DEPARTMENT OF HEALTH & HUMAN SERVICES  
Centers for Medicare & Medicaid Services  
7500 Security Boulevard, Mail Stop S2-26-12  
Baltimore, Maryland 21244-1850  
  
 
 
Center for Medicaid and State Operations  
 July 27, 2006                   SMDL #06-018  
  
  
Dear State Medicaid Director:  
  
This is one of a series of letters that provides guidance on the implementation of the Deficit Reduction 
Act of 2005 (DRA) (Pub.L.109-171).  This legislation makes a number of changes in the rules related to 
eligibility and benefits in the Medicaid program.  This letter provides information for States regarding 
implementation of new rules related to the following DRA provisions:  
  
   Sections 6011 and 6016, pertaining to transfers of assets for less than fair market value, 
including:  
- Extension of the look-back period to 60 months  
- Start date of the penalty period  
- Partial month transfers  
- Option to combine multiple transfers made in more than one month  
- Purchase of promissory notes, loans, or mortgages  
- Purchase of life estates  
- Undue hardship  
 
  Section 6012, pertaining to treatment of annuities, including:  
- Disclosure of interest in an annuity  
- Requirement to name the State as a remainder beneficiary  
- Applications for coverage of long-term care services in section 1634 States  
- Consideration of income and resources from an annuity  
- Annuity-related transactions other than purchases  
- Requirement to name the State as a remainder beneficiary on annuities  
- Annuities purchased by or on behalf of an annuitant who applied for medical  assistance  
 
  
   Section 6013, pertaining to application of the income first rule under spousal 
impoverishment.  
 
  
   Section 6014, pertaining to disqualification for long-term care coverage for individuals with 
substantial home equity.  
 
  
   Section 6015, pertaining to the treatment of continuing care retirement community (CCRC) 
entrance fees.    Page 2 - State Medicaid Director  
 
 
These provisions are discussed in detail in a series of enclosures to this letter.  The changes modify 
various portions of the Federal Medicaid statute related to the topics shown above.  However, many 
provisions of the statute are not changed by the DRA.  In implementing the DRA, States should note 
that unless specifically amended, existing law will govern the topics shown above, and prior policy 
guidance issued by the Centers for Medicare & Medicaid Services is applicable.  
  
Effective Date 
  
Most, but not all, of the changes made by the DRA are effective upon the date of enactment, February 8, 
2006.  Please see the individual enclosures for information about the effective dates of specific 
provisions.   
  
If you have any questions, please contact Gale Arden, Director, Disabled & Elderly Health Programs 
Group at 410-786-6810 or by e-mail at Gale.Arden@cms.hhs.gov .  
  
We look forward to working with you as you implement this legislation.  
  
Sincerely,  
  
 /s/ 
  
Dennis G. Smith  
Director  
  
Enclosures  
  
cc:  
  
CMS Regional Administrators  
  
CMS Associate Regional Administrators  
    for Medicaid and State Operations  
  
Martha Roherty       
Director, Health Policy Unit  
American Public Human Services Association  
  
Joy Wilson  
Director, Health Committee  
National Conference of State Legislatures  
  
Matt Salo  
Director of Health Legislation  
National Governors Association  
  
  
   Page 3 - State Medicaid Director  
  
Jacalyn Bryan Carden  
Director of Policy and Programs  
Association of State and Territorial Health Officials  
  
Christie Raniszewski Herrera  
Director, Health and Human Services Task Force  
American Legislative Exchange Council  
  
Lynne Flynn  
Director for Health Policy  
Council of State Governments