO) tells you that mom won’t qualify for MA because of the money she gave you within the last five years.
The CAO caseworker patiently explains that a penalty period of ineligibility is imposed when an applicant for Medicaid Long Term Care benefits makes an uncompensated transfer of assets and applies for MA within 5 years. The penalty period resulting from an uncompensated transfer of assets does not begin on the date of the transfer. Instead, it starts to run only after the applicant has met all other functional and financial requirements for Medicaid eligibility and is ineligible solely due to the transfer.
The penalty is that the applicant is denied eligibility for Medicaid long-term care benefits for a period of time. The duration of the ineligibility period is based upon the uncompensated value transferred and the average cost of nursing facility services (currently $259.76 a day). Mom’s gift of $70,000 makes her ineligible for benefits for 269 days (70,000/259.76 = 269).
Since mom is ineligible for MA you use the $30,000 you have left from mom’s gift to pay the nursing home for her care. Using this money, combined with mom’s retirement income, you are able to pay for mom’s care for 170 days. What now? There are still 99 days left on the original penalty period.
Or are there?
Haven’t you really refunded $30,000 of mom’s initial gift to you? Doesn’t that mean she really only gave you $40,000, and that the penalty period should be reduced to 154 days (40,000/259.76=154)? Haven’t those 154 days already gone by while you were privately paying 170 days for mom? Shouldn’t mom now be eligible for MA benefits?
This question is very troubling to State Medicaid Agencies. It makes logical sense that mom should now be eligible for MA. And most State Agencies follow this logic. But, for some State Medicaid Agencies it just doesn’t seem right that you don’t have to repay the other $40,000 that mom gave you. So they have struggled to come up some way to force you to pay back the remaining $40,000, whether you still have the money or not.
This messy area of Medicaid law has resulted in some informal guidance being issued by one regional office of CMS (the Government Agency that regulates Medicaid). But recently a New Jersey Court (either unaware of or ignoring the CMS guidance) has held that partial refunds of gifted funds change the start date for the imposition of the penalty period.
New Jersey and a few other State Medicaid Agencies want to treat returned resources as if they were still available to the nursing home resident during the time they were gone. Treating returned funds as “available” would mean the resident/applicant was over the resource limit for Medicaid and would thus delay the running of the penalty start date. In the scenario described above, the penalty period would not be running while you were privately paying for mom’s care. In some situations, the total ineligibility period for the resident could be even longer than if no funds had been returned.
Is this legal? The answer is No according to representatives of the Federal Government’s Agency that oversees Medicaid. But some states are continuing to use this constructive availability theory treatment anyway. See, for example, the recent New Jersey case of S.S. v. Division of Medical Assistance (Decided April 28, 2011). But the New Jersey case is at odds with the view of federal regulators who hold the trump card in interpreting how States can implement the Medicaid rules.
Richard R. McGreal is Associate Regional Administrator for the Medicaid Division of the CMS Boston Regional Office. In the fall of 2010 he responded to inquiries from the Connecticut State Medicaid office and provided informal written interpretative guidance on State’s treatment of partial returns with respect to the application of a penalty period for a disqualifying transfer of assets.
The Connecticut Medicaid Agency had issued proposed regulations that required returned assets to be counted as having been available from the date of the transfer. It requested CMS review of the legality of this treatment.
Administrator McGreal’s letter of October 28, 2010 points out that the partial return/partial cure section of the CMS State Medicaid Manual (SMM) pre-dates the DRA change to the rules on the penalty start date. (The rules prior to the DRA did not take into account whether the individual was receiving long-term care services, or whether the individual was even eligible for Medicaid at the time of transfer.) The DRA did not address the availability of the transferred-then-returned funds.
Administrator McGreal writes:
“It would be inappropriate to read these older SMM provisions in combination with the DRA in such a way that the State would have the option of starting a new, later penalty period based on an adjustment to the individual’s eligibility determination. This is, in effect, what we believe could potentially result from the State’s proposed regulation. . . .
Under some circumstances [Connecticut’s proposed approach] could result in the extension of the expiration date beyond the original penalty period had the assets not been returned. This result is not permissible.”
McGreal then goes on to suggest “some alternative approaches to managing partial cures that we believe would be permissible under current Federal law, but which do not include extending the original expiration date.”
One permissible alternative would be for the State to choose not to recognize these partial returns and simply continue the penalty period uninterrupted and unaltered from the original calculation, absent full cure.
A second permissible alternative would be to shorten the original penalty period from the back end so that the period ends sooner, which approach is often referred to as the “reverse half a loaf” strategy.
While noting that CMS is not advocating any particular approach, McGreal does point out that permitting reverse half a loaf may be aligned with State goals because it “would create some incentive for securing at least a partial return of the transferred assets even if a full return is not possible.”
It seems likely that the New Jersey case will be overturned if it ends up on appeal to Federal Court. Whatever its eventual outcome, States are going to have to decide between the two alternatives set out in the McGreal letter, or come up with some other acceptable method of treating partial refunds.
Hopefully, States will see the wisdom of Administrator McGreal’s suggestion that the reverse half a loaf treatment makes sense. Otherwise, children and other donees will lose some incentive to pay back gifted funds and nursing homes are likely to be stuck with residents for whom no source of payment is available.
The McGreal letter is available here.