As many readers know, Medicaid applicants are subject to the imposition of a penalty, or a period of ineligibility for Medicaid, when gifts, called “transfers for less than fair market value” in the regulations, are made at any time during the five year period prior to the date on which the Medicaid application is filed, called the “look-back” period. However, when all gifts made during the look-back period are returned to the Medicaid applicant (which family members sometimes do when the impact of the gifts on the applicant’s Medicaid eligibility becomes apparent), Medicaid regulations require that a retroactive adjustment be made, including erasure of the penalty, back to the beginning of the penalty period. Similarly, when only a part or portion of the gifted asset or its equivalent value is returned, the penalty period is modified but not eliminated. Medicaid has historically treated this as a pro rata penalty. For example, if only half the value of the gifted asset is returned, the penalty period is reduced by one-half.
The above rules regarding the effect of a return of all or a portion of the gifts made by a Medicaid applicant on the applicant’s eligibility for Medicaid are contained in a variety of statutes and regulations. For example, the United States Code, 42 U.S.C.A. §1396p(c)(2)(C)(iii) provides, in part, as follows:
[I]f an institutionalized individual or the spouse of such an individual … disposes of assets for less than fair market value on or after the look-back date … , the individual is ineligible for medical assistance for services… [, but] … [a]n individual shall not be ineligible for medical assistance … to the extent that … all assets transferred for less than fair market value have been returned to the individual … .
Similarly, the State Medicaid manual §3258.10 published by the federal Center for Medicare and Medicaid Services (CMS) provides that:
[A] penalty for transferring an asset for less than fair market value is not assessed if a satisfactory showing is made to the State that … [a]ll of the assets transferred for less than fair market value have been returned to the individual… .
* * *
When all assets transferred are returned to the individual, no penalty for transferring assets can be assessed. In this situation, you must ensure that any benefits due on behalf of the individual are, in fact, paid. When a penalty has been assessed and payment for services denied, a return of the assets requires a retroactive adjustment, including erasure of the penalty, back to the beginning of the penalty period.
However, such an adjustment does not necessarily mean that benefits must be paid on behalf of the individual. Return of the assets in question to the individual leaves the individual with assets which must be counted in determining eligibility during the retroactive period. Counting those assets as available may result in the individual being ineligible for Medicaid for some or all of the retroactive period, (because of excess income/resources) as well as for a period of time after the assets are returned.
It is important to note that, to void imposition of a penalty, all of the assets in question or their fair market equivalent must be returned. If, for example, the asset was sold by the individual who received it, the full market value of the asset must be returned to the transferor, either in cash or another form acceptable to the State.
When only part of an asset or its equivalent value is returned, a penalty period can be modified but not eliminated. For example, if only half the value of the asset is returned, the penalty period can be reduced by one-half.
Interpretation of state law by New Jersey’s state Medicaid agency has yielded the same result when considering the effect of returned gifts. Comment 7 to the 2001 revision to the Medicaid rules by the Division of Medical Assistance and Health Services provides as follows:
Return of Transferred Assets—Effect on Penalty Period
COMMENT: N.J.A.C. 10:71-4.10 should set forth the Federal rule at 42 U.S.C.A. § 1396p(c)(2) that there is no transfer penalty when all assets which are transferred for less than fair market value are returned. If only a portion of the assets are returned, Medicaid has historically treated this as a pro rata penalty. Similarly, exempt treatment should be given to transfers where the assets are spent for the care of the transferor. (UCLS)
RESPONSE: Federal standards at 42 U.S.C.A. § 1396p(c)(2)(C)(iii) specify that when “all assets transferred for less than fair market value have been returned to the individual,” an individual shall not be ineligible for medical assistance for the reasons specified in 42 U.S.C.A. § 1396p(c)(1). Both the Federal law and the State Medicaid Manual (section 3258.10.C.3.) provide that, in order to avoid the imposition of a penalty, all the assets must be returned. When a part of an asset has been returned, the penalty can be modified proportionally, but not eliminated. Transfers where the assets are spent for the medically necessary care of the transferor are exempted. The Division will propose amendments to N.J.A.C. 10:71-4.10(b)3 to include specific provisions related to returned assets.
Other federal public benefit programs with similar rules against gifting assets have also permitted the elimination or abatement of a penalty period when all or a portion of gifted assets were returned to program applicants. In that regard, the regulations governing the Supplemental Security Income (SSI) program specifically direct the Social Security Administration to partially abate a penalty when a gift is partially returned:
POMS SI 01150.124 Exceptions — Transferred Resource Returned
If the individual transfers a resource and the entire resource is returned in the same month, the period of ineligibility does not apply. If the individual transfers a resource and the entire resource is returned in a subsequent month, the period of ineligibility continues through the month the resource is returned (even if the resource is returned on the first day of the month) …
If the entire resource is not returned, the period of ineligibility does not end. Instead, recompute the uncompensated value based on how much of the resource was not returned. Then, recompute the period of ineligibility based on the adjusted uncompensated value. If additional funds are subsequently returned, it will be necessary to recompute the uncompensated value again…
Example 1: Ms. Jones files for SSI on 8/6/00 and alleges ownership of 50 shares of stock worth $5,000. She learns that the stocks would make her ineligible for SSI due to excess resources, so she gives all 50 shares to her brother on 8/9/00. She returns to the field office and alleges that she no longer owns the stocks. The field office determines that she transferred the stocks for less than fair market value and determines that she is ineligible due to excess resources in 8/00, and subject to a period of ineligibility beginning in 9/00 based on $5,000 uncompensated value.
On 10/5/00 Ms. Jones returns to the field office and reports that the stocks were returned to her on 10/3/00. After reviewing the evidence, the field office determines that 15 shares of stock worth $1,850 had been returned to Ms. Jones. Since the entire resource was not returned, Ms. Jones does not meet the exception to the period of ineligibility. The field office recomputes the uncompensated value ($5,000 minus $1,850 = $3,150) and uses the new, lower uncompensated value to recompute the period of ineligibility. The recomputed period of ineligibility would have the same beginning date, but it would have fewer months due to the lower uncompensated value.
Example 2: Ms. Green files for SSI on 12/5/99 and gives her son $5,300 in stock certificates on 12/21/99. The field office determines that she has a period of ineligibility of 10 months ($5,300 divided by $500 = 10.6). The 1999 Federal benefit rate (FBR) ($500) is applicable… . Ms. Green is determined to be ineligible for SSI from 1/00-10/00. However, in 7/00 her son returns $2,800 of the certificates to Ms. Green. It is necessary to recompute the period of ineligibility based on uncompensated value of $2,500 ($5,300 minus $2,800). The CR determines that the period of ineligibility is only 5 months ($2,500 divided by $500). However, her period of ineligibility continues through 7/00—the month that the resource was returned. She is potentially eligible for SSI as of 8/00 if she meets all other requirements for eligibility.
Notwithstanding this legal support, New Jersey has recently substantially changed the rules governing gifts returned to Medicaid applicants. On May 26, 2010 the State issued Medicaid Communication No. 10-02 which provides that no adjustments to the penalty period resulting from a gift made within the look-back period can be made unless all assets gifted during the look-back period are returned to the Medicaid applicant. Thus, where less than all gifts are returned, the penalty must be calculated based upon all gifts made (including returned gifts).
The new Medicaid Communication concerning the partial return of gifts made by a Medicaid applicant during the look-back period is annexed here – Medicaid Communication 10-02
UPDATED ON JULY 20, 2010: Yesterday, the State of New Jersey issued Medicaid Communication 10-06, a clarification of Medicaid Communication 10-02. Med. Comm. 10-06 repeats Med. Comm. 10-02, but adds:
A partial return of assets may have resulted in a reduced penalty period for Medicaid applications filed prior to May 26, 2010 where assets were partially returned prior to May 26, 2010.
The State is apparently grandfathering pending cases under the old rules.
The new Medicaid Communication is annexed hereto: Medicaid Communication 10-06 – Clarification of Medicaid Communication 10-02
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