MEDICAID

Financial 

Characteristics of 

Approved Applicants 

and Methods Used to 

Reduce Assets to

Qualify for Nursing 

Home Coverage

Report to Congressional Requesters

May 2014

GAO-14-473

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-473, a report to 

congressional requesters

May 2014

MEDICAID

Financial Characteristics of Approved Applicants and 

Methods Used to Reduce Assets to Qualify for 

Nursing Home Coverage

Why GAO Did This Study

Medicaid paid for nearly one-third of 

the nation’s $158 billion in nursing 

home expenditures in 2012. To be 

financially eligible for Medicaid, 

individuals cannot have assets above 

certain limits. Not all assets are 

countable in determining Medicaid 

eligibility; federal law discourages 

individuals from reducing their 

countable assets, for example by 

transferring them to family members, to 

qualify for Medicaid. 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 for information on the 

extent to which individuals may be 

using available methods to qualify for 

Medicaid coverage. GAO (1) examined 

financial characteristics of applicants 

approved for Medicaid nursing home 

coverage in selected states; 

(2) identified methods used to reduce 

countable assets to qualify for 

Medicaid; and (3) identified information 

eligibility workers consider the most 

useful in assessing applicants’ financial 

eligibility. GAO analyzed a random, but 

nongeneralizeable, sample of Medicaid 

nursing home applications in two 

counties in each of three states 

(Florida, New York, and South 

Carolina), selected based on several 

factors including states’ asset 

verification efforts and demographics. 

GAO also interviewed officials from the 

Centers for Medicare & Medicaid 

Services, state Medicaid officials, 

county-based Medicaid eligibility 

workers, and attorneys.

What GAO Found

GAO’s review of 294 approved Medicaid nursing home applications in three 

states 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 

and 14 percent had over $100,000 in total resources.

Distribution of Approved Applicants in Selected Counties in Three States by Amount of Total 

Resources (n=294)

Note: Data were from applications submitted during state fiscal year 2012 or between July 1, 2012, 

and December 31, 2012. Amount of resources may be understated as the value of certain resources

was not available. For two applicants, no values were available, thus percentages do not add to 100.

Nearly 75 percent of applicants owned some noncountable resources, such as 

burial contracts; the median amount of noncountable resources was $12,530.

GAO identified four main methods used by applicants to reduce their countable 

assets—income or resources—and qualify for Medicaid coverage:

1. spending countable resources on goods and services that are not countable 

towards financial eligibility, such as prepaid funeral arrangements;

2. converting countable resources into noncountable 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 delays Medicaid nursing home coverage; 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.

Eligibility workers GAO spoke with identified bank statements as the most useful 

source of information for assessing financial eligibility. They explained that bank 

statements could lead to the identification of unreported assets, such as life

insurance policies, or show patterns of withdrawals that prompt further inquiry.

The Department of Health and Human Services provided technical comments on 

a draft of this report, which GAO incorporated as appropriate.

View GAO-14-473. For more information, 

contact Carolyn L. Yocom at (202) 512-7114 

or yocomc@gao.gov.
Page i GAO-14-473 Medicaid Nursing Home Financial Eligibility

Letter 1 

Background 6

Files Reviewed Showed 41 Percent of Approved Applicants Had 

Total Resources at or below $2,500, and 5 Percent Transferred 

Assets 14

Applicants Used Four Main Methods to Reduce Countable Assets 

and Qualify for Medicaid 24

Eligibility Workers Considered Bank Statements the Most Useful 

Source to Identify and Verify Applicants’ Financial Eligibility 33

Agency Comments 36

Appendix I Summary of Application Files Reviewed in Selected Counties in 

Three States 37

Appendix II Scope and Methodology 40

Appendix III Contact and Staff Acknowledgments 47

Tables

Table 1: Types of Assets and Examples 8

Table 2: Income and Resource Standards for Selected Ways of 

Becoming Eligible for Medicaid Coverage, as of 2014 9

Table 3: Summary of Selected Provisions Regarding Transfers of 

Assets in the Deficit Reduction Act of 2005 (DRA) 13

Table 4: Number of Approved Applicants in Selected Counties in 

Three States that Owned Resources, and the Value of 

Resources Owned, by Type of Resource 17

Table 5: Amount of Nonhousing Resources and Monthly Income 

Support Retained by the Community Spouse in Cases of 

Spousal Refusal, for Approved Applicants in Selected 

Counties in Three States 31

Table 6: Characteristics of Applicants Reviewed in Selected 

Counties in Three States (n=350) 37

Table 7: Groups Used for State Sample Selection 41

Table 8: Selected States and Counties 42

Table 9: Number of Files Reviewed, by Selected State and County 43

Contents
Page ii GAO-14-473 Medicaid Nursing Home Financial Eligibility

Figures

Figure 1: Distribution of Approved Applicants in Selected Counties 

in Three States by Amount of Total Resources (n=294) 16

Figure 2: Distribution of Approved Applicants in Selected Counties 

in Three States by Amount of Noncountable Resources 

(n=195) 19

Figure 3: Proportion of Resources that Were Countable as Part of 

Applicants’ Financial Eligibility Among Approved 

Applicants in Selected Counties in Three States, by Type 

of Resource 21

Figure 4: Distribution of Approved Applicants in Selected Counties 

in Three States by Annual Gross Income 23

Figure 5: Application Status of Medicaid Applicants Reviewed in 

Selected Counties in Three States (n=350) 39

Abbreviations

AVS asset verification system

CMS Centers for Medicare & Medicaid Services

DRA Deficit Reduction Act of 2005

FMV fair market value

HHS Department of Health and Human Services

SSI Supplemental Security Income

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Page 1 GAO-14-473 Medicaid Nursing Home Financial Eligibility

441 G St. N.W.

Washington, DC 20548

May 22, 2014

The Honorable Tom Coburn, M.D.

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Richard Burr

Ranking Member

Subcommittee on Primary Health and Aging

Committee on Health, Education, Labor, and Pensions

United States Senate

The Honorable Darrell Issa

Chairman

Committee on Oversight and Government Reform

House of Representatives

The Honorable Trey Gowdy

House of Representatives

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 $85,000.1

 

1

MetLife Mature Market Institute, Market Survey of Long-Term Care Costs (New York, 

N.Y.: November 2012). In addition to nursing home services, other health care services for 

long-term care include home health, personal care services, assisted living, and 

noninstitutional group living arrangements.

In that same year, nursing home 

expenditures in the United States 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 and accounted for 32 percent of nursing home expenditures 

in 2012. As the number of elderly Americans continues to grow and more 

individuals are likely to need long-term care, Medicaid spending for

nursing home care is projected to increase, placing additional burden on 

already strained federal and state resources.
 

Page 2 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Medicaid offers health care coverage, including coverage for long-term 

care services, to individuals whose assets—both income and resources—

are insufficient to meet the costs of necessary medical services.2

Individuals applying for Medicaid coverage for long-term care must meet 

certain financial and functional eligibility criteria.3

As the day-to-day administrators of the Medicaid program, states are 

responsible for assessing applicants’ financial eligibility for Medicaid 

coverage for long-term care; that is, determining whether an applicant’s 

countable income and resources are below the state-established 

standards, and whether an applicant transferred assets for less than FMV 

during the look-back period. The processing of Medicaid applications is 

generally performed by local or county-based eligibility workers. Our 

previous work found that, to determine eligibility, states generally required 

applicants to submit applications and provide documentation of certain 

To meet the financial 

eligibility criteria, individuals must have assets that fall below established 

standards, which vary by state, but are within standards set by the federal 

government. Not all assets are countable in determining financial 

eligibility for Medicaid. For example, states generally exclude—within

specified limits—the value of an individual’s primary residence, car, and 

prepaid burial arrangements. Additionally, federal law includes provisions 

to discourage individuals from reducing their countable assets—for 

example, by transferring them to family members—in order to establish 

financial eligibility for Medicaid coverage. Specifically, those who transfer 

assets for less than fair market value (FMV) during a specified “look-back” 

period—a period of time before applying for Medicaid in which an 

individual’s or couple’s assets are reviewed—may be deemed ineligible 

for Medicaid coverage for long-term care for a period of time called the 

penalty period.

 

2

Assets include income, which is anything received during a calendar month that is used 

or could be used to meet food or shelter needs; and resources, which are anything owned, 

such as bank accounts or property, that can be converted to cash. This terminology is 

based on definitions provided in The State Medicaid Manual issued by the Centers for 

Medicare & Medicaid Services, which specifies that assets include both income and 

resources.

3

This report focuses on financial eligibility. Individuals applying for Medicaid coverage for 

long-term care must also meet functional eligibility criteria established by each state. 

Functional eligibility criteria generally involve a degree of impairment measured by 

limitations in an individual’s ability to carry out certain activities of daily living, such as 

eating and dressing; and instrumental activities of daily living, such as preparing meals 

and grocery shopping.
 

Page 3 GAO-14-473 Medicaid Nursing Home Financial Eligibility

assets. States varied, however, in the amount of documentation required 

from applicants, the information they obtained from third parties to verify 

the accuracy of applicants’ reported assets,4 and in the proportion of 

applicants whom they identified as having transferred assets for less than 

FMV during the look-back period.5 Some of the variation we found raised 

questions about whether states had sufficient information about 

applicants’ assets to implement federal requirements. Additionally, our 

previous work identified methods individuals used to reduce assets to 

qualify for Medicaid coverage of long-term care that would not, or may 

not, result in a penalty period, as they would not be considered a transfer 

for less than FMV.6

Congress has acted on multiple occasions to address financial eligibility 

requirements for Medicaid coverage for long-term care. Most recently, the 

Deficit Reduction Act of 2005 (DRA), enacted in February 2006, amended 

some existing provisions regarding asset transfers and introduced new 

requirements related to financial eligibility for Medicaid coverage for longterm care.7

Given our past work related to states’ Medicaid financial eligibility 

determination processes, you asked us to provide information on the 

extent to which individuals may be using available methods to become 

eligible for Medicaid coverage for long-term care. In this report, we 

For example, the DRA extended the look-back period from 

36 months to 60 months for transfers occurring on or after its enactment, 

changed the calculation and timing of the penalty period for those 

transfers, and introduced new requirements for how certain types of 

assets—such as an individual’s primary residence and an annuity—

should be considered when determining Medicaid eligibility. Nevertheless, 

methods exist through which applicants, sometimes with the assistance of 

attorneys or financial planners, can reduce their assets in a manner 

consistent with existing law to qualify for Medicaid coverage.

 

4

GAO, Medicaid Long-Term Care: Information Obtained by States About Applicants’ 

Assets Varies and May Be Insufficient, GAO-12-749 (Washington, D.C.: July 26, 2012).

5

GAO, Medicaid Long-Term Care: Few Transferred Assets Before Applying for Nursing 

Home Coverage; Impact of Deficit Reduction Act on Eligibility is Uncertain, GAO-07-280

(Washington, D.C.: Mar. 26, 2007).

6

GAO, Medicaid: Transfers of Assets by Elderly Individuals to Obtain Long-Term Care 

Coverage, GAO-05-968 (Washington, D.C.: Sept. 2, 2005). 

7

See Pub. L. No. 109-171, §§ 6011-6016, 120 Stat. 4, 61-67 (2006).
 

Page 4 GAO-14-473 Medicaid Nursing Home Financial Eligibility

(1) examine the financial characteristics of applicants approved for 

Medicaid nursing home coverage in selected states; (2) identify the 

methods used to reduce countable assets to qualify for Medicaid 

coverage for nursing home care; and (3) identify the information eligibility 

workers considered the most useful for identifying and verifying 

applicants’ financial eligibility.

To examine the financial characteristics of applicants approved for 

Medicaid nursing home coverage in selected states, we reviewed a 

random sample of Medicaid nursing home application files in selected 

counties in three states. To select the states, we determined the extent to 

which all states took one or more of three actions to verify applicants’ 

reported assets using results from a 2011 GAO web-based survey of 

Medicaid officials from each of the 50 states and the District of Columbia.8

On the basis of this assessment, we ranked the states on the extent to 

which they reported taking these actions and placed them into three 

groups (low, medium, and high) using naturally occurring breaks in the 

data. We determined whether they could provide us with needed data in 

order to select a sample of application files from counties within the 

states. We then selected 3 states—1 from the low group (Florida) and 2 

from the high group (South Carolina and New York). Within each state, 

we selected two counties that, relative to other counties in the state, had 

a large number of elderly individuals (aged 65 and older), high median 

income of elderly households, and a high number of Medicaid nursing 

home applications. In total, we reviewed 350 Medicaid application files, 

294 of which were approved, including those that were approved and 

incurred a penalty period.9

 

8

The three actions were the extent to which states reported they (1) verified applicants’ 

assets with financial institutions; (2) conducted property record searches; and (3) obtained 

information covering the 60-month look-back period. See 

(See app. I for information about the 

applications reviewed.) From the 294 approved application files, we 

collected and analyzed data on applicants’ assets (both income and 

resources), whether the resources were countable toward Medicaid 

eligibility, and whether applicants were found to have transferred assets 

for less than FMV. Our analysis was limited to information included in the 

GAO-12-749 for the results of 

this survey.

9

The applications reviewed were of individuals aged 65 or older at the time they applied 

for Medicaid nursing home coverage. In Florida and South Carolina, we reviewed 

applications submitted in the state fiscal year ending in 2012 (July 1, 2011, through 

June 30, 2012). In New York, we reviewed applications submitted between July 1, 2012, 

and December 31, 2012, due to limitations in the state’s data systems prior to that date.
 

Page 5 GAO-14-473 Medicaid Nursing Home Financial Eligibility

application files, which states used to make their eligibility determinations. 

We did not independently verify the accuracy of this information.

However, we examined the data we collected for obvious errors and 

tested the data; based on this, we determined that the data were 

sufficiently reliable for the purposes of this report. The data from the 294 

approved application files cannot be generalized to other approved 

applicants.

To identify the methods used to reduce countable assets to qualify for 

Medicaid coverage for nursing home care, we reviewed applicable federal 

laws and guidance, and spoke with officials from the Centers for Medicare 

& Medicaid Services (CMS), the agency within the Department of Health 

and Human Services (HHS) that oversees the Medicaid program. We 

interviewed nine attorneys recommended to us by the Director of the 

American Bar Association’s Commission on Law and Aging and 

conducted undercover calls with representatives from 17 law offices 

whose websites indicated that they provided assistance to elderly 

individuals seeking Medicaid coverage for long-term care. We also 

interviewed state Medicaid officials from 12 states, and Medicaid eligibility 

workers from two counties in 6 of these 12 states, selected in part based 

on information collected from our interviews with attorneys, undercover 

calls with representatives from law offices, information from background 

literature, and demographic data on the population aged 65 and older. 

We supplemented this information with data collected from our review of 

Medicaid nursing home application files.

To identify the information eligibility workers considered the most useful 

for identifying and verifying applicants’ financial eligibility, we used 

information from our interviews with county eligibility workers in two 

counties in each of the six states. (See app. II for more information about 

our scope and methodology.)

We conducted this performance audit from September 2012 to May 2014 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. We conducted our related 

investigative work in accordance with investigation standards prescribed 

by the Council of the Inspectors General on Integrity and Efficiency.
 

Page 6 GAO-14-473 Medicaid Nursing Home Financial Eligibility

To qualify for Medicaid coverage for long-term care, including nursing 

home care, individuals must be within certain eligibility categories—such 

as those who are aged or disabled—and meet functional and financial 

eligibility criteria. The financial eligibility standards differ based on 

whether an individual is married or single. Federal law also limits 

Medicaid payments for long-term care for individuals who have 

transferred assets for less than FMV during a specified time period. 

States are responsible for assessing applicants’ financial eligibility for 

Medicaid.

Common ways individuals become financially eligible for Medicaid

coverage of long-term care, including nursing home care, are provided 

below.

• Supplemental Security Income (SSI). Individuals who participate in 

SSI, a program that provides cash assistance to aged, blind, or 

disabled individuals with limited income and resources, are generally 

eligible for Medicaid.10

• Medically needy. Individuals who incur high medical costs may be 

able to “spend down” their income below the state-determined income 

eligibility limit for Medicaid. Such individuals are referred to as 

“medically needy.” In 2012, 32 states and the District of Columbia had 

a medically needy option, although not all extended this option to 

those who needed nursing home care.11

• Special income level for residents of a nursing home or institution. 

Individuals can qualify for Medicaid if they reside in nursing facilities or 

other institutions in states that have elected to establish a special 

income level under which individuals with incomes up to 300 percent 

of the SSI benefit (300 percent of the benefit was $2,163 per month in 

 

10Not all SSI recipients automatically qualify for Medicaid. Under Section 1902(f) of the 

Social Security Act, a state may use more restrictive Medicaid eligibility standards than 

SSI’s standards, provided the standards are no more restrictive than those the state had 

in place as of January 1, 1972. As of March 2013, 11 states had opted to use these 

standards. These states are often referred to as 209(b) states because the origin of this 

provision was § 209(b) of the Social Security Amendments of 1972, Pub. L. No. 92-603, 

86 Stat. 1329, 1381.

11Medicaid and CHIP Payment and Access Commission, Report to the Congress on 

Medicaid and CHIP, March 2013 (Washington, D.C.: Mar. 15, 2013).

Background

Financial Eligibility for 

Medicaid Coverage for 

Long-Term Care
 

Page 7 GAO-14-473 Medicaid Nursing Home Financial Eligibility

2014) are eligible for Medicaid. In 2012, 43 states and the District of 

Columbia had elected this option.12

Some states also allow applicants to place income in excess of the 

special income level into a qualified income trust and receive Medicaid 

coverage for their care.13 This type of trust, also known as a Miller trust, is 

available in states that offer the special income level option but do not 

also offer the medically needy option for nursing home care.14

The Medicaid program generally bases its characterization of assets—

income and resources—for individuals who are 65 years or older or have 

disabilities on that used by SSI.

• Income is anything received during a calendar month, paid either in 

cash or in-kind, that is used or could be used to meet food or shelter 

needs.

• Resources are cash or real or personal property that are owned that 

can be converted to cash and be used for food or shelter. (See table 1 

for examples of different types of assets.)

 

12Medicaid and CHIP Payment and Access Commission, Report to Congress, March 

2013.

13Money from this irrevocable trust is used to pay for specific costs, such as the 

applicant’s care. Following the individual’s death, the state receives all remaining amounts 

in this trust up to the amount spent by the state for the individual’s care.

14See 42 U.S.C. § 1396p(d)(4)(B).
 

Page 8 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Table 1: Types of Assets and Examples

Type of asset Examples

Income • Money earned from work

• Money generated from resources, such as interest, dividends, and 

annuity payments

• Money received from other sources, such as Social Security, 

worker’s compensation, and unemployment benefits

a

Resources • Cash

• Financial and investment resources, such as bank accounts, stocks, 

and bonds

• Trusts

• Annuities

b

• Real property

• Vehicles, such as automobiles and boats

• Life insurance

• Promissory notes

Source: GAO analysis of Supplemental Security Income policy.

c

a

Some resources produce income. For example, an annuity is a financial instrument that provides a 

fixed income over a defined period of time in return for an initial payment of principal. The principal of 

the annuity is considered a resource, while the payments it generates are considered income.

b

A trust is an arrangement in which a grantor transfers property to a trustee with the intention that it 

be held, managed, or administered by the trustee for the benefit of the grantor or certain designated 

individuals.

c

In establishing policy for determining financial eligibility for Medicaid 

coverage for long-term care, including nursing home care, states can 

decide, within federal standards, which assets are countable. For 

example, states may disregard certain types or amounts of income, and 

may elect not to count certain resources toward financial eligibility.

A promissory note is a written, unconditional agreement, usually given in return for goods, money 

loaned, or services rendered, whereby one party promises to pay a certain sum of money at a 

specified time (or on demand) to another party.

• Although the resources that are considered not countable varies by 

state, for the purposes of determining Medicaid eligibility for long-term 

care, they generally include an individual’s primary residence 

(typically if the individual expresses the intent to return home), an 

automobile, household goods and personal effects, burial spaces, 

burial arrangements up to a certain value, and certain types of life 

insurance.

• While an individual’s primary residence is generally not a countable 

resource for determining Medicaid eligibility, federal law specifies that 

an individual with substantial equity interest in his or her home is to be 

excluded from eligibility for Medicaid payment for long-term care; the 
 

Page 9 GAO-14-473 Medicaid Nursing Home Financial Eligibility

amount of allowable equity interest is established by each state within 

federal guidelines. For 2014, these guidelines specified that state 

established allowable equity interest amounts could range from 

$543,000 to $814,000.15

In most states, to be financially eligible for Medicaid coverage for longterm care, including nursing home care, individuals must have $2,000 or 

less in countable resources ($3,000 for a married couple). However, 

specific income and resource standards vary depending on the way an 

individual becomes eligible for Medicaid. (See table 2.) Eligible individuals 

generally must contribute a portion of their income toward the costs of 

nursing home care but are allowed to retain a small personal needs 

allowance, which varies by state but must be at least $30 per month, to 

pay for the individual’s clothing and other personal needs.

Table 2: Income and Resource Standards for Selected Ways of Becoming Eligible for Medicaid Coverage, as of 2014

Ways of becoming eligible 

for Medicaid Income standard Resource standard

Mandatory coverage

Supplemental Security Income (SSI) Less than $721 per month for an individual 

and less than $1,082 per month for a couple

a Countable resources of less than $2,000 for an 

individual, and less than $3,000 for a couple

State-elected coverage (optional)

Medically needy State-set income standard; individuals may 

“spend down” to eligibility by deducting 

incurred medical expenses from income

State-set resource standard usually no lower 

than countable resources of less than $2,000 

for an individual or $3,000 for a couple

Special income level for residents of a 

nursing facility or institution

State-set income standard no higher than 

300 percent of the SSI standard ($2,163 per 

month) for an individual

Same as SSI

b

Sources: GAO analysis of Medicaid eligibility requirements.

a

Not all SSI recipients automatically qualify for Medicaid. Under Section 1902(f) of the Social Security 

Act, a state may use more restrictive Medicaid eligibility standards than SSI’s standards, provided the 

standards are no more restrictive than those the state had in place as of January 1, 1972. As of 

March 2013, 11 states had opted to use these standards. These states are often referred to as 209(b) 

states because the origin of this provision was § 209(b) of the Social Security Amendments of 1972, 

Pub. L. No. 92-603, 86 Stat. 1329, 1381.

b

 

15An individual with substantial home equity is not excluded from eligibility for Medicaid 

payment for long-term care if a spouse, child under age 21, or child who is considered 

blind or disabled lives in the home. 42 U.S.C. § 1396p(f)(2).

Some states also allow applicants to place income in excess of the special income level into a 

qualified income trust and receive Medicaid coverage for their care. This type of trust, also known as 

a Miller trust, is available in states that offer the special income level option but do not also offer the 

medically needy option for nursing home care.
 

Page 10 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Federal law requires states to use specific minimum and maximum 

income and resource standards in determining Medicaid eligibility for 

married applicants when one spouse is in an institution (referred to as the 

institutionalized spouse), such as a nursing home, and the other remains 

in the community (referred to as the community spouse).16

• Resources. The resources of both the institutionalized spouse and 

the community spouse are considered when determining initial 

financial eligibility for Medicaid coverage for nursing home care. The 

community spouse may retain an amount equal to one-half of the 

couple’s combined countable resources, up to the state-specified 

maximum resource level. States’ maximum resource levels cannot 

exceed the maximum federal standard, which was $117,240 for 

2014.

These 

provisions enable the institutionalized spouse to become eligible for 

Medicaid, while leaving the community spouse with sufficient assets to 

avoid impoverishment.

17 The amount that the community spouse is allowed to retain is 

generally referred to as the community spouse resource allowance.18

• Income. A community spouse’s income is not considered when 

determining financial eligibility for Medicaid coverage for nursing 

home care; the community spouse is allowed to retain all of his or her 

own income. States establish, within federal standards, a minimum 

amount of income—a minimum needs allowance—that a community 

spouse is entitled to retain.19

 

1642 U.S.C. § 1396r-5.

If the community spouse’s income is less 

than the minimum needs allowance, then income from the 

institutionalized spouse can be transferred to the community spouse 

17If one-half of a couple’s combined countable resources is less than a state-specified 

minimum resource level, then the community spouse may retain resources up to the 

minimum level. States’ minimum resource levels cannot be less than the federal minimum 

resource standard, which was $23,448 for 2014.

18We use community spouse resource allowance to refer to the amount of a couple’s 

combined jointly and separately-owned resources allocated to the community spouse and 

considered unavailable to the institutionalized spouse when determining his or her 

eligibility for Medicaid.

19The Social Security Act terms this the minimum monthly maintenance needs allowance. 

Throughout this report, we refer to this as the minimum needs allowance.

Spousal Impoverishment 

Protections
 

Page 11 GAO-14-473 Medicaid Nursing Home Financial Eligibility

to make up the difference.20 As of January 1, 2014, federal standards 

specified that most states’ minimum needs allowance can be no lower 

than $1,938.75, and no higher than $2,931.00 per month.21

Federal law limits Medicaid payment for long-term care services, 

including nursing home care, for individuals who divest themselves of—or 

“transfer”—their assets for less than FMV within a specified time period.22

As a result, when an individual applies for Medicaid coverage for longterm care, states conduct a review, or “look-back,” to determine whether 

the applicant (or his or her spouse, if married) transferred assets to 

another person or party. Per the DRA, the look-back period for transfers 

made on or after February 8, 2006, is 60 months; prior to the DRA, the 

look-back period was generally 36 months. If the state determines that an 

applicant transferred an asset for less than FMV during the look-back 

period, the individual may be ineligible for Medicaid coverage for longterm care for a period of time, called the penalty period.23

Federal law exempts certain transfers made during the look-back period 

from the penalty provisions. Exemptions include certain transfers of 

The penalty 

period generally begins on the later of (1) the first day of a month during 

or after an individual transfers assets for less than FMV, or (2) the date on 

which the individual would otherwise be eligible to receive coverage for 

services were it not for the penalty period.

 

20If the institutionalized spouse’s income is not sufficient to make up the difference, then 

the community spouse would be allowed to keep resources above the community spouse 

resource allowance, so that the additional resources could be used to generate more 

income.

21Per federal standards, as of January 1, 2014, the minimum needs allowance for Alaska 

must be at least $2,422.50 and for Hawaii must be at least $2,231.25.

22Federal law requires states to apply the transfer of asset provisions to institutionalized 

individuals, who are defined in the Social Security Act as individuals who are inpatients in 

a nursing facility or in a medical institution that is being paid based on a level of care 

received in a nursing home, or certain recipients of home and community-based services. 

42 U.S.C. § 1396p(h)(3). States have the option to apply such provisions to 

noninstitutionalized individuals.

23The length of the penalty period, in months, is calculated by dividing the total cumulative 

amount of assets transferred for less than FMV by the average monthly private pay rate 

for nursing home care in the state (or the community in which the applicant is 

institutionalized, at the option of the state).

Transfers of Assets
 

Page 12 GAO-14-473 Medicaid Nursing Home Financial Eligibility

assets to a spouse or a disabled child, among other things.24 A transfer 

does not result in a penalty period if the individual can demonstrate to the 

state that the transfer was made exclusively for purposes other than 

qualifying for Medicaid.25

The DRA also specified circumstances under which the purchase of 

certain assets—such as an annuity, promissory note, or loan—is 

considered a transfer for less than FMV for purposes of determining 

Medicaid eligibility. (See table 3 for a summary of these selected DRA 

provisions.) Most, but not all, of these provisions became applicable on 

the date of the DRA’s enactment, February 8, 2006.

Additionally, a penalty would not be applied if 

the state determined that application of the penalty would result in an 

undue hardship; that is, it would deprive the individual of (1) medical care 

such that the individual’s health or life would be endangered, or (2) food, 

clothing, shelter, or other necessities for life.

 

24Additional exemptions from the penalty period include transfers of assets to an individual 

for the spouse’s sole benefit or to a trust for a disabled child’s sole benefit. Transfers of a 

home are also exempt if made to an individual’s spouse, or minor or disabled child; an 

adult child residing in the home who has been caring for the individual for a specified time 

period; or a sibling who has an equity interest in the home and has resided in the 

individual’s home for at least 1 year immediately prior to the date the individual became 

institutionalized. 42 U.S.C. § 1396p(c)(2)(A)-(c)(2)(B). 

25Transfers also do not result in a penalty when the individual can show that he or she 

intended to dispose of the assets at FMV or for other valuable consideration, or that all 

assets transferred for less than FMV have been returned to the individual. 42 U.S.C. 

§ 1396p(c)(2)(C). 
 

Page 13 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Table 3: Summary of Selected Provisions Regarding Transfers of Assets in the Deficit Reduction Act of 2005 (DRA)

DRA provision Description

Annuities • States are required to treat the purchase of an annuity as a transfer for less than fair market 

value (FMV) unless the annuity names the state as either (1) the remainder beneficiary in the 

first position for at least the total amount of Medicaid expenditures paid on behalf of the 

annuitant, or (2) a remainder beneficiary in the second position after the community spouse, or 

minor or disabled child (or in the first position if any of those individuals transfer the remainder 

of the annuity for less than FMV).

a

• Annuities purchased by or on the behalf of an individual who applied for Medicaid coverage for 

long-term care shall be treated as a transfer of assets for less than FMV unless the annuity is 

irrevocable, nonassignable, actuarially sound, and provides for payments in equal amounts 

during the term of the annuity, with no deferral and no balloon payments.

• Annuities purchased by or on the behalf of an individual who applied for Medicaid coverage for 

long-term care services that are defined as individual retirement accounts under federal tax 

code, or purchased with the proceeds of certain retirement accounts and meet certain federal 

tax code requirements are not considered transfers for less than FMV.

Life estates States are required to consider a purchase of a life estate interest in another person’s home as a 

transfer of assets for less than FMV unless the purchaser lived in the home for at least 1 year after 

the date of purchase.

Promissory notes and loans States are required to consider funds used to purchase a promissory note, loan, or mortgage as a 

transfer of assets for less than FMV unless the repayment terms are actuarially sound, provide for 

payments to be made in equal amounts during the term of the loan with no deferral or balloon 

payments, and prohibit the cancellation of the balance upon the death of the lender.

Source: GAO analysis of the DRA.

a

The DRA also specified that applications for Medicaid coverage for long-term care shall: (1) describe 

any interest an applicant or community spouse may have in an annuity, regardless of whether the 

annuity is irrevocable or treated as an asset; and (2) include a statement that the state becomes a 

remainder beneficiary of an annuity purchased on or after enactment by virtue of the applicant’s 

receipt of Medicaid assistance for long-term care.

To assess applicants’ financial eligibility for Medicaid coverage for longterm care, including nursing home care, and to determine whether they 

transferred assets for less than FMV, states generally require applicants 

to submit applications and to provide documentation of certain assets 

reported on the applications. Our prior work has shown that states varied 

in the amount of documentation required from applicants; for example, 

17 states required all applicants to provide 60 months of documentation 

of financial and investment resources, while 27 states required applicants 

to provide just the current month’s documentation. We also previously 

found that all state Medicaid programs obtained some amount of asset 

information from third parties, such as financial institutions or other 

States’ Determination of 

Applicants’ Financial 

Eligibility
 

Page 14 GAO-14-473 Medicaid Nursing Home Financial Eligibility

government agencies, such as the Social Security Administration.26 Such 

information helps states verify the accuracy of applicants’ reported 

assets, and to determine if applicants have assets they failed to report or 

transferred for less than FMV during the look-back period. The processing 

of Medicaid applications—including the collection of documentation and 

information from applicants and third parties—is generally performed by 

local or county-based eligibility workers.

Forty-one percent of the 294 approved applicants whose Medicaid 

nursing home application files we reviewed had total resources—both 

countable and not countable resources—of $2,500 or less; and nearly 

75 percent of the approved applicants owned at least some resources 

that were not countable in their financial eligibility determination. Almost 

two-thirds of approved applicants had annual gross incomes of $20,000 

or less, and 5 percent were found to have transferred assets for less than 

FMV.

Of the 294 approved Medicaid nursing home applicants whose files we 

reviewed in selected counties in three states, 41 percent—121 

applicants—had total resources of $2,500 or less. Total resources 

included both resources that were countable and those that were not 

countable as part of applicants’ Medicaid financial eligibility determination 

and, for married applicants, resources of both the applicant and the 

spouse. Another 44 percent of approved applicants—129 applicants—

had between $2,501 and $100,000 in total resources, and 

14 percent of approved applicants—42 applicants—had over $100,000 in 

total resources.27

 

26For additional information on the extent to which states require individuals applying for 

Medicaid coverage for long-term care to document assets and obtain information about 

these applicants’ assets from third parties, see 

Median total resources for all approved applicants was 

GAO-12-749. 

27For two approved applicants who owned at least one resource, there was no information 

available on the value of any of their resources. As such, the percentages presented do 

not add up to 100 percent.

Files Reviewed 

Showed 41 Percent 

of Approved 

Applicants Had Total 

Resources at or 

below $2,500, and 

5 Percent Transferred 

Assets

Forty-One Percent of 

Approved Applicants 

Reviewed Had Total 

Resources of $2,500 or 

Less; Nearly ThreeQuarters Had Some 

Resources Not Countable 

for Eligibility Determination
 

Page 15 GAO-14-473 Medicaid Nursing Home Financial Eligibility

$7,660,28 which was less than the median net worth of elderly households 

in the United States.

29 Married applicants, who made up 24 percent of the 

approved applicants, had higher median resources ($70,137) than single 

applicants ($3,034).30

 

28Total resources of approved applicants averaged $60,375 and ranged from $0 to 

$1,551,344.

(See fig. 1.)

29The median net worth of elderly households in the United States was $170,516 in 2011. 

Net worth is defined as the total value of all of the resources that an individual or 

household owns, including the value of real estate, stocks, bonds, retirement accounts, 

and other resources, minus debts or liabilities. Elderly households are those with a 

householder aged 65 or older; the householder is the person in whose name the home is 

owned or rented. See U.S. Census Bureau, Survey of Income and Program Participation, 

2008 Panel, Wave 10, accessed March 28, 2014, 

http://www.census.gov/people/wealth/files/Wealth_Tables_2011.xlsx. 

30Total resources for approved applicants who were married averaged $169,968 and 

ranged from $0 to $1,551,344; for single applicants, total resources averaged $25,822 and 

ranged from $0 to $460,147.
 

Page 16 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Figure 1: Distribution of Approved Applicants in Selected Counties in Three States by Amount of Total Resources (n=294)

Notes: Data for four counties were from applications submitted during state fiscal year 2012, while 

data for two counties were from applications submitted between July 1, 2012, and December 31, 

2012.

Consistent with how Medicaid eligibility is determined for coverage of nursing home care, our analysis 

of total resources for married applicants includes those of both the spouse and the applicant.

For 2 of the 294 approved applicants who owned at least one resource, there was no information 

available on the value of any of their resources. As such, the percentages shown do not add to 100. 

Files for the remaining applicants included information on the value of at least one resource; all 

known values were summed to determine the total resources per applicant. However, if an applicant’s 

file did not contain a value for every resource the applicant owned, then the amount of their total 

resources may be underestimated.

Approved applicants most commonly owned the following types of 

resources: financial and investment resources (95 percent), burial 

contracts and prepaid funeral arrangements (39 percent), life insurance 

policies (34 percent), their primary residence (31 percent), and vehicles 

(26 percent). With the exception of the applicant’s primary residence, the 

median value of these more commonly owned resources was less than 
 

Page 17 GAO-14-473 Medicaid Nursing Home Financial Eligibility

that of other resources—namely annuities, life estates, promissory notes, 

or trusts—that were less commonly owned. (See table 4.)

Table 4: Number of Approved Applicants in Selected Counties in Three States that Owned Resources, and the Value of 

Resources Owned, by Type of Resource

Resource

Number (percent) of 

approved applicants 

who owned resource

Number of applicants 

for whom the value of 

resource owned was known

Median value 

of resource a

Financial and investment 278 (95%) b 277 $1,200

Burial contracts and prepaid funeral arrangements 114 (39%) 95 $9,311

Life insurance 101 (34%) 86 $2,422

Primary residence 91 (31%) 66 $68,350

Vehicle 77 (26%) 51 $3,110

Life estate 10 (3%) 4 $71,550

Real property other than primary residence 10 (3%) 10 $47,300

Trust 9 (3%) 4 $82,000

Promissory note or loan 5 (2%) 5 $116,500

Annuity 3 (1%) 2 $44,261

Other resources 6 (2%) c 3 $1,361

Source: GAO analysis of Medicaid application data.

Notes: Data for four counties were from applications submitted during state fiscal year 2012, while 

data for two counties were from applications submitted between July 1, 2012, and December 31, 

2012.

Consistent with how Medicaid eligibility is determined for coverage of nursing home care, resources 

for married applicants include those of both the spouse and the applicant.

a

The value of a resource was considered to be known if the applicant’s file included information on 

the value for at least one of that type of resource. For example, if an applicant had two bank 

accounts, the value of financial and investment resources was considered to be known if the 

applicant’s file included information on the value of at least one of the accounts. Missing values may 

have affected the median values of each type of resource.

b

Financial and investment resources includes such items as checking or savings bank accounts, 

stocks, bonds, and retirement accounts.

c

Certain types of resources, such as prepaid burial arrangements, are 

generally not countable for purposes of determining Medicaid eligibility. 

Of the approved applicants whose files we reviewed, 74 percent (218 of 

294) owned at least some resources that were not countable as part of 

their financial eligibility determination, though the amount of noncountable 

resources owned varied. Files for 195 of these 218 applicants contained 

Other resources include such items as cash, livestock, and unspecified property in safety deposit 

boxes or storage units.
 

Page 18 GAO-14-473 Medicaid Nursing Home Financial Eligibility

information on the value of at least one noncountable resource owned.31

Among these 195 applicants, 55 percent (108 applicants) had $20,000 or 

less in noncountable resources, 27 percent (53 applicants) had 

noncountable resources between $20,001 and $100,000, and 17 percent 

(34 applicants) had greater than $100,000 in resources that were not 

countable toward eligibility. The median value of noncountable resources 

was $12,530.32 Approved applicants who were married had a greater 

median value of noncountable resources ($60,651) than single applicants 

($9,931), which could be due, in part, to Medicaid eligibility rules that 

include provisions intended to protect the community spouse from 

impoverishment.33

 

31Twenty-three approved applicants whose files we reviewed owned at least one 

noncountable resource but there was no information available on the value of any of the 

noncountable resources that they owned.

(See fig. 2.)

32Noncountable resources for approved applicants averaged $80,427 and ranged from 

$0 to $1,541,565.

33Noncountable resources for approved applicants who were married averaged $180,594 

and ranged from $12 to $1,541,565; for single applicants, noncountable resources 

averaged $36,972 and ranged from $0 to $446,166. 
 

Page 19 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Figure 2: Distribution of Approved Applicants in Selected Counties in Three States by Amount of Noncountable Resources 

(n=195)

Notes: Data for four counties were from applications submitted during state fiscal year 2012, while 

data for two counties were from applications submitted between July 1, 2012, and December 31, 

2012.

Within federal standards, states may elect not to count certain resources toward financial eligibility. 

Thus, the amount of noncountable resources reflects the value of the applicant’s resources that the 

state elected not to count during eligibility determination. Consistent with how Medicaid eligibility is 

determined for coverage of nursing home care, noncountable resources for married applicants 

include those of both the spouse and the applicant.

Of the 294 approved applicants whose files we reviewed, 218 owned at least one noncountable 

resource. For 23 of these 218 approved applicants, there was no information available on the value of 

their noncountable resources. Files for the remaining 195 applicants included information on the 

value of at least one noncountable resource; all known values were summed to determine the amount 

of noncountable resources per applicant. However, if an applicant’s file did not contain a value for 

every noncountable resource the applicant owned, then the amount of their noncountable resources 

may be underestimated.

Percentages shown do not add to 100 due to rounding.
 

Page 20 GAO-14-473 Medicaid Nursing Home Financial Eligibility

The extent to which the types of resources applicants owned were 

countable toward applicants’ eligibility varied. While 79 percent of the 

financial and investment resources owned by approved applicants were 

countable, the majority of vehicles, and burial contracts and prepaid 

funeral arrangements were not countable as part of eligibility 

determination. Additionally, none of the applicants’ annuities, promissory 

notes, or primary residences were countable. (See fig. 3.) Although an 

applicant’s primary residence is typically not a countable resource, an 

applicant with significant equity interest in his or her home is not eligible 

for Medicaid payments for nursing home care.

34

 

34The amount of allowable home equity interest is established by each state within federal 

guidelines and could range from $543,000 to $814,000 in 2014. However, an individual 

with home equity greater than the state’s allowable amount is not excluded from eligibility 

if a spouse, child under age 21, or child who is blind or disabled lives in the home.

For the 51 applicants for 

whom we were able to determine the equity interest in the home, the 

median home equity was $50,000, and ranged from $0 to $700,000.
 

Page 21 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Figure 3: Proportion of Resources that Were Countable as Part of Applicants’ 

Financial Eligibility Among Approved Applicants in Selected Counties in Three 

States, by Type of Resource

Notes: Data for four counties were from applications submitted during state fiscal year 2012, while 

data for two counties were from applications submitted between July 1, 2012, and December 31, 

2012.

a

Financial and investment resources includes such items as checking or savings bank accounts, 

stocks, bonds, and retirement accounts.

b

Other resources include such items as cash, livestock, and unspecified property in safety deposit 

boxes or storage units.
 

Page 22 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Sixty-five percent of approved applicants whose files we reviewed—192 

applicants—had annual gross incomes of $20,000 or less, another 

30 percent—88 applicants—had annual gross incomes between $20,001 

and $50,000, and 5 percent—14 applicants—had annual gross incomes 

greater than $50,000.35 The median annual gross income of approved 

applicants was $16,260 ($1,355 per month),36 which was less than the 

median annual income of the elderly in the United States.

37

 

35In Florida and South Carolina, applicants can place income above the special income 

level for nursing home residents in a qualified income trust, which is used to pay for the 

applicants’ care. New York has a “medically needy” option, whereby applicants can qualify 

for coverage if their income, after subtracting any medical expenses, is less than or equal 

to the state’s income standard.

In contrast to 

resources, the median annual gross income of married approved 

applicants ($16,260) was nearly the same as that of their single

counterparts ($16,284); consistent with how Medicaid eligibility is 

determined, applicants’ income includes just that of the applicant, 

regardless of marital status. (See fig. 4.)

36Annual gross income for all approved applicants averaged $20,607 and ranged from 

$360 to $161,064.

37The median annual income of the elderly in the United States was $20,308 ($2,828 per 

month) in 2012. See U.S. Census Bureau, Current Population Survey, 2013 Annual Social 

and Economic Supplements, accessed April 1, 2014, 

http://www.census.gov/hhes/www/cpstables/032013/perinc/pinc02_000.htm. 

Almost Two-Thirds of 

Approved Applicants 

Reviewed Had Income of 

$20,000 or Less
 

Page 23 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Figure 4: Distribution of Approved Applicants in Selected Counties in Three States by Annual Gross Income

Notes: Data for four counties were from applications submitted during state fiscal year 2012, while 

data for two counties were from applications submitted between July 1, 2012, and December 31, 

2012.

Consistent with how Medicaid eligibility is determined for coverage of nursing home care, income 

includes just that of the applicant, regardless of the applicant’s marital status.

Social Security was the primary source of income for approved applicants 

we reviewed, comprising three-quarters of their annual income, on 

average. Almost all approved applicants—95 percent—received Social 

Security, and nearly half—45 percent—received income from a retirement 

account or pension. Few applicants received income from other sources, 

such as an annuity, trust, or promissory note.

For slightly more than half (33) of the 60 married approved applicants 

who had a spouse living in the community, the community spouse was 

allowed to retain at least some of the applicant’s income to bring their 
 

Page 24 GAO-14-473 Medicaid Nursing Home Financial Eligibility

monthly income up to the state’s minimum needs allowance. The median 

value of the amount of the applicant’s income that the community spouse 

was allowed to retain was $1,102 per month.38

Files for 5 percent of approved applicants reviewed—15 applicants—

showed transfers of assets for less than FMV during the look-back period; 

such transfers are to result in the assessment of a penalty period. The 

median amount of assets transferred was $24,608, and the amounts 

ranged from $5,780 to $296,221. The majority of applicants identified as 

transferring assets for less than FMV—14 of the 15 applicants—

transferred money. Applicants typically transferred assets to a child or 

grandchild (9 of the 15 applicants). Thirteen of the 15 applicants found to 

have transferred assets were not married. All but one of the applicants 

found to have transferred assets were from New York, the remaining 

applicant was from South Carolina.39 Among applicants found to have 

transferred assets, the median length of the penalty period assessed was 

nearly 4 months, and the length ranged from half a month to nearly 

25 months.

We identified four main methods used by applicants—or described by 

eligibility workers, state officials, attorneys, or other representatives from 

law practices—to reduce countable assets and qualify for Medicaid 

coverage for nursing home care. These four methods are: (1) spending 

countable resources on goods and services that are not countable, 

(2) converting countable resources into noncountable resources that 

generate an income stream, (3) giving away countable assets, and 

(4) increasing the amount of assets the community spouse retains.

 

38The average amount of approved applicants’ income that was provided to the 

community spouse was $1,186 per month, and the amount ranged from $178 to $3,535 

per month. Applicant files for five married applicants did not indicate whether income from 

the institutionalized spouse was provided to the community spouse. 

39Applicants in South Carolina and New York were subject to a 60-month look-back 

period. Florida, however, did not implement the DRA provision to extend the look-back 

period from 36 months to 60 months until 2010, after which it was phased in over time. As 

a result, applicants whose files we reviewed in Florida were subject to a 36-month lookback period. 

Files Reviewed Showed 

Five Percent of Approved 

Applicants Transferred 

Assets for Less Than Fair 

Market Value

Applicants Used Four 

Main Methods to 

Reduce Countable 

Assets and Qualify for 

Medicaid
 

Page 25 GAO-14-473 Medicaid Nursing Home Financial Eligibility

One method Medicaid applicants could use to reduce assets is paying off 

existing debt or making certain purchases. When such purchases and 

payments convert a countable resource, such as money in the bank, into

a good or service that is not countable toward Medicaid financial 

eligibility, they effectively reduce the applicants’ assets. Eligibility workers 

mentioned possible goods that would not be countable that applicants 

could purchase.

• Eligibility workers in 10 of the 12 counties interviewed stated that 

purchasing burial contracts and prepaid funeral arrangements, which 

are generally noncountable resources, was a common way applicants 

reduced their countable assets; and eligibility workers from one state 

said they recommend making such purchases to applicants.

• Eligibility workers also reported that applicants spend down their 

countable resources on upgrades to their homes, such as a new roof 

or carpeting.

States may require applicants to provide documentation related to these 

purchases, such as construction contracts or receipts, to verify that the 

purchases were not made for less than FMV.

Applicants can also use countable resources to purchase services, which 

are not considered a resource. For example, applicants may pay for a 

personal service contract, also referred to as a care agreement, which is 

an arrangement in which an individual pays another person, often an 

adult child, to provide certain services—such as grocery shopping or 

transportation to medical appointments—over a period of time. Although 

personal service contracts are not considered a resource, payment for the 

contracts involve a transfer of resources, and thus must be assessed to 

determine whether the transfer was made for less than FMV. If such 

contracts are determined to have been made for less than FMV, then the 

applicant would be subject to a penalty period. According to CMS, states 

can establish reasonable standards for assessing whether or not a 

transfer using a personal service contract is made for less than FMV. Our 

interviews with state Medicaid officials indicate that states’ standards for 

assessing the FMV of personal service contracts vary.

• Some states require that payments under the contract be made at the 

time the services are rendered; thus, these states would consider a 

lump sum payment made for services that had been provided 

sometime in the past or for services that will be provided in the future 

to be a transfer for less than FMV.

Spending Countable 

Resources on Goods and 

Services That Are Not 

Countable Toward 

Financial Eligibility
 

Page 26 GAO-14-473 Medicaid Nursing Home Financial Eligibility

• In contrast, officials from one state we spoke with indicated that the 

state does not have standards regarding when payment must be 

made. Officials from this state reported seeing at least 100 

applications each month containing personal service contracts.

Among the Medicaid application files that we reviewed in selected states, 

16 of the 294 approved applicants (5 percent) had a personal service 

contract—all of which were determined to be for FMV. The median value 

of the personal service contracts was $37,000; the value of the contracts 

ranged from $4,460 to $250,004.

Applicants may reduce their countable resources by purchasing certain 

financial instruments that generate an income stream. While the income 

stream is likely countable, the principal of the financial instrument might

not be a countable resource when determining an applicant’s financial 

eligibility. For these purchases to be effective in helping the individual 

qualify for Medicaid coverage, the income generated would need to be

less than the applicant’s expenses, including the cost of nursing home 

care; otherwise the applicant would not likely be income-eligible for 

Medicaid coverage for nursing home care. Additionally, the principal 

would need to be a noncountable resource, otherwise the applicant would 

not likely be resource-eligible for Medicaid coverage.

Personal Service Contracts

The files we reviewed included a $7,055 

personal service contract between an 

applicant and her daughter for the provision of 

10 hours of care per week at a rate of $11 per 

hour for an estimated 1.2 years. Another 

applicant had a $134,316 contract with her 

son to provide 20 hours of services per week 

at a rate of $35 per hour for an estimated 

3.7 years. Under both personal service 

contracts, the provider received one lump sum 

payment.

Converting Countable 

Resources into 

Noncountable Resources 

That Generate an Income 

Stream for the Applicant
 

Page 27 GAO-14-473 Medicaid Nursing Home Financial Eligibility

One instrument applicants can purchase to convert countable resources 

into noncountable resources with an income stream is an irrevocable and 

nonassignable annuity that complies with the DRA.40

Another financial instrument applicants may be able to purchase to 

convert countable resources into noncountable resources with an income 

stream is a promissory note, under which applicants lend funds to another 

party, such as an adult child.

A representative 

from one law office that we spoke to in an undercover capacity indicated 

that an annuity is an option that could allow at least some resources to be 

left for the applicant’s heirs. While the individual noted that the income 

generated from the annuity must be spent on nursing home care, he 

explained that the applicant may be able to save some money to leave to 

his children because the amount the applicant would have to pay toward 

his nursing home care would be based on the Medicaid nursing home 

payment rate, which is likely less than what the applicant would have 

otherwise had to pay privately. Medicaid officials from more than half the 

states for which we conducted interviews indicated that the use of 

annuities has increased over the past few years, and officials from one of 

these states indicated that this increase was a result of clearer guidelines 

in the DRA on annuities.

41 States are required to determine whether 

the funds used to purchase a promissory note were a transfer for less 

than FMV.42

 

40Irrevocable means that the annuity cannot be changed or terminated, and 

nonassignable means that the annuity cannot be transferred to another individual. As 

previously noted, the DRA specified that annuities purchased by or on behalf of the 

individual applying for Medicaid must meet criteria such as being actuarially sound—that 

is, they must pay out during the applicant’s life expectancy; providing payments in equal 

amounts during the term of the annuity; and naming the state as the primary remainder 

beneficiary unless there is a community spouse or minor or disabled child. Otherwise, the 

annuity would be considered a transfer for less than FMV.

Additionally, according to CMS officials, if a promissory note 

is determined to have been purchased at FMV, states must also 

determine whether the principal of the note should be treated as a 

countable resource. Based on our interviews with state Medicaid officials, 

41A promissory note is a written, unconditional agreement, usually given in return for 

goods, money loaned, or services rendered, whereby one party promises to pay a certain 

sum of money at a specified time (or on demand) to another party.

42The purchase of a promissory note is to be considered a transfer for less than FMV 

unless the repayment terms are actuarially sound, it provides for payments to be made in 

equal amounts during the term of the loan with no deferral or balloon payments, and it 

prohibits the cancellation of the balance upon the death of the lender. 42 U.S.C. 

§ 1396p(c)(1)(I).

Irrevocable Annuities

In certain circumstances an irrevocable 

annuity can be considered a countable 

resource. For example, according to CMS, if 

the annuity can be sold on the secondary 

market because its owner or payee may be 

changed (i.e. the annuity is assignable), then 

the annuity is a countable resource.
 

Page 28 GAO-14-473 Medicaid Nursing Home Financial Eligibility

states’ standards for determining whether to treat the principal of 

promissory notes as a countable resource vary.

• Medicaid officials from one state told us that the principal of 

promissory notes could be considered a countable resource if it were 

negotiable.

• Medicaid officials from another state said that the principal would be a 

countable resource if the note could be converted into cash within 

20 days.

Applicants may reduce their countable assets by giving some or all of 

their assets as a gift to another individual, such as an adult child. Such 

gifts are typically treated as a transfer for less than FMV and, if given 

during the look-back period, would likely result in a penalty period. The 

length of the penalty period is calculated based on the value of the gift 

and the private payment rate for nursing home services in the state or 

locality.43 However, our interviews identified mechanisms that either 

reduce the length of the penalty period after it has started or provide 

funds to pay for care during the penalty period. These mechanisms are 

referred to as “reverse half-a-loaf” because they can be used to preserve 

at least half of an individual’s resources.44

A “reverse half-a-loaf” mechanism that reduces the length of the penalty 

period involves gifting countable assets to someone else and then, after 

eligibility has been determined and the penalty period begins, having a 

portion of the gift returned to the applicant. This option only works in 

states that choose to consider a partial return of transferred assets in 

recalculating the penalty period. According to CMS, states can choose 

whether or not to consider a partial return of transferred assets. In states 

 

43For example, if the applicant transferred $35,000 worth of assets for less than FMV and 

the average monthly private pay rate for nursing home care in the state was $7,000, the 

penalty period would be 5 months.

44As we previously reported, prior to the DRA, individuals used a mechanism commonly 

referred to as the “half-a-loaf” strategy, which involved transferring a portion (e.g., half) of 

one’s assets and waiting out a penalty period before applying for Medicaid coverage of 

nursing home care. However, the DRA changes to the start date of the penalty period 

eliminated the availability of the “half-a-loaf” strategy. According to state Medicaid officials 

and attorneys we spoke with, the “reverse half-a-loaf” mechanism has since emerged.

Giving Away Some or All 

Countable Assets
 

Page 29 GAO-14-473 Medicaid Nursing Home Financial Eligibility

that consider partial returns, the original length of the penalty period 

would be shortened in proportion to the amount of assets returned.45

Another “reverse half-a-loaf” mechanism involves an applicant gifting a 

portion of their countable resources, incurring a penalty, and converting 

other countable resources into an income stream for the applicant—such 

as through an annuity or promissory note—to pay for nursing home care 

during the penalty period. The amount of income generated from the 

annuity or promissory note would be equivalent to the shortfall between 

the applicant’s other monthly income, such as Social Security and 

retirement income, and the cost of his/her nursing home care during the 

penalty period. A representative from one law office we spoke to in an 

undercover capacity suggested that the applicant could gift about 

50 percent of her resources, and while serving a penalty period, the 

applicant would use monthly income from a promissory note plus other 

monthly income to pay for the nursing home care. Another representative 

from a law office mentioned that the larger the applicant’s income, the 

larger the amount that the applicant can gift. This is because an applicant 

with higher income would need less additional income from an annuity or 

promissory note to cover the costs of nursing home services during the 

penalty period. Thus, an applicant with higher income would need to 

place a smaller amount of their countable resources into an annuity or 

promissory note, allowing them to gift more of their countable resources 

even if it may result in a longer penalty period.

Among the 294 approved applicants whose files we reviewed, we 

identified 5 applicants (2 percent) who appeared to have used one of the 

“reverse half-a-loaf” mechanisms; 4 of the applicants appeared to use the 

mechanism that involved creating an income stream through a 

promissory note to pay for nursing home care during the penalty period. 

These 4 applicants gifted between $20,150 and $227,250 worth of 

resources, and had penalty periods of between 2 months and 22 months.

 

45If all of the transferred assets are returned, then the penalty period is eliminated. 

However, the returned assets will likely be considered countable assets for purposes of 

determining the individual’s Medicaid eligibility.

Reverse Half-a-Loaf

One applicant who appeared to use the 

“reverse half-a-loaf” mechanism gifted 

$62,470 to his children and was assessed a 

6 month penalty period. This applicant also 

loaned $63,118 to one of his children in return 

for a promissory note that provided $10,543 in 

income per month during the 6 months of the 

applicant’s penalty period.
 

Page 30 GAO-14-473 Medicaid Nursing Home Financial Eligibility

An additional method married applicants could use to reduce countable 

assets is to increase the amount of assets that the community spouse is 

able to retain. Given the federal law regarding the treatment of the 

community spouse’s resources and provisions intended to protect married 

individuals, there are several different mechanisms for increasing the 

assets retained by the community spouse.

Federal law permits the community spouse to retain an amount equal to 

one-half of the couple’s combined countable resources, up to the statespecified maximum resource level. However, our work identified a 

mechanism that could result in a community spouse retaining more than 

the maximum standard in instances where the state did not exercise its 

right to sue the community spouse to recoup the resources due to the 

institutionalized spouse. Under this mechanism, an institutionalized 

spouse may transfer all his or her resources to the community spouse, 

while assigning to the state the right to bring a support proceeding against 

the community spouse.46 In this way, a community spouse who refuses to 

make any resources available to the institutionalized spouse may be able 

to retain all of the couple’s resources unless the state chooses to sue the 

community spouse for support.47

• Medicaid officials from one state told us that they do not see many 

applications claiming spousal refusal, adding this is likely because the 

state would take legal action against the community spouse to recoup 

expenses.

According to information from state 

officials, some states take legal action to recoup funds from the 

community spouse in cases of spousal refusal, while other states do not.

• Officials from other states told us that, in cases of spousal refusal, 

they do not take action against the community spouse.

 

46Generally, when an applicant assigns his or her support rights to a state, the state 

supports and pays for the medical care of the applicant. In exchange, the applicant agrees 

to cooperate in providing information and assisting the state in pursuing support from the 

community spouse.

47Under federal law, an institutionalized spouse cannot be considered financially ineligible 

due to excess resources if one of the following three conditions are met: (1) the 

institutionalized spouse has assigned to the state their rights to support from the 

community spouse; (2) the institutionalized spouse lacks the ability to execute an 

assignment of support rights due to physical or mental impairment, but the state has the 

right to sue the community spouse for support without such assignment; or (3) the state 

has determined that denial of eligibility would result in an undue hardship to the 

institutionalized spouse. 42 U.S.C. § 1396r-5(c)(3). 

Increasing the Amount of 

Assets the Community 

Spouse Retains

Spousal Refusal
 

Page 31 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Of the 70 married approved applicants whose files we reviewed, 13 had 

applications that contained a claim of spousal refusal. (See table 5.) 

These 13 applicants resided in two states and the community spouse 

retained a median value of $291,888 in nonhousing resources; two of the 

community spouses were able to retain over $1 million in nonhousing 

resources.48 Six of the 13 applicants also provided monthly income 

support to their community spouse.49

Table 5: Amount of Nonhousing Resources and Monthly Income Support Retained 

by the Community Spouse in Cases of Spousal Refusal, for Approved Applicants in 

Selected Counties in Three States

Applicant

Amount of nonhousing 

resources retained by the 

community spouse

Amount of monthly income 

provided by the institutionalized 

spouse to the community spouse

1 $13,306 $0

2 $47,214 $1,874

3 $126,627 $441

4 $146,862 $0

5 $194,912 $0

6 $212,611 $0

7 $291,888 $770

8 $352,936 $0

9 $394,189 $1,734

10 $432,860 $0

11 $452,251 $1,588

12 $1,429,209 $2,088

13 $1,585,467 $0

Source: GAO analysis of Medicaid application data.

Note: Data for four counties were from applications submitted during state fiscal year 2012, while data 

for two counties were from applications submitted between July 1, 2012, and December 31, 2012.

 

48The average amount of nonhousing resources the community spouse retained was 

$436,949, and ranged from $13,306 to $1,585,467. According the federal standards, the 

maximum amount of countable resources that a community spouse can retain is $117,240 

in 2014. That amount was $113,640 in 2012. 

49The amount of monthly income support provided to the community spouse averaged 

$1,416 and ranged from $441 to $2,088.
 

Page 32 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Married applicants may reduce their countable assets by purchasing an 

irrevocable and nonassignable annuity that pays out income to the 

community spouse. Although annuities for the community spouse must be 

actuarially sound—that is, they must pay out during the community 

spouse’s life expectancy—and must name the state as a remainder 

beneficiary, there are no other limitations on the time period in which 

annuities must pay out. Additionally, there is no limit on the amount of 

income from the annuity, as the community spouse’s income is not 

countable as part of the institutionalized spouse’s eligibility. While any 

portion of the income from the annuity that is not spent in the month it is 

received becomes a resource, a community spouse’s resources are 

generally not assessed again after his or her spouse is initially deemed 

eligible, and thus would not affect the institutionalized spouse’s 

eligibility.50

Thus, married applicants may use countable resources to purchase an 

irrevocable annuity that pays potentially large amounts of income for the 

community spouse over a short period of time without affecting the 

institutionalized spouse’s eligibility. A representative from one law office 

we spoke to in an undercover capacity suggested that the creation of an 

annuity can be done quickly and therefore, is a tool for last minute 

planning. Similar to the annuities for the applicant, Medicaid officials from 

several states said that the use of annuities for the community spouse 

has increased over the past few years. Officials from three states said 

that the increase may be a result of the passage of the DRA, because it 

clarified how annuities for the community spouse could be set up.

Married applicants may seek a court order that requires the 

institutionalized spouse to pay a specified monthly income or provide 

additional resources to support the community spouse. Such court orders 

could allow the community spouse to receive income or resources in 

excess of maximum standards. Federal law requires that a community 

spouse’s income allowance be no less than the amount of the court order 

of support.51

 

50Per federal law, a month after eligibility is determined, and during the continuous period 

in which the institutionalized spouse remains in an institution, the community spouse’s 

resources are deemed unavailable and thus not countable. 42 U.S.C § 1396r-5(c)(4). 

5142 U.S.C. § 1396r-5(d)(4). 

Annuities for the Community 

Spouse

Annuities for the Community Spouse

State Medicaid officials, county eligibility 

workers, and attorneys who provided 

information on the value of annuities for the 

community spouse reported average values 

ranging from $50,000 to $300,000. Officials 

from one state reported seeing annuities for 

the community spouse worth more than 

$1 million. Medicaid officials from one state 

indicated that they have seen annuities that 

disbursed all of the payments to the 

community spouse shortly after the annuity 

was purchased, while officials from another 

state said that annuities can have large 

monthly payments for the community spouse, 

such as $10,000 per month.

Court Order of Support
 

Page 33 GAO-14-473 Medicaid Nursing Home Financial Eligibility

One state Medicaid official that we spoke to said that applicants who use 

court orders will have a preeligibility asset test, or needs assessment, 

conducted to determine the amount of excess resources that the married 

couple would have to spend down before applying for Medicaid, after 

which they will seek a court order of resource support that allows the 

spouse to keep an amount of the couple’s combined resources that is 

above the state’s maximum resource allowance. Of the 70 married 

approved applicants whose files we reviewed, 1 applicant had a court 

order of spousal income support that required the institutionalized 

applicant to divert $5,014 of her monthly income to the community 

spouse, which was greater than the state’s minimum needs allowance.

Eligibility workers from all 12 counties in which we conducted interviews 

stated that bank statements were the most useful source of information 

for identifying and verifying applicants’ financial eligibility. According to the 

eligibility workers we spoke with, bank statements show transactions, 

such as payments of life insurance premiums, the movement of lump 

sums of money over time, or transfers of money in and out of accounts. 

Presumably, these workers had access to itemized bank statements—

periodic statements issued by a financial institution to its customers 

detailing all account activity for that period. Eligibility workers from one 

county said that bank statements allowed them to best understand an 

applicant’s financial history. Additionally, bank statements can include red 

flags or triggers that can lead eligibility workers to ask the applicant for 

additional information.

• For example, eligibility workers from counties in which we conducted 

interviews indicated that large withdrawals or patterns of withdrawals, 

incomplete documentation (e.g., missing pages), or an applicant 

having a large number of accounts can prompt further inquiry.

• Eligibility workers also reported that reviews of bank statements could 

lead to the identification of unreported assets or accounts. The most 

commonly unreported asset those eligibility workers reported finding 

in bank statements were life insurance policies. Specifically, eligibility 

workers from 7 of the 12 counties in which we conducted interviews 

reported that life insurance policies are commonly not reported and 

may be found while reviewing itemized bank statements because the 

statements may show a payment for the life insurance premium. Life 

insurance policies that have a cash value could affect an applicant’s 

eligibility.

Eligibility Workers 

Considered Bank 

Statements the Most 

Useful Source to 

Identify and Verify 

Applicants’ Financial 

Eligibility
 

Page 34 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Although eligibility workers indicated that bank statements are the most 

useful source of information on applicants’ assets, we have previously 

found that over half of states require only a single month’s documentation 

for financial and investment resources, such as bank accounts.52 Having 

only a single month’s bank statement could be sufficient to determine the 

current value of an applicant’s account, but it may not allow eligibility 

workers to identify patterns of withdrawals over time which could indicate 

the need for additional review. All the eligibility workers we interviewed, 

however, said they ask for additional information if they see large 

withdrawals in the bank statements that were submitted. For example, 

eligibility workers from one county that requires only a single month of 

documentation said if there is questionable information in the 

documentation they will request that the applicant submit additional 

months of documentation. Additionally, we previously found that few 

states require applicants to provide itemized bank statements as 

documentation of their resources.53

Some eligibility workers we interviewed indicated that applicants’ income 

tax returns were also a helpful source of information to identify applicants’ 

unreported assets. Specifically, eligibility workers from three counties (in 

two states) told us that that they ask applicants for a copy of their federal 

tax return. For example, eligibility workers from one county stated that 

they require applicants to provide 5 years of tax returns. These workers 

indicated that income tax returns include much information that workers 

would otherwise not be able to access, such as information about 

ownership of life insurance policies, stocks, or any other asset that earns 

dividends. In our previous work, we found that only one state requires the 

submission of income tax returns.

While applicants may submit itemized 

bank statements even if not required, without such detailed statements, 

eligibility workers may not be able to discover unreported assets, such as 

life insurance policies.

54

In addition to bank statements and tax returns, eligibility workers also 

reported finding some asset-related search tools helpful in identifying and 

verifying applicants’ assets and transfers. Workers from one county in 

Florida that had recently begun piloting an electronic asset verification 

 

52GAO-12-749. 

53GAO-12-749. 

54GAO-12-749. 
 

Page 35 GAO-14-473 Medicaid Nursing Home Financial Eligibility

system (AVS)55—a system that allows workers to contact multiple 

financial institutions to determine if an applicant has, or had, an account 

and the value of any existing accounts—noted that this new system has 

been useful in identifying unreported assets and transfers.56 The state’s 

AVS collects information from participating banks on any accounts held 

by an applicant for nursing home coverage in the prior 60 months. If a 

bank account is found, the information is populated into the state’s 

electronic eligibility system for eligibility workers to use in evaluating 

applicants’ financial eligibility. Officials from Florida told us that their AVS 

is connected to the vast majority of banks operating in their state. 

Although all states were required to have an electronic AVS in place by 

the end of fiscal year 2013,57 only 2 of the 12 states for which we 

conducted interviews reported having implemented an AVS. In our prior 

work, we found that states identified challenges to implementing an AVS, 

including a lack of resources—money, staff, or time—to implement the 

system, and challenges getting financial institutions to participate.58

Eligibility workers from one county reported using certain commercial 

investigative software that pulls together publically available information 

nationwide to help verify or identify applicants’ assets or transfers. This 

software can help eligibility workers find information on unreported assets 

and transfers, such as information about property deeds or ownership of 

a business. The workers reported that this software is used in cases 

where the eligibility worker suspects the applicant owns, for example, an 

out-of-state unreported asset. In this county, only the two eligibility worker 

supervisors and investigative staff have access to this software.

 

55In 2008, Congress passed legislation that required states to implement electronic AVS 

to verify the assets of aged, blind, or disabled applicants for Medicaid, including those 

seeking Medicaid coverage for long-term care, with financial institutions. Supplemental 

Appropriations Act, 2008, Pub. L. No. 110-252, § 7001(d)(1), 122 Stat. 2323, 2391 

(codified at 42 U.S.C. § 1396w).

56Florida began a pilot of its AVS in selected counties in October 2012, and implemented 

the program statewide in February 2013.

57The Supplemental Appropriations Act, 2008, required California, New Jersey, and New 

York to implement an AVS for aged, blind, and disabled applicants by the end of fiscal 

year 2009, and directed the Secretary of HHS to require the remaining states to 

implement their systems in a manner that results in a specified percentage of aged, blind, 

and disabled Medicaid applicants being subject to this type of asset verification each year 

of the 5-year period from fiscal year 2009 through fiscal year 2013. 

58GAO-12-749. 
 

Page 36 GAO-14-473 Medicaid Nursing Home Financial Eligibility

We provided a draft of this report to HHS for review. HHS had no general 

comments but provided technical comments that we incorporated as 

appropriate.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Administrator of CMS 

and other interested parties. In addition, the report will be available at no 

charge on the GAO website at http://www.gao.gov. 

If you or your staffs have any questions about this report, please contact 

me at (202) 512-7114 or yocomc@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made key contributions to this report 

are listed in appendix III. 

Carolyn L. Yocom

Director, Health Care

Agency Comments
Appendix I: Summary of Application Files 

Reviewed in Selected Counties in Three States

Page 37 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Of the 350 Medicaid applicants whose files we reviewed in selected 

counties in three states (Florida, New York, and South Carolina), most 

were over 75 years old, single, and female. (See table 6.) The median 

age of applicants was 84 years old. A majority of applicants— 

80 percent—had been living in a long-term care facility, such as a nursing 

home, at the time they applied for Medicaid coverage of nursing home 

care. The median length of time these applicants had been living in 

facilities was 2.3 months; the length of time ranged from less than 

1 month to 6 years. Some applicants—15 percent—were already covered 

under Medicaid for basic medical services at the time that they applied for 

coverage of nursing home care. Additionally, 24 percent of the applicants 

had evidence in their application file that they received assistance from an 

attorney or financial planner in applying for Medicaid coverage for nursing 

home care.

Table 6: Characteristics of Applicants Reviewed in Selected Counties in Three 

States (n=350)

Characteristic

Number of 

applicants

Percent of 

applicants

Age

65 to 69 29 8 

70 to 74 38 11

75 to 79 48 14

80 to 84 68 19

85 to 89 87 25

90 and older 80 23

Gendera

Female 234 67

Male 114 33

Marital status

Married 88 25

Single 262 75

Living in long-term care facility at time of application 278 80

Source: GAO analysis of Medicaid application data.

Note: Data for four counties were from applications submitted during state fiscal year 2012, while data 

for two counties were from applications submitted between July 1, 2012, and December 31, 2012.

a

We did not have information on the gender of two applicants.

Appendix I: Summary of Application Files 

Reviewed in Selected Counties in Three 

States
Appendix I: Summary of Application Files 

Reviewed in Selected Counties in Three States

Page 38 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Over 80 percent of the applicants whose files we reviewed (294 of 350) 

were approved for Medicaid coverage for nursing home care, while 

15 percent of applicants (52 of 350) were initially denied Medicaid 

coverage. (See fig. 5.) Most of these applicants (39 of 52) were denied 

because they failed to provide required documentation, a few were 

denied because they were not functionally eligible (4 of 52), and some 

applicants (11 of 52) were denied for financial reasons, including having 

income or resources that exceeded financial eligibility standards.1 For 

applicants denied for having excess income, the median amount of 

excess income was $77 per month; for those denied for excess 

resources, the median amount of excess resources was $20,407.2

 

1

Three applicants were denied for more than one reason.

Most 

applicants (9 of 11) who were initially denied for financial reasons 

reapplied and were later approved for Medicaid coverage for nursing 

home care. Of the 9 applicants who were later approved for Medicaid, 

3 applicants spent down assets on long-term care or medical expenses, 

2 applicants spent down assets on other goods or services, 2 applicants 

placed excess income into a qualified income trust, and 2 applicants were 

later approved for other or unknown reasons.

2

The amount of excess income averaged $166 per month and ranged from $9 to $412 per 

month. The amount of excess resources averaged $59,063 and ranged from $7,964 to 

$182,649.
Appendix I: Summary of Application Files 

Reviewed in Selected Counties in Three States

Page 39 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Figure 5: Application Status of Medicaid Applicants Reviewed in Selected Counties in Three States (n=350)

Notes: Data for four counties were from applications submitted during state fiscal year 2012, while 

data for two counties were from applications submitted between July 1, 2012, and December 31, 

2012.

a

A total of 52 of the 350 applicants whose files we reviewed were denied. However, three applicants 

were denied for more than one reason and are included in the count for both categories for which 

they were denied.
Appendix II: Scope and Methodology

Page 40 GAO-14-473 Medicaid Nursing Home Financial Eligibility

To examine the financial characteristics of applicants approved for 

Medicaid nursing home coverage, we reviewed a random sample of 

Medicaid nursing home application files in selected counties in three 

states. To select states, we used information from a 2011 GAO webbased survey of Medicaid officials from each of the 50 states and the 

District of Columbia.1

1. verify applicants’ assets with financial institutions;

We scored states based on their survey responses 

to questions on the extent to which they:

2. conduct property record searches; and

3. obtain information covering the 60-month look-back period.

Weighing each question equally, we ranked states on the basis of their 

total score and placed them into three groups (low, medium, and high) 

using naturally occurring breaks in the data. (See table 7.) In selecting 

states, we considered the geographic dispersion of states, as well as the 

following:

• among states in the “low” group, we focused on states that reported 

generally obtaining only 1 month of documentation; and

• among states in the “high” group, we focused on states that reported 

conducting all three activities to some extent—verifying assets with 

financial institutions, conducting property searches, and obtaining 

60 months of documentation.

 

1

GAO, Medicaid Long-Term Care: Information Obtained by States about Applicants’ 

Assets Varies and May be Insufficient, GAO-12-749 (Washington, D.C.: July 26, 2012). 

The survey requested information about the types of documentation, if any, that states 

require applicants for Medicaid coverage for long-term care to submit for 13 types of 

assets: (1) earned income, (2) unearned income, (3) financial and investment resources, 

(4) life insurance, (5) primary residence, (6) real property other than primary residence, 

(7) vehicles, (8) annuities, (9) burial contracts and prepaid funeral arrangements, 

(10) continuing care retirement community entrance fees, (11) life estates, (12) promissory 

notes or loans, and (13) trusts. In addition, the survey asked about the number of months 

of documentation states required for earned income, unearned income, and financial and 

investment resources. The survey also asked about states’ practices to obtain information 

from third parties to verify applicants’ assets, such as whether, and to what extent, states 

conduct data matches with 10 sources, including the Social Security Administration and 

the Internal Revenue Service, which primarily allow states to verify applicants’ income. 

Finally, the survey asked about any additional documentation states require or additional 

steps states take to determine whether applicants transferred assets for less than fair 

market value during the 60-month look-back period.

Appendix II: Scope and Methodology
Appendix II: Scope and Methodology

Page 41 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Table 7: Groups Used for State Sample Selection

Group Total Number of States States 

Low 14 Arizona, Arkansas, California, District of Columbia, Florida, Idaho, Massachusetts, 

Minnesota, Nebraska, New Mexico, North Dakota, Tennessee, Virginia, West Virginia

Medium 22 Alaska, Colorado, Delaware, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, 

Louisiana, Michigan, Mississippi, Ohio, Oklahoma, Oregon, Pennsylvania, South Dakota, 

Texas, Utah, Washington, Wisconsin, Wyoming

High 15 Alabama, Connecticut, Hawaii, Maine, Maryland, Missouri, Montana, Nevada, New 

Hampshire, New Jersey, New York, North Carolina, Rhode Island, South Carolina, 

Vermont 

Source: GAO survey of Medicaid officials in 50 states and the District of Columbia, 2011.

From the ranked group of low and high states, we selected an initial set of 

states plus additional alternative states, and conducted interviews with 

state officials to determine whether they could provide us with needed 

data in order to select a sample of counties and application files to 

review.2

To choose counties in our selected states, we considered three factors.

If a state informed us they were unable to provide such data, we 

replaced the state with the next alternative state from the respective 

group. We interviewed officials from a total of 11 states. Officials from 

6 states (2 high and 4 low) told us they were unable to produce needed 

data due to data system limitations. Officials from 1 state (a high state) 

told us they were technically able to produce needed data but would not 

be able to do so within a reasonable timeframe due to competing 

demands for their information technology resources. This left us with 

4 states—2 high states and 2 low states—that were able to produce the 

data we needed. Based on these interviews, we selected one state from 

the low group (Florida) and two states from the high group (New York 

and South Carolina). In 2012, Medicaid spending for institutional longterm care was $3.3 billion in Florida, $11.5 billion in New York, and 

$801 million in South Carolina.

1. Size of the population aged 65 and older.3

 

2

In making this selection, we excluded some states, such as states that had smaller 

populations, states that had lower median incomes among the population aged 65 and 

older; and states that, to our knowledge, had not implemented the Deficit Reduction Act of 

2005 by our time period of interest, which was generally state fiscal year 2012.

3

We used information from the Profile of General Population and Housing Characteristics: 

2010, U.S. Census Bureau.
Appendix II: Scope and Methodology

Page 42 GAO-14-473 Medicaid Nursing Home Financial Eligibility

2. Median income of households with householders aged 65 and older.4

3. Number of Medicaid nursing home applications received.5

For the three factors, we ranked the counties within each selected state 

from high to low. We chose two counties that appeared in the top 20 

ranking for all three factors in Florida,6

Table 8: Selected States and Counties

or the top 10 ranking for all three 

factors in New York and South Carolina. (See table 8.)

Selected states Selected counties

Florida Palm Beach and Sarasota

South Carolina Charleston and Richland

New York Nassau and Westchester

Source: GAO.

Each selected state sent us a list of individuals aged 65 or over who 

submitted an application for Medicaid coverage for nursing home care 

during our requested time period in our selected counties—for Florida and 

South Carolina, we received a list of applicants who applied for services 

from July 1, 2011, through June 30, 2012, and for New York, we received 

a list of applicants who applied from July 1, 2012, through December 31, 

2012. From the lists provided by the states, we randomly selected 

application files. In order to compensate for application files that would 

need to be skipped because we determined that they did not meet our 

criteria or lacked adequate information, we requested additional files in 

each county. When we determined that an application file was unusable, 

we included the next application file on our randomly generated list.

 

4

We used information from the Median Household Income in the Past 12 Months (in 2010 

Inflation-Adjusted Dollars) by Age of Householder, U.S. Census Bureau, 2006-2010 

American Community Survey.

5

We used information provided by state officials in each of the three states. For Florida 

and South Carolina, we used data on the number of applications received for Medicaid 

coverage for nursing home services from individuals aged 65 and older from July 1, 2011, 

through June 30, 2012. Due to limitations in New York’s data systems, we used data on 

the number of applications received for Medicaid coverage for nursing home services from 

individuals aged 65 and older from July 1, 2012, through December 31, 2012.

6

No counties in Florida were in the top 10 for all three factors.
Appendix II: Scope and Methodology

Page 43 GAO-14-473 Medicaid Nursing Home Financial Eligibility

We based the number of application files selected for review in each 

county on the total number of Medicaid nursing home applications that 

the county received from applicants aged 65 and older during our 

requested time period. We reviewed a total of 350 nursing home 

application files, of which 294 were approved for Medicaid coverage of 

nursing home care, including those that were approved and incurred a 

penalty period. (See table 9.)

Table 9: Number of Files Reviewed, by Selected State and County

Selected state Selected county

Total number of 

files reviewed

Number of approved 

files reviewed

Florida Palm Beach 67 53

Sarasota 59 53

Total 126 106

New York Nassau 57 50

Westchester 57 40

Total 114 90

South Carolina Charleston 52 47

Richland 58 51

Total 110 98

Total 350 294

Source: GAO.

We established a file review protocol whereby we reviewed and recorded 

the earliest Medicaid application for nursing home care in each file during 

the requested time period. If this application was denied, then we 

recorded data from that application, as well as certain data from the last 

application subsequently submitted by the time in which we reviewed 

files, if there was one. From each application, we collected and analyzed 

data on the amount and type of applicants’ income and resources, 

including both countable and noncountable resources; certain applicant 

demographic information, such as marital status; and whether applicants 

were found to have transferred assets for less than fair market value 

(FMV) during the look-back period, how the assets were transferred, and 

the value of the assets transferred.

Since the selected counties used the information in these application files 

to determine eligibility for Medicaid coverage for nursing home care, we 

did not independently verify the accuracy of the information contained in 

the files. However, to ensure that the information we entered into our data 

collection instrument was consistent with the information found in the 
Appendix II: Scope and Methodology

Page 44 GAO-14-473 Medicaid Nursing Home Financial Eligibility

application files, we conducted independent file verifications, which 

resulted in verification of at least 20 percent of the files reviewed. For 

some applicants, while the application file noted the applicant had income 

from a certain source or owned a certain type of resource, the amount of 

income or value of the resource was missing. This missing information 

may have affected the distributions of applicants by their amount of 

income or resources, as well as the medians, averages, and ranges of 

income and resources we report. Where applicable, we provide 

information on the extent of missing information in our analysis. 

Additionally, we conducted electronic tests of the data collected to 

determine whether there were obvious errors. In some cases, we 

combined variables to create new ones. For example, we collected and 

identified several types of applicant resources, but ultimately combined 

them into two categories—total resources and noncountable resources. 

Based on these procedures, we determined that the data were sufficiently 

reliable for the purposes of this report. The data from the 294 approved 

application files cannot be generalized to other approved applicants.

To identify the methods used to reduce countable assets to qualify for 

Medicaid coverage for nursing home care, we reviewed applicable federal 

laws and guidance, and spoke with officials from the Centers for Medicare 

& Medicaid Services (CMS), the agency within the Department of Health 

and Human Services (HHS) that oversees the Medicaid program. We 

also used information from the following sources:

• Interviews with attorneys: We interviewed 9 of 16 attorneys 

recommended to us by the Director of the American Bar Association’s 

Commission on Law and Aging. To select among the recommended 

attorneys, we considered the state in which the attorney practiced and 

our previously established grouping of the extent to which states take 

steps to verify applicants’ assets. We selected attorneys from each 

group and from as many different states as possible, including states 

where we conducted file reviews.

• Undercover calls with law office representatives: We conducted 

undercover calls with representatives from a selection of law offices 

whose websites indicated that they offered Medicaid planning 
Appendix II: Scope and Methodology

Page 45 GAO-14-473 Medicaid Nursing Home Financial Eligibility

services for elderly individuals.7 We contacted 36 law offices for the 

undercover calls and determined 17 of the calls to be successful—that 

is, an attorney or another representative was willing to provide 

information over the phone and free of charge.8

• Interviews with state Medicaid officials: We interviewed state Medicaid 

officials from the 3 states in which we reviewed files, as well as 9 

additional states (for a total of 12 states) about the methods used by 

applicants in their state to reduce countable assets, and any steps 

that the state has taken to try to alleviate or eliminate the use of such 

methods. We selected the states based on information collected from 

our calls with attorneys, undercover calls with representatives from 

law offices, information from background literature, and data on the 

percentage of the population aged 65 and older and the percentage of 

elderly (age 65 and older) with income at or above 150 percent of the 

poverty level. We also considered geographic variation. The 12 states 

from which we interviewed Medicaid officials were: Colorado, 

Connecticut, Florida, Massachusetts, Michigan, New Jersey, New 

York, Ohio, Rhode Island, South Carolina, Vermont, and Washington.

During the calls, our 

investigator used one of three scenarios in which he posed as an 

adult child seeking advice on ways in which he could obtain Medicaid 

coverage for nursing home care for his parent, while preserving the 

parent’s assets for a spouse or heirs. The different scenarios created 

were intended to test for potential differences in planning methods 

based on marital status and the timing of the need for nursing home 

care. Two scenarios involved an elderly parent with an immediate 

need for care (one for a married individual and one for a widow) and 

the third scenario involved an elderly parent for whom the need for 

long-term care services was not immediate, but would likely occur 

sometime in the future (possibly beyond the 60-month look-back 

period).

 

7

To identify these professionals, we conducted an Internet search using search terms 

related to Medicaid planning and long-term care to identify attorneys or financial planners 

that offered Medicaid planning services for elderly individuals. We took the first 100 results 

from the search, all of which were law offices, and selected offices to contact based on the 

services they advertised providing, and taking into consideration geographic variation. In 

case some law offices were not responsive to our inquiry, we had a methodology for 

selecting alternatives to ensure continued geographic variation.

8

We considered our contacts with the other 19 law offices as unsuccessful for the 

following reasons: the office informed us that they required a fee for consultation, an inperson consultation, or both (10 offices); the office informed us that they were unable to 

provide assistance, but could provide a referral to someone else (2 offices); or we were 

unable to make contact with the office after repeated contact attempts (7 offices).
Appendix II: Scope and Methodology

Page 46 GAO-14-473 Medicaid Nursing Home Financial Eligibility

• Interviews with county eligibility workers: We conducted in-person, 

semi-structured group interviews with eligibility workers from two 

counties from the three states in which we conducted file reviews, as 

well as from three additional states.9 To select the three additional 

states, we used information from interviews with attorneys, 

undercover calls with representatives from law offices, and literature. 

We also took into consideration geographic distribution of states. To 

choose counties in the additional states, we ranked the counties in 

each state based on the size of the population aged 65 and older,10

and median income of households with householders aged 65 and 

older.11

In addition, where feasible, we used information collected from our review 

of Medicaid nursing home application files to supplement the information 

obtained from our interviews and undercover calls.

To identify the information eligibility workers considered the most useful 

for identifying and verifying applicants’ financial eligibility, we used 

information from the interviews conducted with county eligibility workers in 

two counties in six states.

We conducted this performance audit from September 2012 to May 2014 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. We conducted our related 

investigative work in accordance with investigation standards prescribed 

by the Council of the Inspectors General on Integrity and Efficiency.

 

9

We requested that the eligibility workers interviewed had reviewed Medicaid long-term 

care applications for at least 12 months, were considered specialists in Medicaid longterm care applications or primarily process these types of applications, and were not 

supervisors.

10We used information from the Profile of General Population and Housing 

Characteristics: 2010, U.S. Census Bureau.

11We used information from the Median Household Income in the Past 12 Months (in 2010 

Inflation-Adjusted Dollars) by Age of Householder, U.S. Census Bureau, 2006-2010 

American Community Survey.
Appendix III: Contact and Staff 

Acknowledgments

Page 47 GAO-14-473 Medicaid Nursing Home Financial Eligibility

Carolyn L. Yocom, (202) 512-7114 or yocomc@gao.gov.

In addition to the contact named above, Michelle B. Rosenberg, Assistant 

Director; Kaycee M. Glavich; Robert Graves; Drew Long; Katherine Mack; 

Linda McIver; Vikki Porter; Daniel Ries; Laurie F. Thurber; and 

Jennifer Whitworth made key contributions to this report.

Appendix III: Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(291062)
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