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Medicaid Transfer of Asset Penalty
How Does it Work?
Look-Back Date
There is considerable confusion as to the difference between the lookback and the penalty. Under HCFA Transmittal 64 §3258.4, the lookback date
is defined as “the earliest date on which a penalty for transferring assets for less than fair market value can be assessed. Penalties can be assessed for transfers that take place on or after
the lookback date. Penalties cannot be assessed for transfers that take place prior to the lookback date.” The lookback period is measured from the date that the individual applied for
Medicaid “and was institutionalized.” 2
Because the look-back for transfers to individuals is now the same as the look-back for transfers to trusts, there are many reasons to consider
using a grantor trust as the transferee. Essentially, this means that at the time of Medicaid application there will be a question as to whether any assets have been transferred during the
previous 5 years. If the answer is “no,” there is no transfer of asset penalty. If the answer is “yes,” there is a transfer of asset penalty.
The Penalty
Calculation
If resources are transferred by the institutionalized individual or his spouse, the transfer results in a period of ineligibility for Medicaid.
A penalty is calculated by dividing the fair market value of the transferred asset by the statewide monthly average lowest semiprivate room rate for Medicaid certified nursing facilities
calculated annually.3 Where both spouses become institutionalized, the state is required to use a reasonable methodology to apportion the period of ineligibility.4 Generally,
this means that one-half of the penalty will be apportioned to each spouse. If the penalty is an odd number of months, the extra month will be attributed to one of the spouses. However, in New
York a court held that a wife whose husband died shortly before they could both submit Medicaid applications was properly assessed the entire penalty for assets the couple had transferred rather
than one-half, the penalty she would have been apportioned had the husband lived.5
A Tenth Circuit decision has upheld the position that assets of the community spouse cannot be deemed to the institutionalized spouse after Medicaid
eligibility.6 Medicaid claimed that the institutionalized spouse had an interest in the community spouse’s IRA after the institutionalized spouse had obtained Medicaid eligibility. The
court declared that the plain language of the spousal impoverishment statute bars states from deeming available to any institutionalized spouse any asset of the community spouse once Medicaid
eligibility has been obtained. The penalty begins on the date of the transfer or the month following the date of the transfer.7 Penalties must be calculated in partial months. “A state
shall not round down, or otherwise disregard any fractional period of ineligibility.”8
States may accumulate multiple fractional transfers of assets in more than one month for less than fair market value by treating the total
transfers during all months as one transfer for penalty purposes.9
In the case of an asset held by an individual in common with another person or persons in joint tenancy, tenancy-in-common, or a similar
arrangement, the transfer is considered to have occurred when any action is taken either by the individual or the other person that reduces or eliminates the individual’s ownership or control
of the asset.10
The transfer penalty is based on the fair market value of the transferred asset. The penalty is imposed only on the uncompensated value of the
transfer. Uncompensated value is the difference between the fair market value and the compensation actually received.11
Beginning Date
The beginning date of the penalty for the transfer of assets is the later of:
OR
AND
AND
AND
AND
This means that the applicant must be income eligible, resource eligible, medically eligible, and have no other ineligibility due to a penalty.
It is uncertain whether the applicant needs to be institutionalized.
According to CMS Guidance, states must be aware of the need to provide appropriate denial notice for new applicants, so that the penalty period
is clearly understood.14 Once the penalty beginning date begins, it does not toll if the individual stops receiving an institutional level of care.13
Application of Penalty to Only Countable Assets
Except for the transfer of a home, it would appear that the transfer assets penalty is applied only to transfers of countable assets.
Uncompensated value is defined as “the difference between the FMV of a non-excludable resource (less any encumbrances) and the compensation received by the individual.”14
A strong argument can be made under HCFA Transmittal 64 §3259.6f that transferring an excluded asset for less than fair market value does not
result in a penalty under the transfer provisions, because the excluded asset is not an asset for transfer purposes. The only exception is the home of the institutionalized individual.15
Presumption That Transfer Was to Establish Medicaid Eligibility
Penalties are imposed only for transfers made for purposes of establishing Medicaid eligibility. There is a presumption that any transfer made
during the look-back period is made for purposes of establishing Medicaid eligibility. It is possible to rebut the presumption that the resource was transferred to establish Medicaid
eligibility16 and the burden of proof rests with the applicant. The applicant must make a statement including:
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The applicant’s purpose for transferring the resource;
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The applicant’s attempt to dispose of the resource at fair market value, and his reason for accepting less than fair market value for the
resource;
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The applicant’s means of or plans for supporting himself or herself after the transfer; and
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The applicant’s relationship, if any, to the person to whom the resource was transferred.
Factors to be considered include the occurrence after the transfer of the resource of a traumatic onset of disability; unexpected loss of other
resources that would have precluded Medicaid eligibility; and unexpected loss of income that would have precluded Medicaid eligibility. The applicant may also be able to show that he had
resources, which would have been below the resource limit during each of the preceding 30 months, if the transferred resource had been retained, or that the transfer was court ordered, or that
there was a good faith effort to transfer the resource at fair market value.17
Waiver of Penalty for Undue Hardship
The penalty may be waived if Medicaid ineligibility would cause undue hardship. Under OBRA-93, states must have hardship provisions in their
Medicaid regulations. Under the Deficit Reduction Act of 2005, undue hardship exists when application of the transfer of assets provisions would deprive the individual of medical care, such
that the individual’s health or life would be endangered. Undue hardship also exists when application of the transfer of assets provisions would deprive the individual of food, clothing,
shelter, or other necessities of life.18
States must provide (1) a notice to recipients that an undue hardship exception exists, (2) a timely process for determining whether an undue
hardship waiver will be granted, and (3) a process under which adverse determinations can be appealed.
A facility may also file for an undue hardship waiver application on behalf of the individual with the consent of the individual or the
personal representative of the individual.19
When an application for an undue hardship is pending for a nursing facility resident, the state may provide payments for nursing
services to hold the bed for a period not in excess of 30 days so long as the application meets such criteria as the secretary shall specify.
2 HCFA Transmittal 64 §3258.4E.
3 Id.
4 42 U.S.C. §1396p(c)(4).
5 In the Matter of Woytisek v. Novello, 766 N.Y.S.2d 54 (2003).
6 Houghton v. Rainerston, 382 F.3d 1162 (10th Cir. 2004).
7 HCFA Transmittal 64 §3258.5A.
8 Deficit Reduction Act of 2005 §6016(a)(iv).
9 Id. at §6016(b)(H).
10 42 U.S.C. §1396p(d)(3).
11 HCFA Transmittal 64 §3258.1A3.
12 Center for Medicaid and State Operations, SMDL No. 06-018, Jul. 27, 2006, §§6011 and 6016(ii).
13 Id.
14 20 C.F.R. §416.1246 (emphasis added).
15 42 U.S.C. §1382(c)(1)(A)(iv) and U.S.C. §1396p(c)(e).
16 20 C.F.R. §416.124b(e).
17 See 42 U.S.C. §1396p(c)(2)(C); 20 C.F.R. §416.1246. See also HCFA Transmittal 64 §3258.10C.
18 HCFA Transmittal 64 §§3258.10(C) 4 & 5.
19 Deficit Reduction Act of 2005 §6011(d).
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