On June 23, 2014, the Government Accountability Office (GAO) released its report, Financial Characteristics of Approved Applicants and Methods Used to Reduce Assets to Qualify for Medicaid, which Sens. Tom Coburn (R-OK) and Richard Burr (R-NC) and Reps. Darrell Issa (R-CA) and Trey Gowdy (R-SC) requested. The GAO report confirmed that about 95% of approved applicants for nursing home Medicaid benefits were either resource eligible when they applied or spent down their excess assets to the Medicaid resource limit,. i.e., $2,000. by paying nursing home costs. Only 5% of all approved applicants were found to have transferred assets for less than fair market value in order to qualify for nursing home Medicaid.

Long-term care, particularly nursing home care, can be costly; in 2012, the estimated average annual cost for an individual to receive care in a nursing home was over $85,000. (In New Jersey, nursing home costs are over $100,000 per year in many parts of the State.) Nursing home expenditures in the United States in 2012 amounted to $158 billion, more than half of the nation’s total spending for long-term care services. Medicaid—a joint federal-state health care financing program covering certain categories of low-income individuals—is the largest payer of long-term care services. As the number of elderly Americans continues to grow, more individuals are likely to need long-term care, and seek eligibility for Medicaid.

To be financially eligible for Medicaid, individuals cannot have assets above certain limits. (In New Jersey and many other Startes, a Medicaid applicant cannot own countable assets of more than $2,000.) Federal law discourages individuals from reducing their countable assets, for example by transferring them to family members, in order to qualify for Medicaid by imposing a penalty period, or period of ineligibility for Medicaid, based upon the fair market value of all assets transferred to others within 60 months, or 5 years, preceding the date the Medicaid application if filed. Although Congress has acted multiple times to address financial eligibility requirements for Medicaid coverage of nursing home care, methods exist through which individuals, sometimes with the help of attorneys, can reduce their assets and qualify for Medicaid. GAO was asked to investigate the extent to which individuals may be using available methods to qualify for Medicaid coverage.

GAO reviewed almost 300 approved Medicaid nursing home applications in 3 states. The survey showed that 41 percent of applicants had total resources—both countable and not countable as part of financial eligibility determination—of $2,500 or less. Another 44 percent of approved applicants had between $2,500 and $100,000 in total resources, and 14 percent of approved applicants had over $100,000 in total resources.

Of those applicants with resources exceeding the resource limit for Medicaid, only 5% were found to have transferred assets for less than fair market value during the look-back period using available methods to qualify for Medicaid coverage. All of the other applicants with resources above the Medicaid resource limit of $2,000 were found to have spent-down their assets to the $2,000 limit by paying nursing home costs.

Of the 5% of applicants who transferred assets for less than fair market value, the most common asset transferred was money. The median amount of assets transferred was $24,608. Applicants typically transferred assets to a child or grandchild. Among applicants found to have transferred assets, the median length of the penalty period assessed was nearly 4 months.

GAO identified four main methods used by applicants to reduce their countable assets—income or resources—in order to qualify for Medicaid:

1. Spending countable resources on goods and services that are not countable towards financial eligibility, such as pre-paid funeral arrangements;
2. Converting countable resources into non-countable resources that generate an income stream for the applicant, such as an annuity or promissory note;
3. Giving away countable assets as a gift to another individual—such gifts could lead to a penalty period that delayed Medicaid nursing home eligibility; and,
4. For married applicants, increasing the amount of assets a spouse remaining in the community can retain, such as through the purchase of an annuity.

The GAO report is annexed here – Financial Characteristics of Approved Applicants and Methods Used to Reduce Assets to Qualify for Medicaid

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