Medicaid Coverage for Long-Term Care: Eligibility, Asset Transfers, and Estate Recovery

Medicaid Coverage for Long-Term Care: Eligibility, Asset Transfers, and Estate Recovery

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Pr
epared for Members and Committees of Congress

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Medicaid is a means-tested entitlement program, covering the elderly with chronic conditions or
illnesses such as Alzheimer’s disease or severe cardiovascular disease; children born with
disabling conditions such as mental retardation or cerebral palsy; and working-age adults with
inherited or acquired disabling conditions, among others. Spending on LTC pays for services in
both institutional settings—for example, nursing homes and intermediate care facilities for
individuals with mental retardation (ICFs/MR)—and a wide range of home-and community-based
services such as home health care services, personal care services, and adult day care.
Eligibility for Medicaid’s long-term care services is limited to persons who meet a state’s
functional level-of-care standards and certain financial standards (i.e., income and asset level
tests). Persons qualify for Medicaid in one of the three ways: (1) they have income and assets
equal to or below state-specified thresholds; (2) they deplete their income and assets on the cost
of their care, thus “spending down”; or (3) they divest of their assets to meet these income and
asset standards sooner then they otherwise might if they first had to spend their income and assets
on the cost of their care.
Since the enactment of the Omnibus Budget Reconciliation Act of 1993, Medicaid’s rules
concerning eligibility, asset transfers, and estate recovery have been designed to restrict access to
Medicaid’s long-term care services to those individuals who are poor or have very high medical
or long-term care expenses, and who apply their income and assets toward the cost of their care.
In an attempt to discourage Medicaid estate planning, (a means by which some individuals divest
of their income and assets to qualify for Medicaid sooner than they would if they first had to
spend their income and assets on the cost of their care), the Deficit Reduction Act of 2005 (P.L.
109-171, DRA) contained a number of provisions designed to strengthen these rules. Some
Members of the 110th Congress have expressed interest in both monitoring the implementation of
DRA’s changes and in considering whether to repeal or modify some of the provisions.
This report provides an explanation of Medicaid’s current eligibility, asset transfer, and estate
recovery rules. A policy discussion of the potential implications of these rules follows. The report
will be updated as necessary.
Appendix A provides a summary of DRA’s provisions concerning asset transfers, eligibility, and
estate recovery. Appendix B summarizes the Supplemental Security Income (SSI) rules
concerning countable and non-countable assets, often used by states for Medicaid eligibility
purposes.

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Introduction ..................................................................................................................................... 1
Financial Eligibility Criteria for Medicaid Coverage of Long-Term Care Services for the
Aged ............................................................................................................................................. 3
Major Income Pathways............................................................................................................ 4
Supplemental Security Income (SSI) .................................................................................. 4
100% of FPL....................................................................................................................... 4
Special Income Rule ........................................................................................................... 5
Spend-Down Groups........................................................................................................... 5
Post-Eligibility Treatment of Income.................................................................................. 6
General Rules Regarding Assets ............................................................................................... 6
Spousal Impoverishment Rules................................................................................................. 8
Medicaid’s Asset Transfer Rules ..................................................................................................... 8
Allowable Transfers .................................................................................................................. 9
Treatment of Certain Types of Assets ..................................................................................... 10
Trusts................................................................................................................................. 10
Annuities............................................................................................................................11
Life Estates ........................................................................................................................11
Promissory Notes, Loans, and Mortgages ........................................................................ 12
Exceptions to the Application of Penalties.............................................................................. 12
Additional State Rules Regarding Asset Transfers.................................................................. 13
Medicaid Estate Recovery............................................................................................................. 13
General Statutory Requirements ............................................................................................. 13
Exemptions From Recovery.................................................................................................... 14
Use of Liens ............................................................................................................................ 15
Collection Amounts for FY2004 and FY2003 ........................................................................ 15
Policy Discussion of Selected Issues............................................................................................. 20
Will penalties be imposed on individuals who make transfers for purposes other
than to qualify for Medicaid?......................................................................................... 21
Will the change in the penalty start date result in persons losing access to needed
care, affecting the health of applicants who must forgo care?....................................... 22
How will the income-first requirement affect the long-term financial security of
community spouses and the savings or expenditures of the Medicaid program? .......... 23

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Table 1. Medicaid Estate Recovery Amounts as a Percentage of Nursing Facility (NF)
Expenditures in FY2003 and FY2004........................................................................................ 17
Table B-1. Supplemental Security Income (SSI) Resource Exclusions ........................................ 33

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Appendix A. Provisions Affecting Asset Transfer, Eligibility, and Estate Recovery
Requirements in the Deficit Reduction Act of 2005 .................................................................. 26
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Appendix B. Asset Rules Under SSI ............................................................................................. 31

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Author Contact Information .......................................................................................................... 39

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Medicaid is a means-tested entitlement program that covers about 57 million people across the
nation, including children and families, persons with disabilities, pregnant women, and the
elderly. The program has become the largest single source of financing for long-term care (LTC).1
Eligibility for Medicaid’s long-term care services is limited to persons who meet a state-designed
assessment for functional need and certain financial standards. The assessment for functional
need examines physical and/or cognitive functioning that evaluates whether applicants would
require the level of care provided in an institution (i.e. a nursing facility, intermediate care facility
for the mentally retarded, or a hospital).2 To meet a state’s financial standards, applicants’ income
and assets must be within specified limits.
People meet Medicaid’s income and asset eligibility criteria in one of three ways: (1) they have
income and assets equal to or below state-specified thresholds; (2) they deplete their income and
assets on the cost of their care, thus “spending down”; or (3) they divest of their assets to meet
these income and asset standards sooner than they otherwise might if they first had to spend their
income and assets on the cost of their care. Recent public policy concerns have centered around
the third group. In particular, the Medicaid estate planning issue applies primarily to a subset of
Medicaid applicants who are age 65 and over, need long-term care services (such as nursing
home or home and community-based services), have income greater than 74% of the federal
poverty level (about $637 per month for an individual), and have assets above $2,000.
Medicaid estate planning is a means by which elderly people divest of their income and assets to
qualify for Medicaid’s coverage sooner than they would if they first had to spend their income
and assets on the cost of their care. It is also a means by which persons may protect their assets
from estate recovery.
Motivation for estate planning is, in part, a result of the high costs of long-term care services and
the fear that these costs could quickly deplete savings. A MetLife survey of a select group of
nursing homes across the country, for example, found that for these facilities the average daily
rate of a semi private room was $189 daily, or $68,985 per year in 2007. MetLife’s survey of
home health agencies also found that the average per hour private pay rate of a home health aide
was $19.3

1 Long-term care refers to a wide range of supportive and health services for persons who have lost the capacity for
self-care due to illness, cognitive disorders, or a physically disabling condition. It differs from other types of care in
that the goal of long-term care is not to cure an illness, but to allow an individual to attain or maintain an optimal level
of functioning.
2 State tests for measuring level-of-care requirements vary across the nation. In general, the need for long-term care
services is measured by a person’s ability to perform basic types of daily activities, referred to as activities of daily
living (ADLs) and instrumental activities of daily living (IADLs). ADLs generally include bathing, dressing, toileting,
transferring from a bed or a chair, eating, and getting around inside the home. IADLs generally include shopping, light
housework, telephoning, money management, and meal preparation.
3 MetLife Market Survey of Nursing Home and Assisted Living Costs, Metlife Mature Market Institute, Westport, CT,
October, 2007. And Metlife Market Survey of Adult Day Services and Home Care Costs, Metlife Mature Market
Institute, Westport, CT, September, 2007.
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Since the enactment of the Omnibus Budget Reconciliation Act of 1993, Medicaid’s rules
concerning eligibility, asset transfers, and estate recovery have been designed to restrict access to
Medicaid’s long-term care services to those individuals who are poor or who have very high
medical or long-term care expenses, and apply their income and assets toward the cost of their
care. However, the 1993 law did not eliminate all ways for applicants to shield assets and income.
In recent years, some people, with the help of attorneys, have used a variety of methods to protect
assets so as to enable them to obtain Medicaid coverage while using personal resources for other
purposes.4 The Deficit Reduction Act of 2005 (P.L. 109-171, DRA) was the most recent attempt
by Congress to limit this activity.
There are insufficient data available to accurately estimate the prevalence of asset transfers today,
and no data that can reasonably predict whether or how much this practice might grow in the
future. A significant amount of anecdotal evidence exists about people engaging in Medicaid
estate planning. In addition, an industry of lawyers specializing in Medicaid estate planning has
developed across the nation. Court cases at federal and state levels also point toward the
prevalence of transfers. Furthermore, states have expressed a strong interest in curbing Medicaid
estate planning, and have taken a number of steps to do so.
Critics of Medicaid estate planning often explain that asset sheltering places a financial strain on
the Medicaid program and directs scarce resources away from people who are most in need of
assistance to pay for care for people who are less in need. Some critics also object to this practice
by asserting that people should assume financial responsibility for their own long-term care
services before relying on tax dollars to pay for care they could otherwise afford.
Others believe that people who engage in Medicaid estate planning do so because they feel they
should be able to leave their estates to their loved ones. In addition, they explain that Medicaid’s
generally low allowable asset limit (often $2,000 excluding a home and certain other assets listed
below) often leaves persons with long-term care needs without the resources they need to remain
at home and requires them to become virtually destitute before they can receive assistance in
paying for their care. Medicaid estate planning, they argue, can preserve extra income and/or
assets of an individual or couple to be used toward living costs while obtaining Medicaid
coverage for long-term care services.
Concern about Medicaid estate planning resurfaced in the 109th Congress as part of the larger
policy debate about the financial strains Medicaid places on federal and state budgets in general,
and the increasing costs of Medicaid’s long-term care coverage in particular. Some are concerned
that as the population ages, Medicaid’s payments for long-term care services will become
unsustainable without changes to the law governing the program. Concern also grew from an
interest by some policymakers in assuring that Medicaid play the role of a safety net program for
persons who are poor and not as a defacto long-term care insurance program for persons who
could otherwise afford to pay for their care. By tightening eligibility, transfer of assets, and estate
recovery laws, the Deficit Reduction Act of 2005 (P.L. 109-171, DRA) attempted to further

4 For a description of some of these methods, see “Medicaid Asset Transfer and Estate Planning: Testimony Before the
Senate Committee on Finance,” June 29, 2005, at http://finance.senate.gov/sitepages/hearing062905.htm; and
“Medicaid Estate Planning and Legislative Options: Testimony Before the Senate Special Committee on Aging,” June
20, 2005, at http://aging.senate.gov/public/_files/hr146ja.pdf, both by Julie Stone.
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Řȱ

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discourage persons from protecting assets to qualify for Medicaid sooner than they otherwise
would.5
Members of the 110th Congress may choose to revisit some of these issues, particularly as they
concern the difficulty that some Medicaid long-term care beneficiaries have in meeting
Medicaid’s financial eligibility standards while affording the expenses of living in a home or
community-based setting, an often-preferred setting to nursing home care. Members may also
wish to evaluate and monitor how the changes made by DRA affect access to needed long-term
care services among persons with disabilities of all ages.
This report provides an explanation of Medicaid’s current eligibility, asset transfer, and estate
recovery rules. A policy discussion of the potential implications of these rules follows. Appendix
A provides a summary of DRA’s provisions concerning asset transfers, eligibility, and estate
recovery. Appendix B summarizes the Supplemental Security Income (SSI) rules concerning
countable and non-countable assets, often used by states for Medicaid eligibility purposes
(explained in the following section).
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˜?ȱ˜—?ȬŽ›–ȱŠ›ŽȱŽ›Ÿ’ŒŽœȱ?˜›ȱ?‘Žȱ?Ž?ȱ
To qualify for Medicaid, an individual must meet both categorical and financial eligibility
requirements. Categorical eligibility requirements relate to the age or other characteristics of an
individual. People aged 65 and over, certain persons with disabilities, children and their parents,
and pregnant women are among the categories of individuals who may qualify. For the most part,
persons who apply to Medicaid for coverage of long-term care services fall into the category of
aged or persons with disabilities. Financial requirements place limits on the amount of income
and assets6 individuals may possess to become eligible for Medicaid (often referred to as
standards or thresholds). Additional guidelines specify how states should calculate these amounts
(i.e., counting methodologies).
The specific income and asset limitations that apply to each eligibility group are set through a
combination of federal parameters and state definitions. Consequently, these standards vary

5 In the first session of the 109th Congress, the Senate Committee on Finance, overseeing the Medicaid and Medicare
programs, was instructed to meet a budget reconciliation target of $10 billion in direct spending savings over a five-
year period, FY2006-FY2010. The Finance Committee met its reconciliation instruction by making changes in
Medicaid, Medicare, and the State Children’s Health Insurance Program (SCHIP). In the House, the Committee on
Energy and Commerce, overseeing Medicaid and part of the Medicare programs, had budget reconciliation instructions
that specified a mandatory savings target of $14.734 billion between FY2006 and FY2010. The Energy and Commerce
Committee mark-up took place on October 27, 2005. In the health care area, its recommendations resulted in changes
in Medicaid. The final conference agreement included a number of changes to Medicaid’s asset transfer rules. (A
summary of these changes is included in Appendix A of this paper.) Provisions in the DRA amended Medicaid law
and further modified the asset transfer rules established by the Omnibus Budget Reconciliation Act of 1993 (OBRA
1993). See CRS Report RL33251, Side-by-Side Comparison of Medicare, Medicaid, and SCHIP Provisions in the
Deficit Reduction Act of 2005; and CRS Report RL33131, Budget Reconciliation FY2006: Medicaid, Medicare, and
State Children’s Health Insurance Program (SCHIP) Provisions.
6 For purposes of Medicaid eligibility, assets are often referred to as resources and the terms may be used
interchangeably. Resources include cash and other liquid assets or personal property that individuals (or their spouses)
own and could convert to cash.
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considerably among states, and different standards apply to different population groups within a
state.
Š“˜›ȱ —Œ˜–ŽȱŠ?‘ Š¢œȱ
Below is a description of the eligibility criteria for the major income groups through which
people with long-term care needs may qualify. The groups include people who either are
receiving cash assistance from the Supplemental Security Income program or have income that
does not exceed 100% of the federal poverty level (FPL). Medicaid law also allows states to
cover people with higher income if they require the level of care offered in an institution, such as
a nursing home, or if they have medical expenses that deplete their income to specified levels.
Note that low-income elderly persons without long-term care needs and younger persons with
disabilities who do not need long-term care services also qualify for Medicaid through many of
these pathways.
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In general, many Medicaid enrollees who are aged qualify because they meet the financial
eligibility requirements of the Supplemental Security Income (SSI) program. SSI provides cash
benefits to disabled, blind, or aged individuals who have income that does not exceed $637 per
month in 2008, or about 74% of the federal poverty level (FPL),7 for an individual, and $956 for a
couple. Although most states allow persons who meet SSI’s eligibility criteria to qualify for
Medicaid, 11 apply more restrictive criteria to either the income, assets or disability tests.8 These
states are often referred to as 209(b) states. As of 2003, these states were Connecticut, Hawaii,
Illinois, Indiana, Minnesota, Missouri, New Hampshire, North Dakota, Ohio, Oklahoma and
Virginia.9
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States also have an option to cover persons whose income exceeds SSI levels but is no greater
than 100% of FPL. As of 2003, 20 states and the District of Columbia used this option.10

7 In 2008, 100% of the federal poverty level in the 48 contiguous United States and the District of Columbia is $10,400
per year or $867 per month for an individual; and $14,000 per year or $1,167 per month for a couple. In Alaska, this
level is $13,000 per year or $1,083 per month for an individual. In Hawaii, it is $11,960, or $997 per month. See
http://aspe.hhs.gov/poverty/08poverty.shtml.
8 Each of these states has at least one eligibility standard that is more restrictive than current SSI standards, and some
also have standards that are more liberal.
9 A 2003 eligibility survey conducted by the American Public Human Services Association in collaboration with the
Congressional Research Service.
10 A 2003 eligibility survey conducted by the American Public Human Services Association in collaboration with
Congressional Research Service. The District of Columbia allowed people to qualify up to 100% of FPL. Other states
using this option included Arkansas (up to 80%), California (100%), Florida (88%), Georgia (100%), Hawaii (100%),
Illinois (100%), Maine (100%), Massachusetts (100%), Michigan (100%), Minnesota (95%), Mississippi (100%),
Nebraska (100%), New Jersey (100%), North Carolina (100%), Oklahoma (100%), Pennsylvania (100%), Rhode Island
(100%), South Carolina (100%), Utah (100%), and Virginia (80%).
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Alternatively, states may extend Medicaid to certain individuals with incomes too high to qualify
for SSI or the 100% option (if available), and who need the level of care that would be provided
in a nursing facility or certain other institutions.11 States may also use this higher income standard
for those needing institutional care as well as those who qualify for home and community-based
long-term care services under Section 1915(c) of the Social Security Act. Under the special
income rule, also referred to as “the 300% rule,” such persons may have income that does not
exceed a specified level established by the state, but no greater than 300% of the maximum SSI
payment applicable to a person living at home. For 2008, this limit is $1,911 per month (three
times the monthly SSI payment of $637), or about 221% FPL.
A number of states also allow persons to place income in excess of the special income level in a
trust, called a Miller Trust, and receive Medicaid coverage for their care.12 Following the
individual’s death, the state becomes the beneficiary of amounts in this trust.
™Ž—?Ȭ˜ —ȱ ›˜ž™œȱ
Federal law also gives states the option of allowing aged persons with high medical expenses to
qualify for Medicaid through so-called “spend-down” groups. Under these groups, people qualify
only if their medical expenses (on such things as nursing home care, prescription drugs, etc.)
deplete, or spend down, their income and assets to specified Medicaid thresholds.13 For example,
if an individual has monthly income of $1,000 and the state’s income standard is $480, then the
applicant would be required to incur $520 in out-of-pocket medical expenses before he or she
would be eligible for Medicaid. States use a specific time period for calculating a person’s
medical expenses, generally ranging from one month to six months.14
The most common spend down group is referred to as “medically needy.” Under this option,
states may set their medically needy monthly income limits for a family of a given size at any
level up to 133 % of the maximum payment for a similar family under the state’s former Aid to
Families with Dependent Children (AFDC) cash assistance program in place on July 16, 1996.15
The monthly income limits are often lower than the income standard for elderly SSI recipients
(i.e., less than $637 monthly in 2008). Once eligible for Medicaid, beneficiaries who qualify

11 Care must be needed for no fewer than 30 consecutive days.
12 Since 1993 (OBRA 1993), states that use only the special income rule for institutional eligibility, and do not use the
medically needy option, must allow for income-only trusts.
13 States may use spend down groups to extend Medicaid coverage to persons who are members of one of the broad
categories of Medicaid covered groups (i.e., are aged, have a disability, or are in families with children), but do not
meet the applicable income requirements and, in some instances, resources requirements for other eligibility pathways.
14 The calculation becomes the basis for determining the amount of a person’s spend-down requirement. Generally a
shorter time period is more beneficial to the applicant. For example, if the state has a one month spend-down
calculation period, the individual would be required to incur $520 in medical expenses in a month, after which services
would be covered by Medicaid. On the other hand, if the state had a six month calculation period, the individual would
have to incur a projected amount of $3,120 ($520 times six) in medical expenses before Medicaid would begin
coverage. The length of the spend-down period does not significantly affect total out-of-pocket expenditures for
persons with predictable and recurring medical expenses, such as persons with chronic illnesses or disabling conditions.
However, individuals faced with acute nonrecurring problems generally benefit more from a shorter calculation period.
15 For families of one, the statute gives certain states some flexibility to set these limits to amounts that are reasonably
related to the AFDC payment amounts for two or more persons. AFDC was replaced with the Temporary Assistance
for Needy Families (TANF) program in 1996.
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under these rules must continue to apply their income above medically needy thresholds toward
the cost of their care. As a result, elderly recipients living in the community who must spend
down to qualify for Medicaid generally are allowed to retain less money for their living expenses
than Medicaid beneficiaries who qualify through SSI. In 2003, 33 states had medically needy
programs for persons age 65 and older.16
The second spend down group is available in all 209(b) states. Federal law requires those states
that apply more restrictive criteria to the SSI population (see above) to allow these individuals to
deduct medical expenses from their income when determining eligibility for Medicaid.
˜œ?Ȭ•’?’‹’•’?¢ȱ›ŽŠ?–Ž—?ȱ˜?ȱ —Œ˜–Žȱ
Once eligible for Medicaid, persons qualifying through certain eligibility groups are required to
apply their income above specified amounts toward the cost of their care. The amounts they may
retain vary by setting. For example, Medicaid beneficiaries in a nursing home may retain a
personal needs allowance (these amounts ranged from $30 to $70 per month in 2003). Persons
receiving services in home and community-based settings may retain a maintenance needs
allowance. These amounts vary by states and ranged from $500 to $2,267 per month in 2003. All
income amounts above these levels, including what may be available in a Miller Trust, must be
applied toward the cost of their care.
Ž—Ž›Š•ȱž•ŽœȱŽ?Š›?’—?ȱœœŽ?œȱ
Under the Medicaid program, states also set asset standards, within federal parameters, that
applicants must meet to qualify for coverage. These standards specify the maximum amount of
countable assets a person may have to qualify; assets above these amounts make an individual
ineligible for coverage. For the treatment of most types of assets, states generally follow SSI
program rules. Under SSI (and thus often under the Medicaid program), countable assets, such as
funds in a savings account, stocks, or other equities, cannot exceed $2,000 for an individual and
$3,000 for a couple. For purposes of eligibility determinations, assets are either: (1) counted for
their entire value; (2) excluded for their entire value (e.g., one automobile, household goods and
personal effects,17 certain property essential to income-producing activity); or (3) excluded for
part of their value and counted for part of their value (e.g., up to $1,500 in burial funds, life
insurance policies whose total face value is not greater than $1,500).
However, state practices for counting assets vary significantly. Under Section 1902(r)(2) of the
Social Security Act, states are granted flexibility to modify these rules. This provision grants
states permission to use more liberal standards for computing resources (and income) than are
specified under SSI. Most states use Section 1902(r)(2) to ignore or disregard certain types or
amounts of assets (and income), thereby extending Medicaid to individuals with assets too high to
otherwise qualify under the specified rules for that eligibility pathway.

16 These include Alaska, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Iowa, Kansas, Kentucky,
Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nebraska, New Hampshire, New Jersey,
New York, North Carolina, North Dakota, Pennsylvania, Rhode Island, Tennessee, Utah, Vermont, Virginia,
Washington, West Virginia, and Wisconsin.
17 Under former SSI rules, there were restrictions placed on the value of the automobile and household goods and
personal effects that could be excluded from countable assets. As of March 9, 2005, one automobile and all household
goods and personal effects are excluded, regardless of their value. 70 Federal Register 6340, February 7, 2005.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Ŝȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
Special rules apply to the treatment of an applicant’s primary place of residence. For most
beneficiaries, the entire value of an applicant’s primary place of residence (i.e., his or her home)
is not counted. The enactment of DRA amended Medicaid law (section 1917 of the Social
Security Act) to restrict eligibility for certain individuals who apply for Medicaid coverage for
nursing facility or other long-term care services if the applicant’s equity interest in his or her
home is greater than $500,000.18 A state may elect to substitute an amount that exceeds $500,000
but does not exceed $750,000.19 This restriction applies only to applicants who do not have a
spouse, child under age 21, or child who is blind or disabled (as defined by the Section 1614(a)(3)
of the Social Security Act for the 50 states and the District of Columbia) lawfully residing in the
home.20 For purposes of qualifying for Medicaid, people who have home equity above the state-
specified amount could use a reverse mortgage or home equity loan to reduce their total equity
interest in the home. The income earned from this transaction is subject to repayment and is thus
not countable income for Medicaid eligibility purposes in the month it is received. Any amounts
retained into the following month are counted as resources and would need to be depleted to the
state’s asset thresholds before the individual could qualify for Medicaid.21 (DRA directs the
Secretary of DHHS to establish a process for waiving the application of the home equity limit in
the case of demonstrated hardship.)
DRA added new rules about annuities that applicants for Medicaid-covered long-term care
services (i.e. persons applying for nursing facility care; a level of care in any institution
equivalent to that of nursing facility services; and home and community-based services furnished
section 1915(c) or (d) waivers) must meet to obtain Medicaid eligibility. The law requires
individuals, spouses, or their representatives to provide a disclosure and description of any
interest the applicant or the community spouse may have in an annuity, regardless of whether the
annuity is irrevocable or is treated as an asset (see section entitled “Treatment of Certain Types of
Assets” later in this report).
For any beneficiary (and spouse, if any) who moves out of his or her home without the intent to
return, the home becomes a countable resource because it is no longer the individual’s principal
place of residence. If an individual leaves his or her home to live in an institution, the home is
still considered to be the individual’s principal place of residence, irrespective of the individual’s
intent to return, as long as a spouse or dependent relative of the eligible individual continues to
live there.
Appendix B provides a more detailed description of SSI’s program rules regarding countable and
non-countable assets. Under certain conditions (discussed later in this report), these non-

18 Applies when applicants seek Medicaid coverage for the following services: nursing facility care; a level of care in
any institution equivalent to nursing facility services; home and community-based services furnished under a waiver
under sections 1915(c) or (d) of the act; and services provided to a noninstitutionalized individual that are described in
paragraph (7), (22), or (24) of section 1905(a) of the act, and, if a state has elected to apply section 1917(c) to other
long-term care services for which medical assistance is otherwise under the state plan to individuals requiring long-
term care services.
19 Beginning in 2011, these dollar amounts are increased from year to year based on the percentage increase in the
consumer price index for all urban consumers, rounded to the nearest $1,000.
20 And who are determined eligible for certain long-term care services based on an application filed on or after January
1, 2006.
21 SSR 92-8p: Policy Interpretation Ruling Title XVI: SSI Loan Policy, Including its Applicability to Advances of Food
and/or Shelter.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
countable assets may be considered part of a beneficiary’s estate and may be available for
recovery by the state Medicaid programs after the beneficiary’s death.
™˜žœŠ•ȱ –™˜ŸŽ›’œ‘–Ž—?ȱž•Žœȱ
Medicaid law also includes provisions intended to prevent impoverishment of a spouse whose
husband or wife seeks Medicaid coverage for long-term care services. These provisions were
added to Medicaid law by the Medicare Catastrophic Coverage Act (MCCA) of 1988 (P.L. 100-
360) to address the situation that would otherwise leave the spouse not receiving Medicaid (i.e.,
“community spouse,” defined as the spouse of an institutionalized Medicaid beneficiary who
lives in the community and is not eligible for Medicaid) with little or no income or assets when
the other spouse is institutionalized (or, at state option, is receiving Medicaid’s home and
community-based services—also referred to as the “institutionalized spouse”).
Before MCCA, states could consider all of the assets of the community spouse, as well as the
spouse needing Medicaid coverage, available to be used toward the cost of care for the Medicaid-
covered spouse. These rules created hardships for the community spouse who was forced to
spend down virtually all of the couple’s assets to Medicaid eligibility levels so that the
institutionalized spouse could qualify for coverage.
MCCA established new rules for the treatment of income and assets of married couples, allowing
the community spouse to retain higher amounts of income and assets (on top of non-countable
assets such as a house, car, etc.) than allowed under general Medicaid rules.
Regarding assets, federal law allows states to select the amount of assets a community spouse
may be allowed to retain. It specifies that this limit may not exceed $104,400 and may be no less
than $20,880 in total countable assets in 2008. For purposes of determining how many assets the
community spouse may retain, all assets of the couple are combined, counted, and split in half,
regardless of which of the two spouses possesses ownership. If the community spouse’s assets are
less than the state standard, then the Medicaid beneficiary must transfer his or her share of the
assets to the community spouse until the community-spouse’s share reaches the standard. All
other non-exempt assets must be depleted before the applicant can qualify for Medicaid.
Regarding income, federal law exempts all of a community spouse’s income (e.g., pension or
Social Security) in his or her name from being considered available to the other spouse for
purposes of Medicaid eligibility. For community spouses with limited income, federal law allows
institutionalized spouses to transfer income to the community spouse up to a state-determined
maximum level. Federal law specifies that this limit may be no greater than $2,610 per month,
and no less than $1,712 per month in 2008. (See the sections on “Policy Discussion of Selected
Issues” and Appendix A for more information about spousal impoverishment rules.)
Ž?’ŒŠ’?ȂœȱœœŽ?ȱ›Š—œ?Ž›ȱž•Žœȱ
In an attempt to ensure that Medicaid applicants apply their assets toward the cost of their care
and do not give them away to gain Medicaid eligibility sooner than they otherwise would,
Congress established stricter asset transfer rules under the Deficit Reduction Act of 2005 (DRA,
P.L. 109-171) and the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993, P.L. 103-66)
than had existed in prior law. These rules include penalties for applicants seeking institutional and
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Şȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
certain home and community-based long-term care services who have disposed of assets for less
than fair market value on or after a look-back date. Under current law, the look-back date is five
years prior to application for Medicaid for all income and assets disposed of by the individual.22
Transfers made for less than fair market value during the look-back period may be, but are not
always, subject to penalties. Penalties are defined as months of ineligibility for certain Medicaid
long-term care services. The length of the ineligibility period varies by the amount of assets
improperly transferred and the average private pay rate for nursing home care in the state.23 The
ineligibility period, or penalty period, begins on 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 and would otherwise be receiving institutional level of care, whichever is
later.24
Ineligibility for Medicaid coverage is limited to certain long-term care services—individuals
would still be eligible for other Medicaid-covered services (e.g., for dual eligibles, acute care
services not covered by Medicare). The services for which the penalty applies include nursing
facility care; services provided in any institution in which the level of care is equivalent to those
provided by a nursing facility; Section 1915(c) home and community-based waiver services;
home health services; and personal care furnished in a home or other locations.25 States may
choose to apply the asset transfer rules to other state plan long-term care services and to the
services offered under the new home and community-based services option for the elderly and
disabled (established under the DRA). In general, states do not extend the penalty to Medicaid’s
acute care services.
••˜ Š‹•Žȱ›Š—œ?Ž›œȱ
Under the law, not all asset transfers are subject to penalties. For example, asset transfers for fair
market value, transfers to spouses of any value, and certain transfers to specified other persons,
such as children with disabilities, for less than fair market value, are not subject to penalties.
Specifically, a home may be transferred, without penalty, from an applicant to a: (1) spouse; (2)
child under age 21; (3) child who is blind or permanently and totally disabled (or is blind or
disabled as defined Section 1614 of the Social Security Act); (4) sibling who has an equity
interest in the home and who was residing in the applicant’s home for at least one year
immediately before the date the individual becomes institutionalized; or (5) son or daughter
residing in an individual’s home for at least two years immediately prior to the institutionalization
of the applicant and who provided care that permitted the individual to reside at home rather than
in an institution or facility.26 These rules were established to ensure that certain family members

22 Prior to DRA’s enactment, the look-back date was 36 months prior to application for Medicaid for all income and
assets and 60 months in the case of certain trusts treated as assets disposed of by the individual.
23 The number of months is determined by dividing the total cumulative uncompensated value of all assets transferred
on or after the look-back date by the average monthly cost to a private patient of a nursing facility in the state (or, at the
option of the state, in the community in which the individual is institutionalized) at the time of application. For
example, a transferred asset worth $60,000, divided by a $5,000 average monthly private pay rate in a nursing home,
results in a 12-month period of ineligibility for Medicaid long-term care services.
24 Prior to DRA, the ineligibility period began with the first month during which the assets were transferred or, at state
option, in the month following the transfer.
25 They also apply to home and community care for functionally disabled elderly individuals (under Section 1929 of the
Social Security Act). This is an optional coverage group which operates only in Texas.
26 Section 1917(c)(2) of the Social Security Act.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
şȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
would not be without shelter or lose their homes so that one member of the family could obtain
Medicaid coverage.
As mentioned above, all transfers of any value between spouses are permitted. In part, this is
because all assets of the couple, regardless of ownership, are combined and counted for purposes
of determining Medicaid eligibility for either one or both spouses. (See the spousal protection
discussion in the eligibility section above.)
Additional exceptions are made for other types of transfers for less than fair market value. They
include certain transfers to a third party by the applicant’s spouse for the sole benefit of the
spouse or transfers to a disabled or blind child for the sole benefit of the disabled or blind child.
These transfers may include the establishment of a trust, such as a special needs trust or a pooled
trust, for a disabled or blind child.27,28 These exceptions allow one spouse to retain a source of
financial support for another spouse and for parents of disabled children to secure a source of
financial support for their disabled children.29
›ŽŠ?–Ž—?ȱ˜?ȱŽ›?Š’—ȱ¢™Žœȱ˜?ȱœœŽ?œȱ
For the purposes of asset transfer rules, all resources (and income) of an individual or couple are
evaluated to determine whether the establishment, purchase, sale, or transfer of an asset has
occurred for less than fair market value. Most states follow SSI program rules concerning the
treatment of most types of assets that people possess at the time of application to Medicaid.
Although Medicaid law does not contain provisions specifying how all assets should be treated, it
does include special rules about how states must treat some types of assets: these include trusts,
annuities, life estates, promissory notes, loans, and mortgages.30 The Secretary of the Department
of Health and Human Services (DHHS) also has the authority to provide guidance to states on
other categories of transactions that may be treated as transfers of assets for less than fair market
value.31
›žœ?œȱ
Medicaid defines two types of trusts: revocable and irrevocable. In the case of a revocable trust,
any payments from the trust shall be considered assets disposed of by the individual. In the case
of an irrevocable trust, payments that could be made, under any circumstances, to or for the
benefit of the individual—and any portion of the trust or income from which no payment under
any circumstances could be made to the individual—shall be considered to be assets improperly
disposed of by the individual.32 For purposes of the look-back period, a trust is considered an
improper transfer of assets if it is established within the five-year look-back period. Trusts

27 Section 1917(c)(2)(B) of the Social Security Act.
28 Allowable transfers also include a transfer for the establishment of a Miller trust, or income-only trust, that is applied
to the cost of the beneficiary’s Medicaid care and for which the state is the beneficiary.
29 Section 1917(c) of the Social Security Act.
30 Requirements concerning annuities, life estates, promissory notes, loans, and mortgages were added to Medicaid law
by DRA.
31 Also added to Medicaid law by DRA.
32 Section 1917(c) of the Social Security Act.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŖȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
established prior to the five-year look-back period may be treated as improper transfers when the
trust’s payments to the individual are foreclosed during this time.
——ž’?’Žœȱ
DRA also codified (under section 1917(e)(1) and (2) of the Social Security Act) when annuities
should be treated as allowable transfers and when they should not.33 DRA specifies that the
purchase of an annuity be treated as an improper transfer unless the state is named as a
beneficiary of the annuity for at least amounts paid by Medicaid for certain long-term care
services (or in the second position after the community spouse or minor or disabled child and
such spouse or a representative of such child does not dispose of any such remainder for less than
fair market value). In addition, all annuities are penalized as transfers for less than fair market
value if applicants do not submit the necessary disclosure documentation from the financial
institution, employer, or employer association that issued the annuity.34 Annuities may be
excluded from penalties if they are (1) 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;35 or (2) fall into certain categories specified in Section 408 of the Internal
Revenue Code of 1986 (IRC).36 37 DRA also allows states to deny Medicaid eligibility to
individuals based on the income or resources they receive from annuities.
’?Žȱœ?Š?Žœȱ
The DRA amended section 1917(c)(1) fo the Social Security Act and redefined the term
“assets,”with respect to the Medicaid asset transfer rules, to include the establishment of a life
estate interest in another individual’s home unless the purchaser resides in the home for at least

33 OBRA 1993 addressed annuities only tangentially by providing that the term “trust” includes an annuity only to such
extent and in such manner as the Secretary of HHS specifies. Transmittal 64, or §3258.9(B) of the State Medicaid
Manual, HCFA, No. 45-3, (November 1994), provides the official Centers for Medicare and Medicaid Services (CMS)
guidance on annuities. The guidance requires that annuities be actuarially sound (i.e., that the annuity pay back to the
annuitant all of the funds used to purchase the annuity within that person’s expected lifetime); otherwise, the annuity
will be considered a transfer of assets for less than fair market value and thus penalized. The CMS guidance attempted
to “avoid penalizing annuities validly purchased as part of a retirement plan but to capture those annuities which
abusively shelter assets.” However, the CMS guidance did not state whether the payments must be monthly or equal in
size, or whether the remainder of the annuity can be paid to another person if the annuitant dies before the annuity is
paid back.
34 State Medicaid Directors Letter SMDL #06-018, Centers for Medicaid and State Operations, Department of Health
and Human Services, July 27, 2006.
35 The prohibition on deferral or balloon payments in an annuity was a response by Congress to try to prevent the
practice of converting one’s countable assets into non-countable assets so as to avoid applying them toward the cost of
an individual’s care and, instead, saving them for use by the applicant’s beneficiary’s after he or she passes away.
36 DRA excludes from the definition of an asset, those that are described in subsection (b) and (q) of Section 408 of the
IRC, or purchased with proceeds from: (1) an account or trust describe in subsections (a), (c), and (p) of Section 408 of
the IRC; (2) a simplified employee pension as defined in Section 408(k) of the IRC; or (3) a Roth IRA defined in
Section 408A of the IRC.
37 DRA also requires individuals applying and getting recertified for Medicaid-covered long-term care services to
disclose to the state a similar financial instrument, as specified by the Secretary), regardless of whether the annuity is
irrevocable or is treated as an asset. Such an application or recertification form includes a statement naming the state as
the remainder beneficiary. In the case of disclosure concerning an annuity, the state notifies the annuity’s beneficiary
about Medicaid assistance furnished to the individual. Issuers may notify persons with any other remainder interest of
the state’s remainder interest.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŗȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
one year after the date of purchase. CMS specifies that a life estate is at issue when an individual
who owns property transfers ownership to another individual while retaining, for the rest of his or
her life (or the life of another person), certain rights to that property. Generally, a life estate
entitles the grantor to possess, use, and obtain profits from the property as long as he or she lives,
even though actual ownership of the property has passed to another individual.38
›˜–’œœ˜›¢ȱ˜?Žœǰȱ˜Š—œǰȱŠ—?ȱ˜›??Š?Žœȱ
The DRA makes funds used to purchase a promissory note, loan or mortgage subject to the look-
back period, and thus a penalty period unless the repayment terms are actuarially sound, provide
for payments to be made in equal amounts during the term of the loan and with no deferral or
balloon payments, and prohibit the cancellation of the balance upon the death of the lender. In the
case of a promissory note, loan, or mortgage that does not satisfy these requirements, the
outstanding balance is due as of the date of the individual’s application for certain Medicaid long-
term care services and could be subject to asset transfer penalties.
¡ŒŽ™?’˜—œȱ?˜ȱ?‘Žȱ™™•’ŒŠ?’˜—ȱ˜?ȱŽ—Š•?’Žœȱ
To protect beneficiaries from facing unintended consequences as a result of asset transfer
penalties, Medicaid law includes provisions that allow states to waive penalties for persons who,
according to criteria established by the Secretary, can show that penalties would impose an undue
hardship.39 The DRA added requirements that states approve undue hardship requests when the
asset transfer penalty would deprive the individual of: (a) medical care such that the individual’s
health or life would be endangered; or (b) food, clothing, shelter, or other necessities of life.
Under DRA, states are also subject to new requirements that would increase applicant awareness
of the availability of undue hardship exceptions as well guarantee that when applications for such
exceptions are submitted, states are responsive. Specifically, states are required to provide (1)
notice to recipients about the availability of hardship waivers; (2) timely processing for
determining whether the waivers will be granted; and, (3) an appeals process for applicants to
challenge adverse state determinations. The law also allows institutions, such as nursing homes to
file hardship applications on behalf of residents (with their consent or that of their personal
representative). In addition, states may pay nursing facilities to hold beds of residents (for no
longer than 30 days) while applications are pending.
As prior to DRA, Medicaid statute continues to allow waivers of penalties for persons who can
demonstrate to the state (according to the rules established by the Secretary) that they either: (1)
intended to dispose of the assets at fair market value, or for other valuable consideration; (2)
transferred the assets exclusively for a purpose other than to qualify for medical assistance; or (3)
recovered the assets that were transferred for less than fair market value.40 Medicaid law does not
include instructions for states about how they should interpret or apply these exceptions, thus
allowing states some discretion in the ways in which this provision is applied. As a result, state

38 Prior to DRA, Medicaid law did not specify whether life estates should be treated as countable or non-countable
assets for purposes of Medicaid asset transfer rules. In CMS guidance, however, the Secretary specified that the
establishment of a life estate constituted a transfer of assets and that a transfer for less than fair market value occurs
whenever the value of the transferred asset is greater than the value of the rights conferred by the life estate.
39 Section 1917(c)(2) of the Social Security Act.
40 Sections 1917(c)(2)(C) and (D) of the Social Security Act.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŘȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
practices vary across the country. In general, states consider the circumstances under which
transfers were made (e.g., whether an applicant was healthy and living independently at the time
of making a charitable gift or whether the applicant was already frail and in great need of medical
assistance). In general, the burden of proving to the state that a transfer for less than market value
was made for a purpose other than to qualify for Medicaid falls on the applicant.
??’?’˜—Š•ȱ?Š?Žȱž•ŽœȱŽ?Š›?’—?ȱœœŽ?ȱ›Š—œ?Ž›œȱ
States have also established additional rules that go beyond federal law to further discourage
people from protecting assets to qualify for Medicaid sooner than they might otherwise. Such
state rules have been permitted under regulation and program guidance from the Secretary of
HHS.41 In addition, the Secretary has advised states that they may add criteria to the
determination of actuarially sound annuities or promissory notes, such as prohibiting balloon
payments, or states may interpret gray areas of the law or areas where the law is silent.42
Ž?’ŒŠ’?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
As discussed above, beneficiaries are allowed to retain certain assets and still qualify for
Medicaid. The Medicaid estate recovery program is intended to enable states to recoup these
private assets (e.g., countable and non-countable assets held by recipients) upon a beneficiary’s
death to recover Medicaid’s expenditures on behalf of these individuals. Since 1993, Medicaid
law has required states to recover, from the estate of the beneficiary, amounts paid by the program
for certain long-term care, related services and other services at state option.43
Ž—Ž›Š•ȱ?Š?ž?˜›¢ȱŽšž’›Ž–Ž—?œȱ
There are two instances in which states are required to seek recovery of payments for Medicaid
assistance:
• when an individual of any age is an inpatient in a nursing facility or an
intermediate care facility for the mentally retarded (ICF/MR) and is not
reasonably expected to be discharged from the institution and return home; and
• when an individual age 55 years and older receives Medicaid assistance for
nursing facility services, home and community-based services and related
hospital and prescription drug services.44

41 CMS issued opinion letters to individuals requesting information on how federal law applies to particular state
Medicaid rules on transfers of assets. In such letters (see, e.g., CMS letter to Michael J. Millonig, April 26, 2004), CMS
asserted that states have considerable flexibility in administering their Medicaid programs and may validly make
reasonable interpretations of federal law in areas that have not been specifically addressed in federal law, regulation or
policy.
42 CMS letter to Michael J. Millonig, April 26, 2004.
43 Michigan is the only state in the nation that has not yet adopted an estate recovery program. Georgia began
implementation of its program on May 1, 2006. Arkansas and Texas began their programs within the last four years. No
state has ever been sanctioned by HHS for failing to implement an estate recovery program.
44 Section 1917(b) of the Social Security Act.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗřȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
Included in these groups are dual eligibles who are entitled to Medicare Part A and/or Part B and
are eligible for full Medicaid benefits.
For non dual eligibles age 55 and over, states are given the option of recovering the amount of
funds spent on any other items or services covered under the state Medicaid plan.45
Recovery of Medicaid payments may be made only after the death of the individual’s surviving
spouse, and only when there is no surviving child under age 21, or no surviving child who is blind
or has a disability.46 Estate recovery is limited to the amounts paid by Medicaid for services
received by an individual and is limited to only those assets owned by the beneficiary at the time
of recovery. (As a result, estate recovery is generally applied to a beneficiary’s home, if available,
and certain other assets within a beneficiary’s estate.) For purposes of these recovery
requirements, estates are defined as all real and personal property and other assets in an estate as
defined in state probate law. At the option of the state, recoverable assets also may include any
other real and personal property, annuities,47 and other assets in which the person has legal title or
interest at the time of death, including assets conveyed to a survivor, heir, or through assignment
through joint tenancy, tenancy in common, survivorship, life estate, living trust, or other
arrangements.48 Thus, assets (i.e., living trusts, life insurance policies, and certain annuities),
which may pass to heirs outside of probate, would only be subject to Medicaid recovery if a state
expanded its definition of “estate.”
¡Ž–™?’˜—œȱ›˜–ȱŽŒ˜ŸŽ›¢ȱ
Medicaid law, regulations and guidelines allow states to exempt certain Medicaid long-term care
beneficiaries from estate recovery. These beneficiaries are:
• persons for whom the state has determined that recovery would impose an undue
hardship (in accordance with standards specified by the Secretary of the
Department of Health and Human Services, (DHHS);
• persons for whom the state has determined that recovery would not be cost-
effective (subject to a methodology approved by the Secretary and written into
the state plan); and
• persons who have received benefits under a state-approved long-term care
insurance partnership policy.49 (Prior to DRA, four states had active LTC
insurance partnership programs, while other states, except Iowa, were prohibited
from implementing such programs.50 DRA allowed all states to implement

45 Ibid.
46 Section 1917(b)(2) of the Social Security Act.
47 DRA amended Section 1917(b)(4) of the Social Security Act to include an annuity in the definition of estate that is
subject to estate recovery unless the annuity is issued by a financial institution or other business that sells annuities in
the state as part of its regular business.
48 Section1917(b)(4) of the Social Security Act.
49 For more information about the Medicaid LTC Insurance Partnership Program, see CRS Report RL32610,
Medicaid’s Long-Term Care Insurance Partnership Program, by Julie Stone. For a summary of the changes made to
this program, see CRS Report RL33251, Side-by-Side Comparison of Medicare, Medicaid, and SCHIP Provisions in
the Deficit Reduction Act of 2005, by Karen Tritz et al.
50 The Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66) limited approval of Medicaid exemptions for estate
recovery to only those states with approved state plan amendments as of May 14, 1993. By that date, five states
(continued...)
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŚȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
partnership programs as long as their programs meet certain requirements
specified in the law). Amounts that are excluded from recovery equal the
amounts paid by the LTC insurance policy (except for New York and Indiana
which allow for full asset protection for certain LTC insurance purchasers.) States
may recover amounts not protected under this program if they choose to do so.
States also make exemptions from estate recovery for certain assets and resources for American
Indians and Alaska Natives.51 When considering whether to exempt a person’s assets from estate
recovery, Medicaid guidance requires states to provide for special consideration of cases in which
the estate is the sole income-producing asset of survivors, such as a family farm or other family
business; or a homestead of modest value.
œŽȱ˜?ȱ’Ž—œȱ
To assist states in carrying out estate recovery and deter individuals from transferring or selling
their property before repaying the state for payments made on their behalf, Medicaid law allows
states to place liens on the property of certain beneficiaries before or after their death. The law
limits the placement of liens on the property of only certain individuals residing in nursing
facilities, ICF/MRs, or other medical institutions who the state determines, after notice and
opportunity for a hearing, cannot reasonably be expected to be discharged from the medical
institution to return home. Liens may also be placed on property when, based on the judgment of
a court, Medicaid payments have been made incorrectly on behalf of an individual.52
Liens may not be placed on homes in which the following persons are lawfully residing in the
home, including the beneficiary’s: (1) spouse; (2) child under age 21; (3) child who is blind or
permanently and totally disabled (or blind or disabled as defined under Section 1614 of the Social
Security Act); or (4) sibling who has an equity interest in the home and who has resided in the
home for at least one year immediately before the date the individual becomes institutionalized.
(In addition, states cannot recover against a beneficiary’s home on which the state has placed a
lien, unless additional protections for siblings and adult children are satisfied.)53
˜••ŽŒ?’˜—ȱ–˜ž—?œȱ?˜›ȱŘŖŖŚȱŠ—?ȱŘŖŖřȱ
The amount of funds collected through states’ estate recovery programs has been relatively small.
In FY2004, for example, the amount recovered from all states was approximately $361.8
million.54 As a comparison, this amount represents about .8% of Medicaid’s total nursing home

(...continued)
(California, Connecticut, Indiana, Iowa, and New York) had received CMS approval. All of these states, except Iowa,
implemented partnership programs. These four states received assistance from the Robert Wood Johnson (RWJ)
Foundation to help design, market, and operate what became known as the LTC Insurance Partnership Programs.
51 Specifications for exempt and non-exempt resources are found in Medicaid state guidance. Source: State Medicaid
Manual.
52 Section 1917(a) of the Social Security Act and Department of Health and Human Services (DHHS), Health Care
Financing Administration (HCFA), State Medicaid Manual Part 3—Eligibility, Section 3810. Medicaid Estate
Recoveries. (Transmittal 75), January 11, 2001 (State Medicaid Manual).
53 Ibid.
54 Estate Recovery Amounts: state-reported data from CMS Third Party Liability data, Probate amounts,
2004TPLCollections.xls, available online at http://www.cms.hhs.gov/ThirdPartyLiability/.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗśȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
expenditures in that year, which totaled about $45.8 billion. The recovery ratio was identical with
FY2003, at 0.8% of Medicaid’s FY2003 nursing home expenditures. Although nursing home
expenditures represent the largest service for which recovery is attempted, states may attempt to
recover payments made for other LTC services (as described above). In fact, total benefits paid
for LTC services for which states may recover is far greater.
Despite the relatively low recovery ratio overall, ratios vary significantly across states. Arizona
had the highest recovery ratio in the nation, at 10.4%, followed by Oregon with the second
highest recovery ratio in the nation of 5.8%. Idaho had the third highest recovery ratio (4.5%). All
other states had recovery ratios of under 3% (Table 1).
Differences in estate recovery across states reflect variation in their political and economic
environments. For example, states with more rigorous programs have tended to view estate
recovery as a cost-containment strategy. States with lower recovery ratios, often face barriers to
estate recovery as a result of political debate about the appropriateness of recovering an
individual’s home after a beneficiary’s death. In still others, particularly those with relatively low
per capita income, a belief that recovery is not cost-effective in that state (i.e. administrative costs
exceed recovery amounts) may contribute to weaker efforts to recover assets than might
otherwise exist.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŜȱ

ȱ
Table 1. Medicaid Estate Recovery Amounts as a Percentage of Nursing Facility (NF) Expenditures in FY2003 and FY2004

FY2003 FY2004
Amount recovered as
Amount recovered as
State
NF expenditures Estate recovery
% of Medicaid NF
NF Expenditures Estate Recovery
% of Medicaid NF
expenditures
expenditures
Alabama $768,429,449

$4,222,784
0.5%
$766,521,275
$6,204,836
0.8%
Alaska
$99,307,550
$0
0%
$107,091,559
$0
0%
Arizona $22,317,755

$2,200,444
9.9%
$23,172,901
$2,403,306 10.4%
Arkansas $540,164,919

$1,730,100
0.3%
$540,193,697
$2,104,052
0.4%
California $2,931,814,408

$44,024,077
1.5%
$3,033,946,724
$44,668,847
1.5%
Colorado $415,217,012

$4,649,920
1.1%
$423,944,387
$6,241,993
1.5%
Connecticut
$997,830,090
$10,884,820
1.1%
$1,015,579,338
$8,204 ,283
0.8%
Delaware
$152,539,852
$1,108,545
0.7%
$158,840,995
$436,370
0.3%
Florida $2,126,718,331

$11,474,485
0.5%
$2,250,455,672
$13,478,207
0.6%
Georgia $900,262,135
$0
0%
$1,466,092,237 $0
0%
Hawaii $177,179,348

$2,255,074
1.3%
$182,705,650
$1,684,280
0.9%
Idaho $125,414,776

$5,357,412 4.3%
$126,613,061
$5,695,851 4.5%
Illinois $1,431,124,039

$16,993,946
1.2%
$1,608,092,952
$21,254,742
1.3%
Indiana $762,160,704

$7,366,747
1%
$948,116,230
$7,649,409
0.8%
Iowa
$487,480,360
$10,977,823
2.3%
$426,181,610
$12,194,616
2.9%
Kansas $35,1051,074

$6,193,161
1.8%
$344,645,407
$4,866,505
1.4%
Kentucky
$619,759,104
$2,961,800
0.5%
$627,317,272
$5,391,045
0.9%
Louisiana $594,880,647

$104,755
0%
$593,234,878
$103,853
0%
Maine $237,859,692

$5,934,701 2.5%
$248,697,265
$6,178,845 2.5%
Maryland $801,725,424

$6,919,915
0.9%
$867,262,512
$5,456,547
0.6%
Massachusetts $1,511,869,307

$28,524,313
1.9%
$1,617,497,416
$32,577,301
2%
Michigan
$999,090,959
$0
0%
$1,704,056,909
$0
0%
Ȭŗŝȱ

ȱ

FY2003 FY2004
Amount recovered as
Amount recovered as
State
NF expenditures Estate recovery
% of Medicaid NF
NF Expenditures Estate Recovery
% of Medicaid NF
expenditures
expenditures
Minnesota
$930,440,562
$18,300,218
2%
$904,205,889
$ 24,998,595
2.8%
Mississippi $503,630,708

$168,735
0%
$563,151,164
$391,933
0.1%
Missouri $733,310,219

$7,480,548
1%
$789,726,442
$8,597,322
1.1%
Montana $143,950,197

$1,982,288
1.4%
$164,145,366
$2,363,322
1.4%
Nebraska $345,932,257

$12,361,598
3.6%
$359,714,726
$1,125,970
0.3%
Nevada
$111,198,439
not available
not available
$141,377,842
$420,429
0.3%
New Hampshire
$138,368,754
not available
not available
$276,085,727
$4,362,641
1.6%
New Jersey
$2,092,780,914
not available
not available
$1,479,889,851
$8,329,882
0.6%
New Mexico
$165,599,566
$0
0%
$179,818,250
$1,681,931
0.9%
New York
$7,121,191,662
$27,244,711
0.4%
$6,486,722,331
$29,953,334
0.5%
North Carolina
$892,644,843
$4,053,121
0.5%
$1,096,619,059
$5,529,652
0.5%
North Dakota
$171,627,898
$1,684,666
1%
$166,456,173
$2,000,766
1.2%
Ohio $2,647,297,226

$12,382,674 0.5%
$2,722,643,741
$13,987,964 0.5%
Oklahoma $438,007,880

$1,873,304
0.4%
$462,935,035
$1,573,913
0.3%
Oregon $270,751,263

$13,996,362
5.2%
$238,642,419
$13,843,592
5.8%
Pennsylvania $3,732,029,413

$23,149,026
0.6%
$4,069,955,523
$5,888,558
0.1%
Rhode Island
$265,937,326
$3,559,076
1.3%
$292,744,235
$2,792,488
1%
South Carolina
$418,286,025
$5,150,428
1.2%
$461,865,198
$6,206,820
1.3%
South Dakota
$130,053,431
$1,293,813
1%
$118,375,810
$1,222,693
1.0%
Tennessee $918,785,385

$4,156,333
0.5%
$1,006,485,725
$8,895,934
0.9%
Texas $1,835,713,376
$0
0%
$1,781,030,713 $0
0%
Utah $104,652,074

$459,400 0.4%
$105,854,730
$47,443 0%
Vermont $96,293,595
$487,029
0.5%
$104,364,396
$402,156
0.4%
Virginia $615,543,238

$953,406 0.2%
$656,180,320
$776,866 0.1%
ȬŗŞȱ

ȱ

FY2003 FY2004
Amount recovered as
Amount recovered as
State
NF expenditures Estate recovery
% of Medicaid NF
NF Expenditures Estate Recovery
% of Medicaid NF
expenditures
expenditures
Washington $623,752,430

$5,816,188
0.9%
$593,061,233
$10,770,875
1.8%
Washington DC
$192,937,448
$1,658,606
0%
$188,211,034
$1,789,570
1%
West Virginia
$330,832,100
$1,183,754
0.4%
$367,149,385
$214,656
0.1%
Wisconsin $1,526,259,152

$12,812,864
0.8%
$917,421,595
$16,772,729
1.8%
Wyoming $56,803,388
$1,097,240
1%
$60,552,927
$1,632,368
2.7%
United States
$44,610,032,180 $337,190,210
0.8%
$45,835,646,786 $361,765,396
0.8%
Sources: Congressional Research Service (CRS) Analysis of CMS, Form 64 data published by B. Burwell. Estate Recovery Amounts: state-reported data from CMS Third
Party Liability data, Probate amounts, 2004TPLCollections.xls http://www.cms.hhs.gov/ThirdPartyLiability/.
Ȭŗşȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
˜•’Œ¢ȱ’œŒžœœ’˜—ȱ˜?ȱŽ•ŽŒ?Ž?ȱ œœžŽœȱ
Medicaid’s strain on federal and state budgets combined with projected increases in the program’s
long-term care spending sparked interest among some Members in the 109th Congress in
containing program expenditures so as to free up federal dollars for other purposes.
Supporters of DRA, passed by both houses at the beginning of the first session of the 109th
Congress, argued that when faced with a range of undesirable options for containing Medicaid
spending, such as cutting benefit packages, eligibility, or reimbursement amounts to providers,
the better choice would be to restrict eligibility for persons who are better off so as to maintain
spending for persons who are worse off. Provisions in the DRA concerning asset transfers are
intended to do just this. The law made changes to Medicaid’s eligibility, asset transfers, and estate
recovery requirements in an attempt to further discourage people from sheltering or depleting
their assets so as to qualify for Medicaid sooner than they otherwise might.
Many Members opposed to DRA argued that cuts to the Medicaid program were misguided, in
part because Medicaid estate planning was not a large contributor toward Medicaid’s financial
strain on state and federal budgets. They also asserted that Medicaid’s covprotected and even
expanded to cover additional groups of low-income persons for whom the often catastrophic costs
of long-term care could quickly lead a family into impoverishment.
During the 109th Congress, debate arose among policymakers about whether DRA would actually
discourage and/or make it more difficult for persons to protect or deplete their assets to qualify
for Medicaid or whether such persons would simply find other methods to do so that are not
prohibited by law. It is likely that both outcomes will come true. It is clear that new restrictions on
the use of annuities, promissory notes and life estates, for example, will reduce the types of
financial vehicles available for protecting assets. In addition, tighter penalties (i.e., change in
penalty start date) for transferring assets for less than fair market value will likely deter some
people from making transfers. Together, these tougher requirements will likely discourage some
people from engaging in Medicaid estate planning, although it is not yet known how many. The
Congressional Budget Office estimated that the savings generated by these asset transfer
provisions would total $2.4 billion over 2006-2010.55
On the other hand, the legislative language in DRA does not penalize all methods of transferring
assets. Certain methods for protecting or depleting assets for the purpose of qualifying for
Medicaid will still be available to some. Consequently, it is also likely that some people will
engage in Medicaid estate planning despite the changes made by DRA.
Policymakers also raised concerns about the potential impacts of DRA that are less clear. For
example, concern has been raised about the extent to which stronger penalties for people who
make asset transfers to qualify for Medicaid would negatively impact other groups of eligibles as
well, particularly those who may have transferred assets without any intention of ever needing
Medicaid’s assistance. In particular, concern has been raised that persons who make charitable
donations, transfers to adult children in need, or other transfers of small amounts, would be

55 Congressional Budget Office Cost Estimate, S. 1932 Deficit Reduction Act of 2005 Conference agreement, as
amended and passed by the Senate on December 21, 2005, January 27, 2006, at http://cbo.gov/ftpdocs/70xx/doc7028/
s1932conf.pdf.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŖȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
penalized even when, at the time of the transfers, the individuals had no intention of needing
Medicaid coverage for long-term care services.
Other concerns have been raised about the possibility that the change in the penalty start date
would result in some people not having access to adequate care during the penalty period (i.e.,
period of non-coverage), leaving the health of frail elders to decline more rapidly than it
otherwise would. This, people assert, would significantly impact the health and safety of some of
the frailest among us.
Finally, DRA’s requirement that states apply the income-first rule when allocating income and
assets among certain couples (in which one spouse qualifies for Medicaid long-term care
coverage and the other does not) has raised concerns about potentially undoing the spousal
impoverishment protections established by Congress in the Medicare Catastrophic Coverage Act
(MCCA) of 1988. Specifically, these concerns are about how this new requirement might impact
the long-term financial security of community spouses.
Although the actual impacts of DRA will not be known for some time, the following discussion
provides additional insight into these questions. Note that this analysis is limited to information
available as of a point in time, and thus does not reflect the future choices of states about how
they will implement the act’s new requirements. The 110th Congress may choose to monitor the
implementation of DRA, as well as evaluate how Medicaid rules pertaining to eligibility, asset
transfers, and estate recovery, in general, determine who obtains and who is excluded from
Medicaid’s coverage of long-term care services and support.
’••ȱ™Ž—Š•?’Žœȱ‹Žȱ’–™˜œŽ?ȱ˜—ȱ’—?’Ÿ’?žŠ•œȱ ‘˜ȱ–Š”Žȱ?›Š—œ?Ž›œȱ?˜›ȱ™ž›™˜œŽœȱ
˜?‘Ž›ȱ?‘Š—ȱ?˜ȱšžŠ•’?¢ȱ?˜›ȱŽ?’ŒŠ’?ǵȱ
The law includes provisions intended to prevent the application of penalties on persons who made
transfers without having ever intended to increase the speed with which they qualified for
Medicaid. However, these provisions are not easily applied and implemented and states have thus
far been inconsistent in their implementation of this provision. As a result, whether penalties will
be applied to such persons will depend on whether the Secretary publishes additional guidance;
whether those states that are not actively examining intent begin to apply it; and whether the
Secretary increases its oversight of this law.
Intent of the Transfer. Medicaid provisions established by the Omnibus Budget Reconciliation Act
of 1993 contain a safety net requirement designed to protect individuals who make transfers for
purposes other than to speed up the process of becoming eligible for Medicaid. The first, Section
1917(c)(2)(C) of the Social Security Act, limits states to applying penalties only on persons who
made transfers for less than fair market value with the intention of protecting or depleting their
assets and prohibits states from imposing penalties on individuals who transferred assets
exclusively for a purpose other than to qualify for Medicaid, provided that a satisfactory showing
is made to the state in accordance with regulations promulgated by the Secretary.56 In spirit, this

56 Section 1917(c)(2)(C) of the Social Security Act provides that penalties are not applied to persons when a
satisfactory showing is made to the state (in accordance with regulations promulgated by the Secretary) that (i) the
individual intended to dispose of the assets either at fair market value, or for other valuable consideration; (ii) the assets
were transferred exclusively for a purpose other than to qualify for Medicaid; or (iii) all assets transferred for less than
fair market value have been returned to the individual.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řŗȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
provision should protect persons who make transfers that are relatively small in size, give
regularly to charitable organizations, provide financial assistance to adult children or
grandchildren during crises, among others—and in some circumstances, the provision does.
In other circumstances, however, this provision may be less effective, in part, because the
provision can be hard for states to implement. The intent of the transfer is difficult to measure and
no guidance has been provided at the national level, either under the law or by the Secretary, to
assist states in developing standards for measuring intent. Consequently, states’ implementation of
this requirement varies across the country. An informal CRS survey of selected states in the fall of
2005 found that some states do not evaluate the intent of a transfer and other states do. Among
states that do not evaluate intent, some simply automatically apply penalties to all transfers made
for less than fair market value within the look-back period.
Among those that do, the survey also found that states considered the health status and living
circumstances of an applicant at the time the transfer was made. For example, a person who was
healthy and living independently may be determined by a state to have been less likely to have
transferred assets for the purpose of qualifying for Medicaid because he or she may not have
suspected ever needing Medicaid. Alternatively, some states determine that gifts made while
persons are already frail and dependent are likely to have been made with the intention of
protecting or depleting assets to qualify for Medicaid sooner than they otherwise would.
The following are two examples of the way in which this process might work in a state. To show
that charitable gifts made during the five-year look-back period were not made to speed up
qualification for Medicaid, an individual could provide financial records to the state
demonstrating the applicant’s long history of annual charitable giving (such as $1,000 a year for
the past 10 years). Another method might be to provide medical records around the time of the
transfer to demonstrate that, at that time, the applicant was healthy. A person’s health record
might suggest to the state that the individual had not expected to need Medicaid long-term care
coverage at the time the gift was made.
Another important factor that may complicate the application of the intent provision is that
applicants, for the most part, shoulder the burden of proving to the state that their transfers were
conducted for an alternative purpose. Applicants may use a variety of methods to prove the
purpose of their past transfers, but each method is personal and particular to the circumstances of
the transfer and the state in which the individual resides.
’••ȱ?‘ŽȱŒ‘Š—?Žȱ’—ȱ?‘Žȱ™Ž—Š•?¢ȱœ?Š›?ȱ?Š?Žȱ›Žœž•?ȱ’—ȱ™Ž›œ˜—œȱ•˜œ’—?ȱŠŒŒŽœœȱ?˜ȱ
—ŽŽ?Ž?ȱŒŠ›ŽǰȱŠ??ŽŒ?’—?ȱ?‘Žȱ‘ŽŠ•?‘ȱ˜?ȱŠ™™•’ŒŠ—?œȱ ‘˜ȱ–žœ?ȱ?˜›?˜ȱŒŠ›Žǵȱ
The change in the penalty start date will likely result in more severe penalties for people who
make transfers for less than fair market value. However, OBRA 1993 established a provision in
Medicaid law intended to protect persons from experiencing significant harm as a result of asset
transfer penalties, regardless of the intent for the transfer. Specifically, Section 1917(c)(2)(D) of
the Social Security Act (prior to DRA) specifies that if a state determines, under procedures
established by the state, that the denial of eligibility would create an undue hardship, the state
must not apply asset transfer penalties.
As a result, all states are required to waive penalties when penalties would result in undue
hardship. However, an informal survey conducted by CRS in Fall 2005, found that not all states
had a process for determining undue hardship and not all made sure to accurately notify people of
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŘȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
their rights to undue hardship waivers. DRA attempted to standardize the process states use to
evaluate undue hardship as well as the procedures states use for notifying applicants of their
rights. (See sections “Medicaid’s Asset Transfer Rules” and “Exceptions to the Application of
Penalties.”) As a result of DRA, Medicaid law now also requires states to provide: 1) notice to
recipients about the hardship waivers; 2) timely processing of the waivers; and, 3) an appeals
process for rebutting penalties. It is still unclear at the present time whether and how states will
change their practices to comply with these new requirements.
Furthermore, some observers speculate that applicants will take advantage of their rights to such
exceptions by making transfers with the intent of speeding up their qualification for Medicaid,
and then seeking waivers to the penalty periods so as to obtain care sooner than they otherwise
would.
Right to Challenge Penalties through Undue Hardship Exception and Appeals. In the case that an
applicant does not receive a favorable determination from the state for an undue hardship
exception, other safety net provisions in Medicaid law grant applicants the opportunity to rebut
the appropriateness of a penalty. All applicants, regardless of the intent of the transfers leading to
penalties, have the right to appeal a penalty through each state’s appeal process. States have the
option to provide the opportunity for rebuttal during the application or redetermination process
(i.e., before a penalty is imposed), or the state’s fair hearing process57 (i.e., after a penalty is
imposed).58
˜ ȱ ’••ȱ?‘Žȱ’—Œ˜–ŽȬ?’›œ?ȱ›Žšž’›Ž–Ž—?ȱŠ??ŽŒ?ȱ?‘Žȱ•˜—?Ȭ?Ž›–ȱ?’—Š—Œ’Š•ȱœŽŒž›’?¢ȱ
˜?ȱŒ˜––ž—’?¢ȱœ™˜žœŽœȱŠ—?ȱ?‘ŽȱœŠŸ’—?œȱ˜›ȱŽ¡™Ž—?’?ž›Žœȱ˜?ȱ?‘ŽȱŽ?’ŒŠ’?ȱ
™›˜?›Š–ǵȱ
The answer to this question depends on the financial situation of the couple and the amount of
income and assets available to the community spouse. For some couples, the income-first
requirement will have no impact on the couple’s financial security; for others, it will decrease a
couple’s financial security in the long run.
The section above (see the section entitled “Financial Eligibility Criteria for Medicaid Coverage
of Long-Term Care Services for the Aged” and Appendix A of this report for more information
on spousal impoverishment rules) describes Medicaid’s provisions to prevent spousal
impoverishment—a situation that leaves the spouse who lives at home on in another community
setting with little or no income or resources when the other spouse requires institutional or home
and community-based long-term care. These provisions were intended to allow the community
spouses to retain more of the couple’s income and assets so as to prevent him or her from
becoming destitute while the institutionalized spouse receives Medicaid-covered long-term care.
Spousal impoverishment law provides guidance to states about how to count the income and
resources of a couple and how to allocate this income and resources between spouses. This
guidance includes instructions about minimum and maximum income and resources levels that
community spouses may retain, and guidance about how to calculate how much of the couple’s
income and resources should be depleted to reach Medicaid eligibility thresholds.

57 Described in 42 CFR Part 431, Subpart E.
58 State Medicaid Guidance, Section 3250.3.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řřȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
Prior to the passage of DRA (requiring states to apply the income-first rule), Medicaid law
granted states flexibility in how they allocated income and resources when addressing the
circumstance in which the income of the community spouse falls short of the MMNA. This
flexibility resulted in states employing two divergent methods, with the potential to affect the
long-term financial security of community spouses differently as well as resulting in different
Medicaid savings effects. Under the method used by most states, known as the “income-first”
method, states attempt to make up the community spouse’s income shortfall by first allocating the
income of the institutionalized spouse to the community spouse. Under this method, states
consider whether all of the institutionalized spouse’s income that could be made available to the
community spouse (in accordance with the calculation of the post-eligibility allocation of income
or additional income allowance allocated at a fair hearing) has been made available. After this
calculation is completed, resources may only be allocated to the community spouse if a shortfall
still exists between the community spouse’s expected monthly income and the MMNA.59 If so,
states will allocate the institutionalized spouse’s assets to the community spouse’s income, even if
this expected transfer results in the community spouse’s total resources exceeding the state-
specified resource limit. All other resources of the institutionalized spouse must be depleted to
Medicaid eligibility thresholds before the individual can qualify for Medicaid.
This method generally requires a couple to deplete a larger share of their assets than the
resources-first method, and could reduce the amount of funds available to community spouses to
cover their living expenses over their lifetimes. At the same time, this provision could increase
the amount of a couple’s funds that would be available to pay for a spouse’s care, incurring
savings to Medicaid.
Under the other method, known as the “resources-first” method (no longer permitted as of DRA’s
enactment), which is employed by fewer states, the couple’s resources can be protected first (even
though the transfer of resources would bring the community spouse’s total resource level above
the state-specified maximum) for the benefit of the community spouse to the extent necessary to
ensure that the community spouse’s total income meets, but does not exceed, the community
spouse’s monthly maintenance needs allowance. Under this method, states do not consider
whether income from the institutionalized spouse could be transferred to the community spouse.
Rather, they calculate the size of the allowable income based on the amount of income that would
be generated by moving of resources of the institutional spouse to the community spouse first.
Only if a shortfall remains after the transfer of all available resources, will the state consider
transferring income to the community spouse. This method generally enables the community
spouse to retain, at least theoretically,60 a larger amount of the couple’s assets than the income-
first method, and can reduce the amount of funds available to pay for the institutionalized
spouse’s care, thus costing the Medicaid program more.
For example, say a state’s maximum income allowance for the community spouse (MMNA) in
2006 is $2,000, and the maximum resource allowance for the community spouse is $60,000. In
this example, the community spouse (e.g., wife) retains exactly $60,000 in resources but has only
$1,500 in monthly income ($500 less than the MMNA). To raise the community spouse’s

59 The assets of an institutionalized spouse cannot be transferred to the community spouse (if it would raise the
community spouse’s total resources level above the maximum resources limit) to generate additional income for the
community spouse unless the income that could be transferred would still leave the community spouse with a monthly
shortfall.
60 Whether transfers of resources are ever actually made from the institutionalized spouse to the community spouse is
not monitored by states.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŚȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
monthly income level to $2,000, the resources-first method would allow the institutionalized
spouse (e.g., husband) to transfer additional assets that would be expected to generate income
capable of covering the income shortfall. As a result, in this example, the husband could transfer
enough assets to generate $500 of monthly income for the community spouse.61
Under the income-first rule, a transfer of assets from the husband to the spouse that would
increase the community-spouse’s resource allowance above the maximum allowable level could,
but would not likely occur. Instead, the law requires that states assume that the husband will
transfer his income and not his assets to his wife. As a result, the state would assume that the
husband would transfer $500 of his income each month to his wife and require him to meet the
state’s resources test (e.g., assets may not exceed $2,000). As a result, any additional assets above
the protected $2,000 for the institutionalized spouse and $60,000 for the community spouse
would need to be depleted before the husband could be eligible for Medicaid. The use of these
funds on the cost of the husband’s care would delay Medicaid coverage and generate some
savings to the program. However, Medicaid law does not specify how these excess funds must be
used. Rather, the law allows for excess funds to be used without asset transfer penalties for care
or for other purposes, such as home improvements, debt repayments, and purchases of household
items, among other things.
Regarding the community spouse, the husband may continue to transfer $500 of monthly income
to his wife as long as he remains living. Concerns can be raised about the community spouse’s
long-term financial security surrounding the risk that the $500 may not be available to the
community spouse in the long term. If the husband were to pass away, for example, what would
happen to that income? If, for example, the income were in the form of a pension, a variety of
outcomes could occur. It is possible that the pension would be automatically transferred to the
surviving spouse. In other instances, the funds could be transferred, but at a reduced amount; and
in still other instances, the pension would no longer be available. Under the latter two scenarios,
the surviving spouse’s income would drop and less would be available to pay for monthly living
expenses.
The income-first rule requires couples to apply more of their assets to the cost of their care and
makes fewer assets available to community spouses to use for living expenses than under
previous law . As a result, Medicaid savings will accrue. At the same time, the income-first rule
may decrease financial security for some spouses residing in the community after the death of a
Medicaid-covered spouse.

61 The determination of how many assets would be required to generate $500 would depend on the method a state uses
to calculate the amount of income that is generated from assets. For example, the state may assume that the husband
might place assets into an annuity or it might assume that it places assets into a savings account. The state would then
make an assumption about how much income would be generated from this annuity or savings account.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řśȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
™™Ž—?’¡ȱǯ ›˜Ÿ’œ’˜—œȱ??ŽŒ?’—?ȱœœŽ?ȱ›Š—œ?Ž›ǰȱ
•’?’‹’•’?¢ǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱŽšž’›Ž–Ž—?œȱ’—ȱ?‘Žȱ
Ž?’Œ’?ȱŽ?žŒ?’˜—ȱŒ?ȱ˜?ȱŘŖŖśȱ
The DRA made a number of changes to Medicaid rules concerning asset transfers, eligibility for
long-term care coverage, and estate recovery. These changes are described below.
˜˜”ȬŠŒ”ȱŽ›’˜?ȱ
The DRA lengthens the look-back period from three years to five years for all income and assets
disposed of by the individual after enactment. It does not change the look-back period for certain
trusts, which was already five years prior to DRA’s enactment. Under this change, asset transfers
for less than fair market value of all kinds made within five years of application to Medicaid
would be subject to review by the state for the purpose of applying asset transfer penalties.
Potential Impact: Lengthens the period of time for which transfers are evaluated for the purpose
of Medicaid eligibility.
—Ž•’?’‹’•’?¢ȱ˜›ȱŽ—Š•?¢ȱŽ›’˜?ȱ
The DRA changes the start date of the ineligibility period, or penalty period, for all transfers
made on or after the date of enactment. Rather than beginning the penalty period when a transfer
was made, the DRA requires states to begin the penalty period on 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 and would otherwise be receiving institutional level of
care, whichever is later.
Potential Impact: Increases the probability that penalties applied will actually be experienced by
applicants.
Žšž’›Ž–Ž—?ȱ?˜ȱ –™˜œŽȱŠ›?’Š•ȱ˜—?‘œȱ˜?ȱ —Ž•’?’‹’•’?¢ȱ
The DRA requires that a state shall not round down or otherwise disregard any fractional period
of ineligibility when determining the penalty period (or ineligibility period) with respect to the
disposal of assets.
Potential Impact: When calculating periods of ineligibility for certain applicants, this provision
ensures that longer penalty periods would be applied to certain applicants.
ž?‘˜›’?¢ȱ?˜›ȱœ?Š?Žœȱ?˜ȱŠŒŒž–ž•Š?Žȱ–ž•?’™•Žȱ?›Š—œ?Ž›œȱ’—?˜ȱ˜—Žȱ™Ž—Š•?¢ȱ™Ž›’˜?ȱ
For an individual or an individual’s spouse who disposes of multiple fractional assets in more
than one month for less than fair market value on or after the applicable look-back date, a state
may determine the penalty period by treating the total, cumulative uncompensated value of all
assets transferred by the individual (or individual’s spouse) during all months as one transfer. The
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŜȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
state would be allowed to begin such penalty periods on the earliest date that would apply to such
transfers.
Potential Impact: Gives states the option of imposing stricter penalties on persons who make
multiple transfers within a given time period.
Š›?œ‘’™ȱŠ’ŸŽ›œȱ
The DRA adds requirements that states approve undue hardship requests when the asset transfer
penalty would deprive the individual of (a) medical care such that the individual’s health or life
would be endangered, or (b) food, clothing, shelter, or other necessities of life. States are required
to provide notice to recipients about the hardship waivers, timely processing of the waivers, and
an appeals process. Institutions may file hardship applications on behalf of residents. States may
pay nursing facilities to hold beds of residents while applications are pending.
Potential Impact: Encourages standardization of penalty exceptions for undue hardship across
states.
˜—ŸŽ›?œȱ—Œ˜ž—?Š‹•ŽȱœœŽ?œȱ’—?˜ȱ˜ž—?Š‹•ŽȱœœŽ?œȱ
DRA expands the types of assets that are counted for the purpose of Medicaid eligibility and asset
transfer penalties. Under current law, states set standards, within federal parameters, for the
amount and type of assets that applicants may have to qualify for Medicaid. In general, countable
assets cannot exceed $2,000 for an individual. However, not all assets are counted for eligibility
purposes. The standards states set also include criteria for defining non-countable, or exempt,
assets. States generally follow rules for the Supplemental Security Income (SSI) program for
computing both countable and non-countable assets.
Other rules defining countable and non-countable assets apply only in particular states. States’
rules are generally intended to restrict the use of certain financial instruments (e.g., annuities,
promissory notes, or trusts) to protect assets so that applicants could qualify for Medicaid earlier
than they might otherwise. Significant variation exists across states that have such rules.
——ž’?’Žœȱ
Under current law, states have discretion concerning the way they treat annuities for the purpose
of evaluating improper asset transfers. The law specifies that the term “trust,” for purposes of
asset transfers and the look-back period, includes annuities only to the extent that the Secretary of
DHHS defines them as such. CMS guidance (Transmittal Letter 64) asks states to determine the
ultimate purpose of an annuity to distinguish those that are validly purchased as part of a
retirement plan from those that abusively shelter assets. The DRA added additional requirements
concerning annuities. First, it requires individuals applying and getting recertified for Medicaid-
covered long-term care services to disclose to the state a description of any interest the individual
or community spouse has in an annuity (or similar financial instrument, as specified by the
Secretary), regardless of whether the annuity is irrevocable or treated as an asset. Second, it
specifies that the purchase of an annuity is treated as an improper transfer unless the state would
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řŝȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
be named as a beneficiary to the assets for amounts paid by Medicaid for certain long-term care
services. Third, the DRA made certain annuities subject to Medicaid estate recovery.62
Potential Impact: May discourage the use of annuities, in certain circumstances, from being
used as a financial tool to protect income and resources.
Ž›?Š’—ȱ˜?ŽœȱŠ—?ȱ˜Š—ȱœœŽ?œȱ
The DRA makes funds used to purchase a promissory note, loan or mortgage subject to the look-
back period, and thus a penalty period unless the repayment terms are actuarially sound, provide
for payments to be made in equal amounts during the term of the loan and with no deferral or
balloon payments, and prohibit the cancellation of the balance upon the death of the lender. In the
case of a promissory note, loan, or mortgage that does not satisfy these requirements, the value
shall be the outstanding balance due as of the date of the individual’s application for certain
Medicaid long-term care services.
Potential Impact: May discourage the use of promissory notes, loans, and mortgages from being
used as financial tools to protect income and resources.
˜–Žȱšž’?¢ȱ
For purposes of Medicaid eligibility, current law provides that the value of an item may be totally
or partially excluded for eligibility purposes when calculating countable resources. Current
Medicaid and SSI asset counting practices exclude the entire value of an applicant’s home.
However, if an individual (and spouse, if any) moves out of his or her home without intending to
return, the home becomes a countable resource because it is no longer the individual’s principal
place of residence. If an individual leaves his or her home to live in an institution, the home is
still considered to be the individual’s principal place of residence, irrespective of the individual’s
intent to return, as long as a spouse or dependent relative of the eligible individual continues to
live there.
The DRA excludes from Medicaid eligibility for nursing facilities or other long-term care
services those individuals with an equity interest in their home of greater than $500,000. A state
may elect to substitute an amount that exceeds $500,000 but does not exceed $750,000.
Beginning in 2011, these dollar amounts are increased from year to year based on the percentage
increase in the consumer price index for all urban consumers, rounded to the nearest $1,000.
Individuals who have a spouse, child under age 21, or child who is blind or disabled (as defined
by the Section 1614 of the Social Security Act) lawfully residing in the individual’s home would
not be affected by this provision. Persons could use a reverse mortgage or home equity loan to

62 Current law requires states to recover the private assets of the estates of deceased beneficiaries who have received
certain long-term care services. Estate recovery is limited to the amounts paid by Medicaid for services received by the
individual, and includes only certain assets that remain in the estate of the beneficiary upon his or her death. For
purposes of recovery, estates are defined as all real and personal property and other assets as defined in state probate
law. At the option of the state, recoverable assets also may include any other real and personal property and other assets
in which the person has legal title or interest at the time of death. In general, assets such as living trusts, life insurance
policies, and certain annuities that may pass to heirs outside of probate would be subject to Medicaid recovery only if a
state expanded its definition of “estate.”
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŞȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
reduce the individual’s total equity interest in the home for the purpose of qualifying for
Medicaid.
Potential Impact: Excludes from eligibility certain homeowners applying for Medicaid who
would not have been excluded prior to DRA. Could encourage the use of reverse mortgages or
home equity loans by these homeowners.
’?Žȱœ?Š?Žœȱ
Current law does not specify whether life estates should be treated as countable or non-countable
assets for purposes of Medicaid asset transfer rules. In CMS guidance, however, the Secretary
specifies that the establishment of a life estate constitutes a transfer of assets, and that a transfer
for less than fair market value occurs whenever the value of the transferred asset is greater than
the value of the rights conferred by the life estate. According to CMS, a life estate is at issue
when an individual who owns property transfers ownership to another individual while retaining,
for the rest of his or her life (or the life of another person), certain rights to that property.
Generally, a life estate entitles the grantor to possess, use, and obtain profits from the property as
long as he or she lives, even though actual ownership of the property has passed to another
individual. The DRA redefines the term “assets,” with respect to the Medicaid asset transfer rules,
as including the purchase of a life estate interest in another individual’s home unless the
purchaser resides in the home for at least one year after the date of purchase.
Potential Impact: Under certain circumstances, this change may discourage the use of life
estates as a tool to protect an individual’s home for Medicaid purposes.
˜—?’—ž’—?ȱŠ›ŽȱŽ?’›Ž–Ž—?ȱ˜––ž—’?’ŽœȱǻœǼȱ
CCRCs offer a range of housing and health care services to older persons as they age and as their
health care needs change over time. CCRCs generally offer independent living units, assisted
living, and nursing facility care for persons who can afford to pay entrance fees and who often
reside in such CCRCs throughout their later years. CCRCs are paid primarily with private funds,
but a number also accept Medicaid payments for nursing facility services. Although the majority
of CCRC residents do not meet the financial criteria for Medicaid, some do. Current law prohibits
a Medicaid-certified nursing facility from requiring oral or written assurance that such individuals
are not eligible for, or will not apply for, benefits under Medicaid or Medicare.
The DRA allows state-licensed, registered, certified, or equivalent continuing care retirement
communities (CCRCs) or life care communities to require residents to spend their resources
(subject to Medicaid’s rules concerning the resources and income allowances for community
spouses), declared when applying for admission, on their care before they apply for Medicaid. It
would also allow certain entrance fees for CCRCs or life care communities to be considered by
states to be countable resources for purposes of the Medicaid eligibility determination.
Potential Impact: Could delay or prevent individuals residing in CCRCs and life care
communities from becoming eligible for Medicaid long-term care coverage.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řşȱ

Ž?’ŒŠ’?ȱ˜ŸŽ›Š?Žȱ?˜›ȱ˜—?ȬŽ›–ȱŠ›ŽǱȱ•’?’‹’•’?¢ǰȱœœŽ?ȱ›Š—œ?Ž›œǰȱŠ—?ȱœ?Š?ŽȱŽŒ˜ŸŽ›¢ȱ
ȱ
—Œ˜–ŽȬ’›œ?ȱž•Žȱ?˜›ȱ˜––ž—’?¢ȱ™˜žœŽœȱ
Current law includes provisions intended to prevent impoverishment of a spouse whose husband
or wife seeks Medicaid coverage for long-term care services, permitting the community spouse to
retain higher amounts of income and assets (on top of non-countable assets) than allowed under
general Medicaid rules. The law allows community spouses with more limited income to retain at
least a state-specified amount set within federal guidelines. If the community spouse’s monthly
income amount is less than this amount, the institutionalized spouse may choose to transfer an
amount of his or her income or assets to make up for the shortfall (i.e., the difference between the
community spouse’s monthly income and the state-specified minimum monthly maintenance
needs allowance). This transfer allows more income to be available to the community spouse,
while Medicaid pays a larger share of the institutionalized spouse’s care costs.
Current law allows states some flexibility in the way they apply these rules. In allocating income
and resources between spouses, states have employed two divergent methods. Under the method
used by most states, known as the “income-first” method, the institutionalized spouse’s income is
first allocated to the community spouse to enable the community spouse sufficient income to
meet the minimum monthly maintenance needs allowance; the remainder, if any, is applied to the
institutionalized spouse’s cost of care. Under this method, the assets of an institutionalized spouse
(e.g., an annuity or other income-producing asset) cannot be transferred to the community spouse
to generate additional income for the community spouse unless the income transferred by the
institutionalized spouse would not enable the community spouse’s total monthly income to reach
the monthly maintenance needs allowance. This method generally requires a couple to deplete a
larger share of their assets than the resources-first method.
In contrast, under the other method, known as the “resources-first” method, employed by fewer
states, the couple’s resources can be protected first for the benefit of the community spouse to the
extent necessary to ensure that the community spouse’s total income meets, but does not exceed,
the community spouse’s minimum monthly maintenance needs allowance. Additional income
from the institutionalized spouse that may be, but has not been, made available for the community
spouse is used toward the cost of Medicaid-covered care for the institutionalized spouse. This
method generally enables the community spouse to retain a larger amount of the couple’s assets
than the income-first method.
The DRA requires all states to apply the income-first rule. Thus, it requires states to consider
whether all of the institutionalized spouse’s income that could be made available to the
community spouse (in accordance with the calculation of the post-eligibility allocation of income
or additional income allowance allocated at a fair hearing) has been made available before
allocating the institutionalized spouse’s assets to the community spouse’s income to provide the
difference between the minimum monthly maintenance needs allowance and all income available
to the community spouse.
Potential Impact: Under certain circumstances, this provision could increase the amount of a
couple’s funds that would be available to pay for a spouse’s care, incurring savings to Medicaid.
Consequently, it could reduce the amount of funds available to cover the living expenses over the
lifetime of the other non-Medicaid covered spouse in the community.
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SSI is a federal program that provides monthly cash payments to people with limited income and
resources who are age 65 or older, blind, or disabled. To qualify for SSI benefits, an individual (or
a couple) must meet categorical criteria by being age 65 or older, blind, or disabled. They must
also meet financial criteria by having countable resources below the SSI limit ($2,000 for an
individual and $3,000 for a couple; these amounts are not indexed for inflation and have been at
current levels since 1989) and countable income below the SSI benefit rate ($579 for an
individual and $869 for a couple in 2005; these amounts are indexed annually for inflation and
may be lower for individuals and couples living in someone else’s household or an institution).63
Federal regulations specify that for purposes of SSI, resources are cash or other liquid assets or
any real or personal property that an individual (or spouse, if any) owns and could convert to cash
to be used for his or her support and maintenance.64 Not all resources are counted in determining
SSI eligibility. The value of an item may be totally or partially excluded when calculating
countable resources. Couples receive the same resource (and income) exclusions as individuals
(e.g., one automobile is excluded from countable resources for the couple as a whole, rather than
one automobile for each member of the couple).
According to the Social Security Administration’s most recent annual report on SSI, principal
items that are excluded from countable resources include the following:65
• a home serving as the principal place of residence, regardless of value;
• life insurance policies whose total face value is no greater than $1,500;
• burial funds of $1,500 each for an individual and spouse (plus accrued interest);
• all household goods and personal effects;
• one automobile (if used for transportation for the individual or a member of the
individual’s household);66
• property essential to self-support (e.g., property used by an individual as an
employee for work);
• resources set aside by an individual who has a disability or is blind to fulfill an
approved Plan for Achieving Self-Support (PASS); and

63 In some cases, the income and resources of others are also counted when determining SSI eligibility. This process is
called deeming, and it applies when an eligible child lives with an ineligible parent, an eligible individual lives with an
ineligible spouse, or an eligible alien has a sponsor.
64 20 CFR 416.1201(a).
65 Social Security Administration, SSI Annual Statistical Report, 2003, September 2004, pp. 3-4, available at
http://www.ssa.gov/policy/docs/statcomps/ssi_asr/2003/ssi_asr03.pdf.
66 Under former SSI rules, there were restrictions placed on the value of the automobile and household goods and
personal effects that could be excluded from countable resources. As of March 9, 2005, one automobile and all
household goods and personal effects are excluded, regardless of their value. See 70 Federal Register 6340, February
7, 2005.
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• amounts deposited into an individual development account (including matching
funds and interest earned on such amounts) under the Temporary Assistance for
Needy Families program or the Assets for Independence Act.
Table B-1 provides a more comprehensive accounting of items (including those listed above) that
are excluded from countable resources for purposes of determining SSI eligibility.
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Table B-1. Supplemental Security Income (SSI) Resource Exclusions
Limit on
Exclusion
value or
length of
Description
time?
Home serving as the principal place of
No
A home is any property in which an individual (and spouse, if any) has an ownership interest and which
residence
serves as the individual’s principal place of residence. This property includes the shelter in which an individual
resides, the land on which the shelter is located and related outbuildings. The home is not included in
countable resources, regardless of its value. If an individual (and spouse, if any) moves out of his or her home
without the intent to return, the home becomes a countable resource because it is no longer the individual’s
principal place of residence. If an individual leaves his or her home to live in an institution, the home is still
considered to be the individual’s principal place of residence, irrespective of the individual’s intent to return,
as long as a spouse or dependent relative of the eligible individual continues to live there. The individual’s
equity in the former home becomes a countable resource effective with the first day of the month following
the month it is no longer his or her principal place of residence.
Funds from the sale of a home if reinvested
Yes
The proceeds from the sale of a home which is excluded from the individual’s resources will also be
timely in a replacement home
excluded from resources to the extent they are intended to be used and are, in fact, used to purchase
another home, which is similarly excluded, within three months of the date of receipt of the proceeds.
Non-liquid resources above the SSI resource
Yes
People with excess Non-liquid resources generally cannot receive SSI benefits even if they meet all other
limit if certain conditions are met
eligibility requirements. As a result, they may have little or nothing on which to live while they look for a
buyer for excess property. However, SSA has statutory authority to prescribe the period(s) within which and
the manner in which to dispose of various kinds of property, and federal SSI regulations describe the
conditions under which SSI payments can be made while an individual attempts to dispose of property. Such
“conditional benefits” paid during this period are considered overpayments and must be repaid from the
proceeds of the sale of excess resources. When the excess resources are in the form of real property which
cannot be sold for certain specified reasons (undue hardship or unsuccessful reasonable efforts to sell,
exclusions which are described later in this table), the owner can receive regular (not conditional) benefits.

An individual (or couple) who meets all nonresource eligibility requirements, but fails to meet the resources
requirement due solely to excess Non-liquid resources, can receive SSI benefits based on a “conditional”
exclusion of the excess Non-liquid resources (lasting nine months for real property, and up to six months for
personal property) if the individual/couple (or deemor) meets both of the following conditions:
Countable liquid resources do not exceed three times the applicable federal SSI benefit rate (e.g., $579/$869
x 3 = $1,737/$2,607 in 2005) for an individual/couple.
—The individual/couple agrees in writing to sell excess Non-liquid resources at their current market value
within a specified period and use the proceeds of sale to refund the conditional benefits (which are
considered overpayments) they received.
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Limit on
Exclusion
value or
length of
Description
time?
Jointly owned real property which cannot be
No
Excess real property which would otherwise be a resource is not a countable resource when it is jointly
sold without undue hardship (due to loss of
owned and sale of the property by an individual would cause the other owner undue hardship due to loss of
housing) to the other owner(s)
housing. Undue hardship would result when the property serves as the principal place of residence for one
(or more) of the other owners, sale of the property would result in loss of that residence, and no other
housing would be readily available for the displaced other owner (e.g., the other owner does not own
another house that is legally available for occupancy). However, if undue hardship ceases to exist, its value
will be included in countable resources.
Real property for so long as the owner’s
No
Real property that an individual has made reasonable but unsuccessful efforts to sell throughout a nine-
reasonable efforts to sell it are unsuccessful
month period of conditional benefits (see the”Non-liquid resources above the SSI resource limit” exclusion
described earlier in this table for an explanation of conditional benefits) will continue to be excluded for as
long as: (1) the individual continues to make reasonable efforts to sell it and (2) including the property as a
countable resource would result in a determination of excess resources. If the property is later sold, benefits
paid during the nine-month conditional benefits period are subject to recovery as overpayments. Benefits
paid beyond the nine-month period as a result of this exclusion are not subject to recovery as overpayments.
Restricted, allotted Indian land if the
No
In determining the resources of an individual (and spouse, if any) who is of Indian descent from a federally
Indian/owner cannot dispose of the land
recognized Indian tribe, any interest of the individual (or spouse, if any) in land which is held in trust by the
without permission of other individuals, his/her
United States for an individual Indian or tribe, or which is held by an individual Indian or tribe and which can
tribe, or an agency of the federal government
only be sold, transferred, or otherwise disposed of with the approval of other individuals, his or her tribe, or
an agency of the federal government is excluded.
Life insurance, depending on its face value
Yes
In determining the resources of an individual (and spouse, if any), life insurance owned by the individual (and
spouse, if any) will be considered to the extent of its cash surrender value. If, however, the total face value of
all life insurance policies on any person does not exceed $1,500, no part of the cash surrender value of such
life insurance will be taken into account in determining the resources of the individual (and spouse, if any). In
determining the face value of life insurance on the individual (and spouse, if any), term insurance and burial
insurance will not be taken into account.
Burial funds for an individual and/or his/her
Yes
In determining the resources of an individual (and spouse, if any) there shall be excluded an amount not in
spouse
excess of $1,500 each of funds specifically set aside for the burial expenses of the individual or the individual’s
spouse. This exclusion applies only if the funds set aside for burial expenses are kept separate from all other
resources not intended for burial of the individual (or spouse) and are clearly designated as set aside for the
individual’s (or spouse’s) burial expenses. If excluded burial funds are mixed with resources not intended for
burial, the exclusion will not apply to any portion of the funds. This exclusion is in addition to the burial
space exclusion.
Burial space or plot held for an eligible
No
In determining the resources of an individual, the value of burial spaces for the individual, the individual’s
individual, his/her spouse, or member of his/her
spouse or any member of the individual’s immediate family will be excluded from resources.
immediate family
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Limit on
Exclusion
value or
length of
Description
time?
Household goods and personal effects
No
Household goods are not counted as a resource to an individual (and spouse, if any) if they are: (1) items of
personal property, found in or near the home, that are used on a regular basis, or (2) items needed by the
householder for maintenance, use and occupancy of the premises as a home. Such items include but are not
limited to: furniture, appliances, electronic equipment such as personal computers and television sets,
carpets, cooking and eating utensils, and dishes.
Personal effects are not counted as resources to an individual (and spouse, if any) if they are: (1) items of
personal property ordinarily worn or carried by the individual, or (2) articles otherwise having an intimate
relation to the individual. Such items include but are not limited to: personal jewelry including wedding and
engagement rings, personal care items, prosthetic devices, and educational or recreational items such as
books or musical instruments. Items of cultural or religious significance and items required because of an
individual’s impairment also are not counted as resources to an individual. However, items that were
acquired or are held for their value or as an investment are counted as resources because they are not
considered to be personal effects. Such items can include but are not limited to: gems, jewelry that is not
worn or held for family significance, or collectibles. Such items will be counted as a resource.
(Prior to March 9, 2005, there were restrictions placed on the value of household goods and personal effects
that could be excluded from countable resources. See 70 Federal Register 6340, Feb. 7, 2005.
One automobile
No
One automobile is totally excluded regardless of value if it is used for transportation for the individual or a
member of the individual’s household. Any other automobiles are considered to be Non-liquid resources and
are counted as a resource.
(Prior to March 9, 2005, there were restrictions placed on the value of the automobile that could be
excluded from countable resources. See 70 Federal Register 6340, Feb. 7, 2005.
Property essential to self-support
Yes
When counting the value of resources an individual (and spouse, if any) has, the value of property essential to
self-support is not counted, within certain limits. There are different rules for considering this property
depending on whether it is income-producing or not. Property essential to self-support can include real and
personal property used in a trade or business, nonbusiness income-producing property, and property used
to produce goods or services essential to an individual’s daily activities. Liquid resources other than those
used as part of a trade or business are not property essential to self-support. If the individual’s principal place
of residence qualifies under the home exclusion, it is not considered in evaluating property essential to self-
support.
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Limit on
Exclusion
value or
length of
Description
time?
Resources excluded under this provision generally fall into three categories:
(1) Property excluded regardless of value or rate of return. This category encompasses:
—property used in a trade or business (effective 5/1/90);
—property that represents government authority to engage in an income producing activity;
—property used by an individual as an employee for work (effective 5/ 1/90); and
—property required by an employer for work (before 5/1/90).
(2) Property excluded up to $6,000 equity, regardless of rate of return. This category includes nonbusiness
property used to produce goods or services essential to daily activities. For example, it covers land used to
produce vegetables or livestock solely for consumption by the individual’s household.
(3) Property excluded up to $6,000 equity if it produces a 6% rate of return. This category encompasses:
—property used in a trade or business in the period before 5/1/90; and
—nonbusiness income-producing property. However, the exclusion does not apply to equity in excess of
$6,000 and does not apply if the property does not produce an annual return of at least 6% of the excluded
equity. If there is more than one potentially excludable property, the rate of return requirement applies
individually to each.
Resources of a blind or disabled person which
Yes
If the individual is blind or disabled, resources will not be counted that are identified as necessary to fulfill a
are necessary to fulfill an approved Plan for
plan for achieving self-support. A PASS must: (a) be designed especially for the individual; (b) be in writing; (c)
Achieving Self-Support (PASS)
be approved by the Social Security Administration (a change of plan must also be approved); (d) be designed
for an initial period of not more than 18 months. The period may be extended for up to another 18 months
if the individual cannot complete the plan in the first 18-month period. A total of up to 48 months may be
allowed to fulfill a plan for a lengthy education or training program designed to make the individual self-
supporting; (e) show the individual’s specific occupational goal; (f) show what resources the individual has or
will receive for purposes of the plan and how he or she will use them to attain his or her occupational goal;
and (g) show how the resources the individual set aside under the plan will be kept identifiable from his or
her other funds.
Stock held by native Alaskans in Alaska regional No
Shares of stock held by a native of Alaska (and spouse, if any) in a regional or village corporation were not
or village corporations
counted as resources during the period of 20 years in which the stock was inalienable (nontransferable).
Effective January 1, 1992, the stock became transferable and is treated as an excluded resource.
Federal disaster assistance received on account No
Assistance received under the Disaster Relief and Emergency Assistance Act or other assistance provided
of a presidentially declared major disaster,
under a federal statute because of a catastrophe which is declared to be a major disaster by the President of
including interest accumulated thereon
the United States or comparable assistance received from a state or local government, or from a disaster
assistance organization, is excluded in determining countable resources. Interest earned on the assistance is
excluded from resources.
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Limit on
Exclusion
value or
length of
Description
time?
Retained retroactive SSI or Social Security
Yes
In determining the resources of an individual (and spouse, if any), the unspent portion of any Title II (SSDI) or
Disability Insurance (SSDI) benefits
Title XVI (SSI) retroactive payment received on or after 3/2/04 is excluded from resources for the nine
calendar months following the month in which the individual receives the benefits. The unspent portion of
retroactive SSI and SSDI benefits received before 3/2/04 is excluded from resources for the six calendar
months following the month in which the individual receives the benefits.
Certain housing assistance
No
The value of any assistance paid with respect to a dwelling under: (1) the United States Housing Act of 1937;
(2) the National Housing Act; (3) Section 101 of the Housing and Urban Development Act of 1965; (4) Title
V of the Housing Act of 1949; or (5) Section 202(h) of the Housing Act of 1959 is excluded from resources.
Tax refunds related to the Earned Income Tax Yes
In determining the resources of an individual (and spouse, if any), any unspent federal tax refund or payment
Credit (EITC) and Child Tax Credit (CTC)
made by an employer related to an EITC that is received on or after 3/2/04 is excluded from resources for
the nine calendar months following the month the refund or payment is received. Any unspent federal tax
refund or payment made by an employer related to an EITC that is received before 3/2/04 is excluded from
resources only for the month following the month refund or payment is received.
Any unspent federal tax refund from a CTC that is received on or after 3/2/04 is excluded from resources
for the nine calendar months following the month the refund or payment is received. Any unspent federal tax
refund from a CTC that is received before 3/2/04 is excluded from resources only for the month following
the month the refund or payment is received. Interest earned on unspent tax refunds related to an EITC or a
CTC is not excluded from resources.
Victims’ compensation payments
Yes
In determining the resources of an individual (and spouse, if any), any amount received from a fund
established by a state to aid victims of crime is excluded from resources for a period of nine months
beginning with the month following the month of receipt. To receive the exclusion, the individual (or spouse)
must demonstrate that any amount received was compensation for expenses incurred or losses suffered as
the result of a crime.
State or local relocation assistance payments
Yes
Relocation assistance is provided to persons displaced by projects which acquire real property. In
determining the resources of an individual (or spouse, if any), relocation assistance provided by a state or
local government that is comparable to assistance provided under Title II of the Uniform Relocation
Assistance and Real Property Acquisition Policies Act of 1970 that is subject to the treatment required by
Section 216 of that act is excluded from resources for a period of nine months beginning with the month
following the month of receipt. Interest earned on unspent state or local relocation assistance payments is
not excluded from resources.
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Limit on
Exclusion
value or
length of
Description
time?
Dedicated financial institution accounts
No
In determining the resources of an individual (or spouse, if any), the funds in a dedicated financial institution
required for past-due benefits paid to disabled
account that is established and maintained for the payment of past-due benefits to disabled children will be
children
excluded from resources. This exclusion applies only to benefits which must or may be deposited in such an
account (specified in federal SSI regulations) and accrued interest or other earnings on these benefits. If these
funds are commingled with any other funds (other than accumulated earnings or interest) this exclusion will
not apply to any portion of the funds in the dedicated account.
Grants, scholarships, fellowships, and gifts used Yes
Effective June 1, 2004, there is a nine-month resource exclusion for grants, scholarships, fellowships, and gifts
to pay for educational expenses
used to pay for tuition, fees, and other necessary educational expenses at any educational institution,
including vocational and technical education.
Cash (including accrued interest) and in-kind
Yes
Cash (including any interest earned on the cash) or in-kind replacement received from any source for
replacement received from any source at any
purposes of repairing or replacing an excluded resource that is lost, damaged, or stolen is excluded as a
time to replace or repair lost, damaged, or
resource. This exclusion applies if the cash (and the interest) is used to repair or replace the excluded
stolen excluded resources
resource within nine months of the date the individual received the cash. Any of the cash (and interest) that
is not used to repair or replace the excluded resource will be counted as a resource beginning with the
month after the nine-month period expires. The initial nine-month time period will be extended for a
reasonable period up to an additional nine months if the individual is found to have had good cause for not
replacing or repairing the resource.
Certain items excluded from both income and Varies
In order for applicable payments and benefits received under a federal statute other than Title XVI of the
resources under a federal statute other than
Social Security Act (SSI) to be excluded from resources, the funds must be segregated and not commingled
the Social Security Act.
with other countable resources so that the excludable funds are identifiable.

Examples of excluded payments include those relating to: Agent Orange; Austrian Social Insurance;
Corporation for National and Community Service (CNCS) programs; Individual Development Accounts
(IDAs) funded by the Temporary Assistance for Needy Families (TANF) program; demonstration project
IDAs; Japanese-American and Aleutian restitution payments; energy assistance for low-income households;
victims of Nazi persecution; the Netherlands’ WUV program for victims of persecution; a Department of
Defense (DOD) program for certain persons captured and interned by North Vietnam; the Radiation
Exposure Compensation Trust Fund; the Ricky Ray Hemophilia Relief Fund; and veterans’ children with
certain birth defects.
(For more information on these and other excluded payments and benefits, see 20 CFR 416.1236 and
http://policy.ssa.gov/poms.nsf/lnx/0501130050.)
Source: Congressional Research Service (CRS), based on 20 CFR 416.1201-1266; Social Security Administration (SSA), Program Operations Manual System (POMS),
Excluded Resources, available at http://policy.ssa.gov/poms.nsf/lnx/0501110210!opendocument; SSA, POMS, Guide to Resources Exclusions, available at http://policy.ssa.gov/
poms.nsf/lnx/0501130050; and SSA, Social Security Handbook, What are the Resource Exclusions?, available at http://www.ssa.gov/OP_Home/handbook/handbook.21/
handbook-2156.html.
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ž?‘˜›ȱ˜—?ŠŒ?ȱ —?˜›–Š?’˜—ȱ

Julie Stone

Specialist in Health Care Financing
jstone@crs.loc.gov, 7-1386

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