DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
 
 
             
SMDL #14-001 
            ACA #29 
 
February 21, 2014 
 
RE:   Application of Liens, Adjustments and 
Recoveries, Transfer-of-Asset Rules and Post-
Eligibility Income Rules to MAGI Individuals  
 
 
Dear State Medicaid Director:  
 
This letter provides guidance to states on how the long-term services and supports-related rules, 
including the estate recovery rules, in section 1917 of the Social Security Act (the Act), and 
federal regulations at 42 C.F.R. 435.700, et seq., apply to individuals who are eligible for 
Medicaid under Modified Adjusted Gross Income (MAGI) eligibility rules (MAGI 
individuals) and receive coverage for long-term services and supports (LTSS). The vast 
majority of people in need of Medicaid-covered LTSS will qualify under eligibility categories 
related to age or disability. The MAGI rules do not apply to these categories, and states generally 
are not required to offer LTSS in the Alternative Benefit Plans (ABPs) that are available to 
MAGI individuals. However, some people who need LTSS may qualify for Medicaid under 
MAGI rules. In particular, MAGI individuals who are medically frail or otherwise meet one of 
the benefit plan exceptions listed in 42 C.F.R. 440.315 must be offered the option of a benefit 
plan that includes Medicaid state plan services. For most adult beneficiaries receiving state plan 
services, medically necessary nursing facility and home health services must be covered. 
Additionally, some states have chosen to include LTSS in their ABPs. 
 
Section 1902(e)(14) of the Act directs that individuals whose Medicaid eligibility is determined 
using MAGI rules are not subject to an assets or resources test for purposes of determining 
Medicaid eligibility. However, a number of other statutory provisions are implicated when an 
individual seeks Medicaid coverage for LTSS. These provisions do not affect eligibility for 
Medicaid and they are not limited in their application based on the category under which a 
Medicaid LTSS applicant is eligible or the methodology applied to determine an applicants 
eligibility.  States have inquired as to whether the various Medicaid LTSS rules, including the 
estate recovery rules, will apply to MAGI individuals who are eligible for LTSS coverage. This 
guidance is intended to address these questions.1 
                                                 
1 This letter does not change rules and policies expressed in existing guidance relevant to the application of section 
1917s rules to non-MAGI individuals.   Page 2  State Medicaid Directors  
 
A.  Section 1917 of the Act (Liens, Adjustments and Recoveries, and Transfers of 
Assets) 
 
Under section 1902(a)(18) of the Act, a state must comply with the provisions of section 1917. 
Section 1917, which is a long-standing provision that preceded enactment of the Affordable Care 
Act, contains several provisions that apply specifically in circumstances in which Medicaid 
applicants and beneficiaries seek LTSS coverage. The provision governs a states authority and 
responsibility to seek recovery of LTSS expenditures from Medicaid LTSS beneficiaries or their 
estates, and prohibits LTSS coverage where individuals have engaged in certain financial 
transactions before seeking LTSS coverage or have interests in certain assets.   
 
With some exceptions, described below, application of section 1917 is not limited based on the 
eligibility categories in which Medicaid beneficiaries who seek LTSS coverage are enrolled or 
the methodologies applied to determine their eligibility. As such, most of the rules of section 
1917 will apply to MAGI individuals who request Medicaid coverage for LTSS.  
 
1.   Section 1917(a): Medicaid Liens 
 
Section 1917(a)(1)(B) permits states to place liens, subject to certain exceptions, on real property 
owned by a Medicaid beneficiary who is an inpatient of a nursing facility, intermediate care 
facility for the developmentally disabled, or other medical institutions, where the individual is 
receiving Medicaid coverage for the institutional services where certain other conditions apply. 
 
One of the other conditions is that the Medicaid beneficiary has to be required, as a condition of 
receiving services in the institution, to spend for costs of medical care all but a minimal amount 
of his or her income for personal needs.  The rules for post-eligibility treatment of income 
(PETI) are contained in 42 C.F.R. 435.700 et seq., which identify discrete categories of 
individuals who are subject to the PETI rules.  MAGI individuals are not described in these 
provisions, and as such, these rules may not be applied to MAGI individuals under the current 
regulations. As a result, MAGI individuals who receive coverage for LTSS may not have liens 
placed on their real property at this time (see below for a broader discussion regarding the PETI 
rules).   
 
2.   Section 1917(b): Estate Recovery 
 
Under section 1917(b)(1)(A), states are required to seek recovery, for Medicaid beneficiaries 
whose real property may be subject to a lien authorized under section 1917(a)(1)(B), from the 
estates of such individuals for amounts equal to the medical assistance correctly paid on their 
behalf.  Under section 1917(b)(1)(B), states must also seek recovery, for Medicaid beneficiaries 
who were 55 years old and older when they received medical assistance, from the estates of such 
individuals for amounts at least equal to medical assistance paid on their behalf for nursing 
facility services, home and community based services (HCBS), and related hospital and 
prescription drug services, or, at state option, for any other items and services under the state 
plan (with the exception of Medicare cost-sharing).  
  Page 3  State Medicaid Directors  
 
For the first groupthose whose real property may be subject to a lienthe prior application of 
the post-eligibility income rules under 42 C.F.R. 700 et seq. is a contingency, as the group in 
section (b)(1)(A) is made up exclusively of individuals who are described in the lien provision of 
1917(a)(1)(B). Therefore, a state may not recover from the estates of MAGI individuals under 
this authority. 
 
For the second groupthose who were 55 years old or older when they received medical 
assistance and are described in 1917(b)(1)(B)the rule is not limited in its application to 
individuals who were subject to post-eligibility income rules, or to individuals who received 
services to which the post-eligibility income rules apply (i.e., institutional services and HCBS). 
MAGI individuals who were 55 years old or older when they received medical assistance are 
therefore not exempt from the estate recovery provision in section 1917(b)(1)(B), although all of 
the estate recovery limitations and exceptions described in other parts of section 1917(b), 
including those described in section 1917(b)(2), and the exception in situations of undue 
hardship described in section 1917(b)(3)(A), apply.  
 
Due to the potential barrier to enrollment that future estate recovery may create for some 
individuals, CMS intends to thoroughly explore options and to use any available authorities to 
eliminate recovery of Medicaid benefits consisting of items or services other than long term care 
and related services in the case of individuals who are determined eligible for Medicaid benefits 
using the MAGI methodology. 
 
In the meantime, states have some existing authority to limit the scope of recovery for Medicaid 
beneficiaries.  They may limit recovery based on the eligibility categories in which the 
beneficiaries are enrolled; for example, a state may limit estate recovery to the services under 
section 1917(b)(1)(B)(i) for people enrolled in the new adult group  that is those relating to 
LTSS.   Furthermore, in view of the federal governments unique trust responsibility for the 
American Indian/Alaska Native (AI/AN) population, the State Medicaid Manual provides 
specific exemptions from estate recovery that are applicable to this population.  In addition to 
complying with these manual provisions, states may also want to take into consideration other 
situations in which estate recovery would present undue hardship to the AI/AN population when 
establishing exemptions as permitted in section 1917(b)(3)(A) and noted above. 
 
3.   Section 1917(c): Transfers of Assets 
 
Section 1917(c) prescribes certain rules where individuals who are seeking Medicaid coverage 
for LTSS have transferred assets for less than fair market value before, and subsequent to, 
applying for Medicaid. Specifically, this provision requires that, if an institutionalized individual, 
or the spouse of an institutionalized individual (or, at state option, a non-institutionalized 
individual or the spouse of a non-institutionalized individual) disposes of assets for less than fair 
market value on or after the individuals look-back date, the individual is ineligible for medical 
assistance for institutional services (or other LTSS). A penalty period based on the number of 
months equal to the amount transferred for less than fair market value divided by the average 
monthly cost to a private patient of nursing facility services in the state is applied. Exceptions, 
such as where an individual makes a transfer to a spouse or for a purpose other than to qualify 
for Medicaid, do apply. In the absence of an exception, however, the penalty period applies.   Page 4  State Medicaid Directors  
 
 
An institutionalized individual is defined in section 1917(h)(3) to include an inpatient of a 
nursing facility or other medical facility in which payment is being made based on the level-of-
care provided in a nursing facility, and an individual receiving any service under section 1915(c) 
who is eligible under section 1902(a)(10)(A)(ii)(VI).  The latter group, sometimes referred to as 
the 217 group (after the groups corresponding regulatory cite, 42 C.F.R. 435.217), is 
composed of individuals who are only eligible for Medicaid based on the application of 
institutional deeming rules (and who meet the level of care necessary for a HCBS waiver and are 
receiving at least one waiver service).  
 
Non-institutionalized individuals are defined in section 1917(h)(4) to include recipients of 
personal care services, home health services, and, at state option, other non-institutional LTSS 
services available under the state plan to individuals who need LTSS. The word assets is 
defined in section 1917(h)(1) to include all income and resources of the individual and the 
individuals spouse, including any income or resources which the individual or individuals 
spouse is entitled to but does not receive because of action by the individual, the individuals 
spouse, or others acting on their behalf.   
 
As noted above, section 1902(e)(14) provides that individuals whose Medicaid eligibility is 
determined using MAGI rules may not have any any assets or resources test applied for 
purposes of determining Medicaid eligibility.  The directive applies only to Medicaid eligibility 
determinations for MAGI individuals.  By contrast, section 1917(c) applies to coverage for 
certain servicesnursing facility services and other LTSSin circumstances where Medicaid 
applicants have transferred assets for less than fair market value.  Considering this, and the fact 
that, outside of the reference to the 217 group in the definition of institutionalized individuals, 
the application of the transfer rules in section 1917(c) is not limited by the eligibility category in 
which a Medicaid beneficiary is enrolled or the methodology by which the individuals 
eligibility is determined, we have concluded that the transfer rules should apply to MAGI 
individuals who meet the definition of institutionalized individuals, and to non-
institutionalized individuals in states that have opted to apply the transfer rules to non-
institutionalized individuals.  
 
This provision applies only to individuals who receive Medicaid funding for LTSS. All of the 
limitations and exceptions to the transfer rules described in section 1917(c)(2) would apply.   
 
4.  Other Provisions of section 1917 
 
Section 1917 contains several other rules that are relevant in the context of coverage for LTSS.  
 
Annuities, promissory notes, and life estate interests 
 
Like the broader rules of section 1917(c), the rules imposed to these transactions are generally 
not limited to individuals who qualify under particular eligibility categories or have their 
eligibility determined under a particular methodology. Therefore, states should apply the rules 
relating to these transactions to MAGI individuals in the same way the rules are applied to non-
MAGI individuals.    Page 5  State Medicaid Directors  
 
Trusts 
 
Section 1917(d) outlines the Medicaid rules for evaluating trusts that are established with the 
assets of a Medicaid applicant or beneficiary. Generally, a revocable trust funded by a Medicaid 
applicants or beneficiarys assets is considered an available resource to the individual, while 
irrevocable trusts are considered asset transfers that require determinations of whether fair 
market value was received in exchange. Certain trusts that meet specific criteria in section 
1917(d)(4) (e.g., special needs trusts and pooled trusts) are generally exempt from these standard 
rules, even if irrevocable, and are instead generally evaluated under cash assistance program 
rules (e.g., SSI rules), although these trusts are not in all circumstances exempt from the transfer 
rules. 
 
The trust rules are not limited in their application to the eligibility categories under which 
Medicaid applicants are eligible or the methodologies used to determine their eligibility. Thus, 
states will have to confirm whether a MAGI individual who requests coverage for LTSS 
established a trust using his or her assets on or after the individuals look-back date, and evaluate 
such trusts under existing rules. As with non-MAGI individuals, under section 1917(d)(5), states 
must also waive application of the trust rules for MAGI individuals where the application of the 
rules will result in an undue hardship.  
 
Home Equity Rule 
 
Section 1917(f) provides that, in determining eligibility for medical assistance for nursing 
facility services or other LTSS, the individual may not be eligible for such assistance if the 
individuals home equity exceeds, for 2014, $543,000, or, at state option, $814,000 (i.e., the 
states home equity limit cannot be lower than $543,000, but it may be as high as $814,000).  
Section 1917(f) directs that the figures be increased from year to year based on the percentage 
increase in the consumer price index for all urban consumers.  
 
Under section 1917(f)(2), the home equity-related limitation on medical assistance for nursing 
facility services and other LTSS does not apply if the spouse of the individual, or a child of the 
individual who is under the age of 21 or has a disability, is living in the home. Under section 
1917(f)(4), the limitation is also waived in cases of demonstrated hardship. 
 
The home equity rule is not limited in its application by the eligibility category in which an 
individual is enrolled or the methodology on which the individuals eligibility is based.  
Therefore, states must deny LTSS coverage to MAGI individuals whose home equity exceeds 
the limit identified in the Medicaid state plan, subject to the exceptions identified in section 
1917(f).  
 
B.   Post-Eligibility Treatment of Income 
 
A state Medicaid agency is required to reduce its costs using available beneficiary income for 
coverage of institutional services and home and community-based waiver services provided to 
most Medicaid beneficiaries. The states costs are reduced generally by the amount of available 
income the institutionalized Medicaid beneficiary or waiver enrollee has after deductions for the  Page 6  State Medicaid Directors  
 
personal needs of the individual, the maintenance needs of the individuals spouse or family, and 
certain other expenses are made.  The process by which the individuals available income is 
calculated is referred to as the post-eligibility treatment of income (PETI).  
 
Section 1902(a)(17) of the Act is the general authority for the post-eligibility income calculation 
process. The specific method of the calculation is established in 42 C.F.R. 435.700, et seq., for 
categorically needy Medicaid enrollees, and 435.832 for medically needy individuals.  Regarding 
categorically needy Medicaid enrollees, 42 C.F.R. 435.725 (for SSI states) and 435.733 (for 
209(b) states) identify the specific categories to which the post-eligibility rules apply. These 
categories all apply the financial methodologies of the SSI and AFDC cash assistance programs 
to determine eligibility for Medicaid beneficiaries enrolled in them.  
 
Because of the connection in the post-eligibility regulations between the cash assistance 
programs and the discrete categories to which the regulations direct their application, we have 
concluded that the scope of the current post-eligibility regulations does not capture Medicaid 
beneficiaries whose eligibility is based on MAGI methodologies. We believe, however, that the 
statute provides us the authority to expand the reach of the post-eligibility regulations to include 
MAGI individuals who receive coverage for LTSS, and because there are equity reasons to 
consider the application of these rules to the MAGI-eligible people receiving LTSS, we are 
considering rulemaking in this case. 
 
We intend to work closely with states to conform their rules and procedures in accordance with 
the instructions in this letter. Questions regarding the lien or estate recovery rules should be 
directed to Barbara Edwards, Director of the Disabled and Elderly Health Programs Group, at 
(410) 786-0325. For all other issues addressed in this letter, please contact Eliot Fishman, 
Director of the Children and Adults Health Programs Group, at (410) 786-9535.  
 
 
 
Sincerely,  
 
            /s/ 
 
Cindy Mann  
Director 
 
cc:  
 
CMS Regional Administrators  
 
CMS Associate Regional Administrators  
Division of Medicaid and Childrens Health Operations 
 
Ron Smith  
Director of Legislative Affairs  
American Public Human Services Association   Page 7  State Medicaid Directors  
 
Matt Salo  
President 
National Association of Medicaid Directors  
 
Joy Wilson  
Director, Health Committee  
National Conference of State Legislatures  
 
Melinda J. Becker 
Senior Legislative Associate 
Committee on Health and Homeland Security 
National Governors Association 
 
Debra Miller  
Director for Health Policy  
Council of State Governments  
 
Christopher Gould 
Director, Government Relations  
Association of State and Territorial Health Officials  
 
Alan R. Weil, J.D., M.P.P.  
Executive Director  
National Academy for State Health Policy