United States Government Accountability Office

GAO Report to Congressional Requesters 

MEDICAID 

LONG-TERM CARE 

Few Transferred 

Assets before 

Applying for Nursing 

Home Coverage; 

Impact of Deficit 

Reduction Act on 

Eligibility Is Uncertain

March 2007 

 

GAO-07-280 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 2007

MEDICAID LONG-TERM CARE 

Few Transferred Assets before Applying 

for Nursing Home Coverage; Impact of 

Deficit Reduction Act on Eligibility Is 

Uncertain 

Highlights of GAO-07-280, a report to 

congressional requesters 

The Medicaid program paid for 

nearly one-half of the nation’s total 

long-term care expenditures in 

2004. To be eligible for Medicaid 

long-term care, individuals may 

transfer assets (income and 

resources) to others to ensure that 

their assets fall below certain 

limits. Individuals who make

transfers for less than fair market

value (FMV) can be subject to a 

penalty that may delay Medicaid

coverage. The Deficit Reduction 

Act of 2005 (DRA) changed the

calculation and timing of the 

penalty period and set 

requirements for the treatment of

certain types of assets. GAO was 

asked to provide data on the extent 

to which asset transfers for less 

than FMV occur. 

GAO examined (1) the financial 

characteristics of elderly nursing

home residents nationwide, (2) the 

demographic and financial

characteristics of a sample of 

Medicaid nursing home applicants,

(3) the extent to which these 

applicants transferred assets for 

less than FMV, and (4) the potential

effects of the DRA provisions 

related to Medicaid eligibility for 

long-term care. GAO analyzed data

from the Health and Retirement

Study (HRS), a national panel 

survey, and from 540 randomly

selected Medicaid nursing home 

application files from 3 counties in 

each of 3 states (Maryland,

Pennsylvania, and South Carolina). 

State and county selections were 

based on the prevalence of several 

factors, including population, 

income, and demographics.

Nationwide, HRS data showed that, at the time most elderly individuals

entered a nursing home, they had nonhousing resources of $70,000 or less—

less than the average cost for a year of private-pay nursing home care. 

Overall, nursing home residents covered by Medicaid had fewer nonhousing 

resources and lower annual incomes, and were less likely to have reported 

transferring cash than non-Medicaid-covered nursing home residents. 

Similar to the nationwide results, GAO’s review of 540 Medicaid nursing 

home applications in three states showed that over 90 percent of the 

applicants had nonhousing resources of $30,000 or less and 85 percent had 

annual incomes of $20,000 or less. One-fourth of applicants owned homes, 

with a median home value of $52,954. Over 80 percent of applicants had been

living in long-term care facilities for an average of a little over 4 months at 

the time of their application. Of the 540 applicants, 408 were approved for 

Medicaid coverage for nursing home services the first time they applied and 

122 were denied. Of the denied applicants, 56 were denied for having income

or resources that exceeded the standards, 41 of whom submitted subsequent 

applications and were eventually approved, primarily by decreasing the 

value of their nonhousing resources. For about one-third of these applicants, 

at least part of the decrease in nonhousing resources could be attributed to 

spending on medical or nursing home care. 

Approximately 10 percent of approved applicants in the three states (47 of 

465) transferred assets for less than FMV, with a median amount of $15,152. 

The average length of the penalty period assessed for the 47 applicants was 

about 6 months. However, only 2 of these applicants experienced a delay in 

Medicaid eligibility as a result of the transfers because many applicants’

assessed penalties had expired by the time they applied for coverage. 

The extent to which DRA long-term care provisions will affect applicants’

eligibility for Medicaid is uncertain. DRA provisions regarding changes to 

penalty periods could increase the likelihood that applicants who transfer 

assets for less than FMV will experience a delay in Medicaid eligibility, but 

the extent of the delay is uncertain. Several factors could affect the extent to 

which DRA penalty period provisions actually delay eligibility for Medicaid. 

These factors include whether an applicant transferred assets for less than 

FMV before or after the DRA was enacted and a potential increase in 

requests for waived penalty periods due to undue hardship—circumstances 

under which individuals are deprived of medical care, food, clothing, shelter, 

or other necessities of life. Other DRA provisions may have limited effects 

on eligibility. For example, provisions pertaining to home equity may have 

limited impact because few applicants whose files GAO reviewed had home 

equity of sufficient value to be affected. 

CMS, Maryland, and South Carolina generally agreed with the report’s 

findings; Pennsylvania did not provide comments. 

www.gao.gov/cgi-bin/getrpt?GAO-07-280.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Kathryn G. 

Allen at (202) 512-7118 or allenk@gao.gov. 
Contents 

Letter 1

Results in Brief 6 

Background 8

Nationwide, Most Nursing Home Residents’ Nonhousing Resources 

Were Lower than Annual Nursing Home Costs 17 

Majority of Medicaid Applicants in Selected Counties in Three 

States Had Few Nonhousing Resources and Were Approved 

upon Initial Application 21 

Few Transfers below FMV Identified for Applications Reviewed 

and Penalties Rarely Delayed Eligibility 28 

Extent to Which Some DRA Long-Term Care Provisions May Affect 

Eligibility Is Uncertain 35 

Agency and State Comments and Our Evaluation 41 

Appendix I Scope and Methodology 43 

Appendix II Comments from the Centers for Medicare & 

Medicaid Services 50 

Appendix III Comments from the State of South Carolina 

Department of Health and Human Services 53 

Appendix IV GAO Contact and Staff Acknowledgments 55 

Tables 

Table 1: Types of Assets and Examples 10 

Table 2: Income and Resource Standards for Selected Ways of 

Becoming Eligible for Medicaid, as of 2005 11 

Table 3: DRA Changes to Provisions Related to Transfers of Assets 15 

Table 4: New Provisions Introduced by the DRA Related to 

Medicaid Eligibility for Long-Term Care and Asset 

Transfers 16

Page i GAO-07-280 Medicaid and Asset Transfers 
Table 5: Amounts of Cash Transferred at Entry and Prior to Entry 

into the Nursing Home Reported by Elderly Nursing Home 

Residents, by Payer Source, 1992-2004 20 

Table 6: Percentage of Approved Applicants Whose Files Indicated 

They Had Transferred Assets for Less than FMV, by State 

and Selected County 29 

Table 7: Percentage of Assets Transferred for Less than FMV by 

Type of Asset for 47 Approved Applicants in Selected 

Counties in Three States 35 

Table 8: Clusters Used for State Sample Selection 45 

Table 9: Selected States and Counties, by County-Level Median

Household Income Group 47 

Table 10: Number of Files Reviewed, by Selected State and County 47 

Figures 

Figure 1: Distribution of Nonhousing Resources as Reported by 

Elderly Nursing Home Residents at the Time They

Entered the Nursing Home, 1992-2004 18 

Figure 2: Distribution of Annual Income as Reported by Elderly 

Nursing Home Residents at the Time They Entered the 

Nursing Home, 1992-2004 19 

Figure 3: Distribution of Nonhousing Resources of Medicaid 

Applicants in Selected Counties in Three States 22 

Figure 4: Distribution of Annual Income of Medicaid Applicants in 

Selected Counties in Three States 23 

Figure 5: Percentage of All Applicants in Selected Counties in 

Three States, by Application Status (n=540) 25 

Figure 6: Percentage of Initially Denied Applicants in Selected

Counties in Three States, by Reasons for Denial (n=122) 26 

Figure 7: Median Nonhousing Resources and Median Annual 

Income of Reviewed Applicants in Selected Counties in 

Three States Who Were Initially Denied Only for Financial 

Reasons and Subsequently Approved, at Time of Initial 

Application and Subsequent Application (n=41) 27 

Figure 8: Percentage of Approved Applicants and Approved 

Applicants Who Transferred Assets for Less than FMV, by 

Gender and Marital Status 30 

Figure 9: Median Nonhousing Resources and Income for Approved 

Applicants and Approved Applicants Who Transferred 

Assets for Less than FMV 31 

Page ii GAO-07-280 Medicaid and Asset Transfers 
Figure 10: Distribution of 47 Approved Applicants Who Transferred 

Assets for Less than FMV, by Length of Assessed Penalty 

Periods, in Months 32 

Figure 11: Distribution of 47 Approved Applicants Who Transferred 

Assets for Less than FMV, by Amount Transferred 33 

Figure 12: Distribution of 47 Approved Applicants Who Transferred 

Assets for Less than FMV, by Number of Transfers 34 

Figure 13: Example of How the DRA Penalty Period Provisions 

Could Delay Medicaid Eligibility for Applicants Who 

Transfer Assets for Less than FMV 37 

Abbreviations 

ADL activities of daily living 

CMS Centers for Medicare & Medicaid Services 

CPI Consumer Price Index 

DRA Deficit Reduction Act of 2005 

FMV fair market value 

HHS Department of Health and Human Services 

HRS Health and Retirement Study 

IADL instrumental activities of daily living 

SSI Supplemental Security Income 

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Page iii GAO-07-280 Medicaid and Asset Transfers 
United States Government Accountability Office

Washington, DC 20548 

March 26, 2007 

The Honorable John D. Dingell 

Chairman 

Committee on Energy and Commerce 

House of Representatives 

The Honorable Henry A. Waxman 

Chairman 

Committee on Oversight and Government Reform 

House of Representatives 

The Honorable Frank J. Pallone, Jr.

Chairman 

Subcommittee on Health

Committee on Energy and Commerce 

House of Representatives 

The Honorable Sherrod Brown 

United States Senate 

Long-term care is costly—particularly nursing home care, which is 

estimated to average more than $70,000 a year for a private-pay patient.1

Medicaid, the joint federal-state health care financing program that covers 

certain categories of low-income individuals, paid for nearly one-half of 

the nation’s total long-term care expenditures of about $193 billion in 2004. 

As such, long-term care expenditures were a significant portion of total 

Medicaid expenditures in 2004, comprising 32 percent of the total 

$296 billion spent. As the nation’s population ages and more individuals 

are likely to need long-term care services, federal Medicaid spending is 

expected to nearly double in size during the next 10 years.2

 In light of the 

associated increased demand and burden that these trends place on

 1

Congressional Budget Office, The Cost and Financing of Long-Term Care Services, 

April 19, 2005, Statement before the Subcommittee on Health, Committee on Ways and 

Means, U.S. House of Representatives, and Metlife Mature Market Institute, The MetLife 

Market Survey of Nursing Home & Home Care Costs (Westport, Conn.: September 2006).

2

Congressional Budget Office, Medicaid Spending Growth and Options for Controlling 

Costs, July 13, 2006, Statement before the Special Committee on Aging, U.S. Senate. 

Page 1 GAO-07-280 Medicaid and Asset Transfers 
federal and state budgets,3

 it is important to ensure that Medicaid coverage

for long-term care is limited to those who are truly eligible. 

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

certain financial and functional eligibility criteria.

4

 To meet the financial 

eligibility criteria, individuals must have assets—both income and 

resources—that fall below established standards, which vary by state but 

are within standards set by the federal government.5 Not all assets are 

counted in determining financial eligibility for Medicaid. For example, 

states generally exclude—within specified limits—the value of an 

individual’s home, car, and prepaid burial arrangements. Additionally, 

federal law includes provisions to discourage individuals from artificially

impoverishing themselves—for example, by transferring their assets to 

certain family members—in order to establish financial eligibility. 

Specifically, the law states that those who transfer assets for less than fair 

market value (FMV) during a specified “look-back” period—a period of 

time before application 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.

 3

GAO, 21st Century Challenges: Transforming Government to Meet Current and

Emerging Challenges, GAO-05-830T (Washington, D.C.: July 13, 2005); GAO, Long-Term 

Care Financing: Growing Demand and Cost of Services Are Straining Federal and State 

Budgets, GAO-05-564T (Washington, D.C.: Apr. 27, 2005); and Long-Term Care: Aging 

Baby Boom Generation Will Increase Demand and Burden on Federal and State Budgets, 

GAO-02-544T (Washington, D.C.: Mar. 21, 2002). 

4

For this report, we focus on financial eligibility—specifically financial eligibility for 

Medicaid coverage for long-term care. However, individuals applying for Medicaid 

coverage for long-term care must also meet functional eligibility criteria that are 

established by each state and generally involve a degree of impairment measured by 

limitations in an individual’s ability to carry out activities of daily living (ADL)—eating, 

bathing, dressing, using the toilet, getting in and out of bed, and getting around the house—

and instrumental activities of daily living (IADL), such as preparing meals, shopping for

groceries, and getting around outside. 

5

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 savings accounts, stocks, 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.

Page 2 GAO-07-280 Medicaid and Asset Transfers 
Evidence on the extent to which individuals transfer assets for less than 

FMV to become financially eligible for Medicaid coverage for long-term 

care is generally limited and often based on anecdote. In September 2005,

we reported that none of the nine states we contacted systematically 

tracked or analyzed data that would have provided information on the 

incidence of asset transfers made for less than FMV and the extent to 

which penalties were applied in their states.6

 We also reported that other 

methods of reducing assets to qualify for Medicaid—such as using assets 

to reduce debt or make home modifications—did not always result in a 

penalty period. You asked us to expand on this work to provide more 

information on the extent to which asset transfers for less than FMV 

occur. 

Subsequent to your request, in February 2006, the Deficit Reduction Act of

2005 (DRA), which amended certain existing provisions regarding asset 

transfers for less than FMV and introduced new requirements related to 

financial eligibility for Medicaid coverage for long-term care, was enacted.7

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 federal requirements regarding certain types of assets, 

including an individual’s home. 

Given your request and the passage of the DRA, for this report we 

(1) examined the financial characteristics of elderly nursing home 

residents nationwide, including the extent to which they transferred cash; 

(2) for selected states, reviewed the demographic and financial 

characteristics of elderly individuals who applied for Medicaid coverage 

for nursing home care and if they applied more than once; (3) determined 

the extent to which elderly Medicaid nursing home applicants in selected 

states transferred assets for less than FMV and were subject to penalty 

periods; and (4) assessed the potential effects of the DRA provisions 

related to eligibility for Medicaid coverage for long-term care. 

To examine the financial characteristics of elderly nursing home residents 

nationwide, including the extent to which they transferred cash, we 

analyzed data from the Health and Retirement Study (HRS), a longitudinal 

 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. 

Page 3 GAO-07-280 Medicaid and Asset Transfers 
national panel survey, sponsored by the National Institute on Aging and 

conducted every 2 years by the University of Michigan. We used HRS data 

from 1992 through 2004 to estimate the (1) level of assets (nonhousing 

resources and income) held by elderly nursing home residents8

 and (2) the 

percentage of residents who transferred cash or the deed to their home 

and the amount of the transfer.9

 We further analyzed the above based on 

the reported source of payment to the nursing home—Medicaid or nonMedicaid (self-pay, Medicare, or other third-party insurance)—and 

assessed nonhousing resources relative to the average cost of a year of 

private-pay nursing home care. Because HRS only addressed cash and 

home deed transfers made to relatives, our analysis understates the 

percentage of residents who transfer and the amount of transfers by 

excluding transfers of other types of assets or transfers made to other 

individuals.10 Because HRS did not inquire about the reason for the 

transfers, no conclusions can be drawn regarding whether the survey 

respondents made these transfers for purposes of establishing eligibility 

for Medicaid coverage for nursing home care. To examine the

characteristics of elderly individuals who applied for Medicaid coverage 

for nursing home care and the extent to which they transferred assets for 

less than FMV, we reviewed 540 randomly selected Medicaid nursing home 

application files from three selected counties in 3 selected states (180 files

from each of the selected states).11 To select states, we assessed the 

 8

For the purpose of our analysis, we defined elderly nursing home residents as individuals

aged 65 or older who have been surveyed prior to the survey period in which they entered 

into a nursing home and who said they (1) lived permanently in a nursing home, (2) spent 

at least 360 nights in a nursing home, or (3) spent 180 to 360 days in a nursing home and 

died in a later survey period; had at least 3 ADLs, cancer, or lung disease; or had heart 

disease and reported some difficulty with mobility. For those respondents who were

couples, defined as both married couples and a small percentage of nonmarried individuals 

living together, we required that at least one person in the household meet the above 

criteria. 

9

Since the data for this analysis are from multiple years, we converted all dollar figures into 

2004 dollars, using the current methods series of the Consumer Price Index (CPI) for all 

urban consumers.

10HRS asked respondents whether they had transferred cash to a child/grandchild during

the survey period prior to the interview. Additionally, HRS asked respondents whether they 

had transferred the deed to their home to a child/grandchild. The data we report here, 

therefore, refer only to these transfers. 

11The dates of the applications we analyzed ranged from March 1989 to April 2006. Ninetyeight percent of the applications we analyzed were from 2005 or before. As a result, 

information regarding Medicaid eligibility levels is provided for 2005, with notes added to

explain the 2007 levels when they differ. 

Page 4 GAO-07-280 Medicaid and Asset Transfers 
prevalence of five factors in each of the 50 states and the District of 

Columbia;12 on the basis of this assessment, we ranked the states into three 

clusters (low, medium, and high) based on the prevalence of the five

factors and judgmentally selected one state from each cluster.13 The 

3 selected states were South Carolina (low), Maryland (medium), and 

Pennsylvania (high). We then judgmentally selected three counties in each

state based on the prevalence of four factors.14 From the 540 Medicaid 

nursing home application files, we collected and analyzed data on the 

applicants’ demographic characteristics, income, nonhousing resources, 

and home value. We also collected and analyzed data on the number of 

applicants who transferred assets for less than FMV and the amount they 

transferred. Because of the parameters set in our methodology, the data 

from the 540 Medicaid nursing home application files can be generalized to 

the county level but cannot be generalized to the state or national level.15

To assess the potential effects of the DRA, we relied on data from HRS and 

the 540 Medicaid nursing home application files, as well as interviewing 

officials from the 3 selected states regarding Medicaid eligibility 

determination practices, including the process for identifying whether 

applicants had transferred assets.16 We reviewed applicable federal law 

related to Medicaid and asset transfers, as well as related guidance from 

the Centers for Medicare & Medicaid Services (CMS). We also spoke with 

researchers and CMS officials. We considered the HRS data as well as data

from the Medicaid application files to be sufficiently reliable for our 

purposes. (See app. I for more information about our scope and 

 12Throughout this report, the term state refers to the 50 states and the District of Columbia. 

13The five factors were (1) percentage of the population aged 65 and over, (2) cost of a

nursing home stay for a private room for a private-pay patient, (3) proportion of elderly 

(aged 65 and over) with incomes at or above 250 percent of the U.S. poverty level ($23,925

for a single-person household in 2005), (4) reported Medicaid nursing home expenditures,

and (5) availability of legal services specifically to meet the needs of the elderly and 

disabled. 

14The four factors were (1) number of Medicaid applicants or enrollments for nursing home 

coverage from individuals aged 65 and over, (2) number of licensed nursing home beds, 

(3) population aged 65 and over, and (4) median household income. 

15We included the following counties in our sample: South Carolina—Orangeburg (Low),

Charleston (Medium), and Greenville (High); Maryland—Baltimore City (Low), Baltimore

(Medium), and Montgomery (High); and Pennsylvania—Philadelphia (Low), Allegheny 

(Medium), and Montgomery (High). 

16The effects of the DRA provisions are not incorporated into our other analyses because 

(1) the HRS data we used are from years prior to the DRA’s enactment, and (2) the data

from the application file reviews are from prior to the three states’ implementation of the

DRA. 

Page 5 GAO-07-280 Medicaid and Asset Transfers 
methodology.) We performed our work from October 2005 through 

January 2007 in accordance with generally accepted government auditing

standards. 

Nationwide, at the time most elderly individuals entered a nursing home, 

they had nonhousing resources of $70,000 or less—which is less than the 

average cost for a year of private-pay nursing home care. According to 

data from HRS, median nonhousing resources for Medicaid-covered 

elderly nursing home residents ($48) were lower than for the nonMedicaid-covered elderly nursing home residents ($36,123). Regarding 

income, approximately 90 percent of elderly nursing home residents had 

annual incomes of $20,000 or less. Median annual income for Medicaidcovered elderly nursing home residents ($9,719) was about half that for 

non-Medicaid-covered residents ($18,600). Similarly, the percentage of 

Medicaid-covered elderly nursing home residents who reported 

transferring cash (9.2 percent) was less than half that for non-Medicaid 

covered residents (23.2 percent) at time of entry into the nursing home. 

However, the median amount of cash transferred as reported by Medicaidcovered residents and non-Medicaid-covered residents did not vary 

greatly. 

Results in Brief 

Similar to the nationwide results, our review of 540 Medicaid nursing 

home application files in selected counties in three states showed that 

about 90 percent of the applicants had total nonhousing resources of 

$30,000 or less and 85 percent had annual incomes of $20,000 or less. Over 

80 percent of applicants had been living in long-term care facilities for an 

average of a little over 4 months at the time of their Medicaid application.

The majority of the applicants were single females, and 25 percent of the

applicants (137 applicants) owned homes. For the 112 applicants for 

whom we were able to determine a value for their homes, the median 

value was $52,954. Overall, 408 applicants (76 percent) were approved for 

Medicaid coverage for nursing home services the first time they applied, 

and 465 applicants (86 percent) were eventually approved. Of the 

122 applicants who were denied eligibility, 56 were denied due to having 

income or resources that exceeded the standards, 41 of whom submitted 

subsequent applications and were eventually approved, primarily by 

decreasing the value of their nonhousing resources. Specifically, their 

median nonhousing resources decreased from $22,380 to $10,463, with a 

maximum decrease of $283,075. For about one-third of these applicants, at 

least part of the decrease in nonhousing resources could be attributed to 

spending on medical or nursing home care. 

Page 6 GAO-07-280 Medicaid and Asset Transfers 
Approximately 10 percent of the approved applicants (47 of 465) whose 

files we reviewed had transferred assets for less than FMV during the 

36-month look-back period; however, these applicants rarely experienced

a delay in Medicaid eligibility as a result of the transfers because many 

applicants’ assessed penalties had expired by the time they applied for 

coverage. The proportion of approved applicants found to have 

transferred assets for less than FMV varied, ranging from a high of 

approximately 24 percent of approved applicants in a South Carolina 

county to a low of approximately 4 percent in a Pennsylvania county. 

Among the 47 approved applicants who transferred assets for less than 

FMV, the average length of the penalty period assessed was about 

6 months. However, only 2 of the applicants experienced a delay in their 

eligibility for Medicaid coverage for nursing home services as a result of 

transferring assets. The other applicants were either not assessed a 

penalty, because the penalty would have been for less than 1 month of 

coverage (9 applicants), or the penalty they were assessed had expired by

the time they submitted their Medicaid application (36 applicants). The 

median amount of all assets transferred for less than FMV was $15,152, 

and ranged from $1,000 to $201,516. Most of the asset transfers involved 

the transferring of financial holdings, such as gifts of cash or stocks, and 

applicants’ children or grandchildren were the most common recipients of 

the transfers. 

The extent to which new long-term care provisions in the DRA may affect

applicants’ eligibility for Medicaid coverage for long-term care is 

uncertain. Primarily because the DRA changed the beginning date of the

penalty period, there is an increased likelihood that applicants who 

transfer assets for less than FMV will experience delays in Medicaid 

eligibility. For example, if the DRA penalty period provisions had been in 

effect for the sample of applications we reviewed, all 47 of the approved

applicants who transferred assets for less than FMV would have 

experienced a delay in eligibility for Medicaid coverage for nursing home 

care, with a median delay of about 3 months. Since the new provisions 

were not yet in effect, however, only 2 applicants actually experienced 

delays obtaining Medicaid coverage because many applicants’ penalty 

periods had expired by the time they applied for coverage. While the new 

provisions in the DRA have the potential to delay eligibility for those who 

transfer assets for less than FMV during the look-back period, changes in 

individuals’ financial decision making—specifically decisions regarding 

whether to transfer assets below FMV—could affect the extent to which 

such delays actually occur. Additionally, individuals can request that the

state waive their penalty periods because the application of the penalty 

would result in an undue hardship—that is, it would deprive the individual 

Page 7 GAO-07-280 Medicaid and Asset Transfers 
of critically needed medical care, food, clothing, shelter, or other 

necessities of life. Given the increases in the incidence or length of penalty 

periods as a result of the DRA, more applicants may request that the state 

waive their penalty periods. The effects of other DRA provisions on 

individuals’ eligibility for Medicaid may be limited. For example, few 

applicants whose files we reviewed appeared to have home equity of 

sufficient value to be affected by the DRA provisions. 

We received comments on a draft of this report from CMS and state 

officials from Maryland and South Carolina. In commenting, CMS, 

Maryland, and South Carolina generally agreed with our findings. 

Technical comments from CMS were incorporated as appropriate. 

To qualify for Medicaid coverage for long-term care, individuals must be 

within certain eligibility categories, such as children or those who are aged 

or disabled, and meet functional and financial eligibility criteria. Within 

broad federal standards, states determine if an individual meets the 

functional criteria by assessing limitations in an individual’s ability to 

carry out activities of daily living (ADL) and instrumental activities of daily 

living (IADL). The financial eligibility criteria are based on individuals’ 

assets—income and resources together. The Medicaid statute requires 

states to use specific income and resource standards in determining 

eligibility; these standards differ based on whether an individual is married 

or single. If a state determines that an individual has transferred assets for 

less than FMV, the individual may be ineligible for Medicaid coverage for 

long-term care for a period of time. 

Most individuals requiring Medicaid coverage for long-term care services 

become financially eligible for Medicaid in one of three ways:

1. Individuals who participate in the Supplemental Security Income (SSI) 

program, which provides cash assistance to aged, blind, or disabled 

Background 

Financial Eligibility for 

Medicaid Coverage for 

Long-Term Care 

Page 8 GAO-07-280 Medicaid and Asset Transfers 
individuals with limited income and resources, generally are eligible 

for Medicaid.17

2. Individuals who incur high medical costs may “spend down” into 

Medicaid eligibility because these expenses are deducted from their 

income. Spending down may bring their income below the statedetermined income eligibility limit. Such individuals are referred to as 

medically needy. As of 2000, 36 states had a medically needy option, 

although not all of these states extended this option to the aged and 

disabled or to those needing nursing home care. 

3. 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 ($1,737 per month in 2005) are eligible for Medicaid.18

Individuals eligible under this option must apply all of their income, 

except for a small personal needs allowance, toward the cost of 

nursing home care.19 The National Association of State Medicaid 

Directors reported that, as of 2003, at least 38 states had elected this 

option.20

Medicaid policy bases its characterization of assets—income and 

resources—on SSI policy. Income is something, paid either in cash or in 

kind, received during a calendar month that is used or could be used to 

meet food or shelter needs; resources are cash or things that are owned 

that can be converted to cash. (Table 1 provides examples of different 

types of assets.) In establishing policy for determining financial eligibility 

for Medicaid coverage for long-term care, states can decide, within federal 

 17Not all SSI recipients automatically qualify for Medicaid. Under Section 1902(f) of the

Social Security Act, states may use more restrictive Medicaid eligibility standards than they

had in place in 1972 rather than rules that would otherwise apply under the SSI program. 

As of June 2003, 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. 

18For 2007, 300 percent of the SSI benefit was $1,869 per month. 

19A personal needs allowance is an amount, subject to a federal minimum ($30 a month), 

excluded from an institutionalized individual’s income to pay for the individual’s clothing

and other personal needs.

20See National Association of State Medicaid Directors, Aged, Blind and Disabled

Eligibility Survey (Washington, D.C.: American Public Human Services Association, 2002),

http://www.nasmd.org/eligibility/default.asp (downloaded July 31, 2005).

Page 9 GAO-07-280 Medicaid and Asset Transfers 
standards, which assets are countable or not. For example, states may 

disregard certain types or amounts of income and may elect not to count 

certain resources.21

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 paymentsa

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

worker’s compensation, and unemployment benefits 

Resources • Cash 

• Bank accounts

• Stocks 

• Bonds 

• Trustsb

• Annuities 

• Real estate 

• Vehicles (such as automobiles and boats) 

• Life insurance 

Source: GAO analysis of SSI requirements.

a

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

income over a defined period of time for an initial payment of principal. The principal of an annuity 

may be considered a resource, while the payments it generates are considered income. 

b

A trust is any 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. 

In most states, to be financially eligible for Medicaid coverage for longterm care services, an individual must have $2,000 or less in countable 

resources ($3,000 for a couple). However, specific income and resource 

standards vary depending on the way an individual becomes eligible for 

Medicaid (see table 2). 

 21Although noncountable resources vary by state, for purposes of determining Medicaid 

eligibility for long-term care, they generally include an individual’s home (typically if the 

individual expresses the intent to return home), an automobile, household goods and

personal effects, burial spaces, and life insurance and burial arrangements up to a certain 

value, among other things. 

Page 10 GAO-07-280 Medicaid and Asset Transfers 
Table 2: Income and Resource Standards for Selected Ways of Becoming Eligible 

for Medicaid, as of 2005 

Ways of becoming

eligible for Medicaid Income standard Resource standard

Mandatory coverage 

SSIaLess than $579 per month for

an individual and less than

$869 per month for a coupleb

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 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 ($1,737 per 

month) for an individual

c

Same as SSI 

Sources: GAO analysis of Medicaid eligibility requirements and Schneider, et al., The Medicaid Resource Book (Washington, D.C.: The

Kaiser Commission on Medicaid and the Uninsured, July 2002), 30. 

a

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

Act, states may use more restrictive Medicaid eligibility standards than they had in place in 1972 

rather than federal SSI rules. As of June 2003, 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

In 2007, the standard was less than $623 per month for an individual and less than $934 per month 

for a couple. 

c

In 2007, the standard was no higher than $1869 per month. 

Spousal Impoverishment 

Protections 

The Medicaid statute requires states to use specific minimum and 

maximum resource and income standards in determining eligibility when 

one spouse is in an institution, such as a nursing home, and the other 

remains in the community (referred to as the community spouse). This 

enables the institutionalized spouse to become eligible for Medicaid while 

leaving the community spouse with sufficient assets to avoid 

impoverishment. 

• Resources. The community spouse may retain an amount equal to onehalf of the couple’s combined countable resources, up to a state-specified

Page 11 GAO-07-280 Medicaid and Asset Transfers 
maximum resource level.

22 If one-half of the 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.23 The 

amount that the community spouse is allowed to retain is generally 

referred to as the community spouse resource allowance.24

• Income. The community spouse is allowed to retain all of his or her own 

income. States establish a minimum amount of income—a minimum needs 

allowance25—that a community spouse is entitled to retain.26 Prior to the 

DRA, if the community spouse’s income was less than the minimum needs 

allowance, then states could allow the difference to be made up in one of 

two ways: by requiring the transfer of income from the institutionalized 

spouse (called the income-first approach) or by allowing the community 

spouse to keep resources above the community spouse resource 

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

more income (the resource-first approach).27 Under the DRA, states must 

apply the income-first method.28

 22States’ maximum resource levels cannot exceed the maximum federal standard. As of

January 1, 2005, the federal maximum was $95,100; for 2007, it was $101,640. 

23States’ minimum resource levels cannot be less than the federal minimum standard. As of 

January 1, 2005, the federal minimum was $19,020; it was $20,328 in 2007. 

24Technically, the community spouse resource allowance is the amount of additional 

resources that the community spouse keeps above the spousal share of resources.

Generally, however, the community spouse resource allowance is used to refer to the total 

resources that the community spouse is permitted to retain. See 42 U.S.C. § 1396r-5(f)(2);

see also Wisconsin Department of Health and Family Services v. Blumer, 534 U.S. 473, 

482-83 (2001). According to CMS, the community spouse resource allowance means “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.” 66 Fed. Reg. 46763, 46768 (2001). 

25The Social Security Act terms this the minimum monthly maintenance needs allowance. 

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

26As of July 1, 2005, federal standards specified that the minimum needs allowance can be 

no lower than $1,603.75 and no higher than $2,377.50 per month; in 2007, the minimum 

needs allowance could range from $1,650 to $2,541 per month. 

27If the shortfall in income could not be made up completely using one of the approaches, 

then a combination of both approaches could be used. 

28Prior to the DRA, approximately half of states required the use of the income-first

method. 

Page 12 GAO-07-280 Medicaid and Asset Transfers 
Federal law limits Medicaid payments for long-term care services for 

persons who transfer assets for less than FMV within a specified time 

period. As a result, when an individual applies for Medicaid coverage for 

long-term care, states conduct a review, or “look-back,” to determine 

whether the individual (or his or her spouse, if married) transferred assets 

to another person or party and, if so, whether the transfer was for less 

than FMV.29 If a transfer of assets for less than FMV is detected, the 

individual is ineligible for Medicaid coverage for long-term care for a 

period of time, called the penalty period. The penalty period is calculated 

by dividing the dollar amount of the assets transferred by the average 

monthly private-pay rate for nursing home care in the state (or the 

community, at the option of the state). For example, if an individual 

transferred $10,000 in assets, and private facility costs averaged $5,000 per 

month in the state, the penalty period would be 2 months. 

Federal law exempts certain transfers for less than FMV from the penalty 

provisions even if they are made within the look-back period. Exemptions 

include transfers of assets to the individual’s spouse, another individual 

for the spouse’s sole benefit, or a child who is considered to be disabled 

under federal law. Additional exemptions from the penalty provisions 

include the transfer of a home to an individual’s spouse, or minor or 

disabled child who meets certain criteria; an adult child residing in the 

home who has been caring for the individual for a specified time period; or 

a sibling residing in the home who meets certain conditions.30 Transfers do 

not result in a penalty if the individual can demonstrate to the state that 

the transfer was made exclusively for purposes other than qualifying for 

Medicaid.31 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

Transfers of Assets 

 29Federal 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 a similar institution or certain recipients of home and communitybased services. See Social Security Act § 1917(e)(3). States have the option to apply such 

provisions to noninstitutionalized individuals.

30For the transfer of a home to a sibling to be exempt from transfer penalty provisions, the 

sibling must have an equity interest in the home and must have resided in the individual’s

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

institutionalized.

31According to CMS’s State Medicaid Manual, an individual must provide “convincing 

evidence” as to the specific purpose for which the asset was transferred. Verbal assurances

are not sufficient. 

Page 13 GAO-07-280 Medicaid and Asset Transfers 
that the individual’s health or life would be endangered or (2) food, 

clothing, shelter, or other necessities of life. 

Prior to the DRA, the look-back period for asset transfers was generally 

36 months.32 If the state identified transfers for less than FMV during this 

period, then the state was required to impose a penalty period that began 

at approximately the date of the asset transfer.33 As a result, some 

individuals’ penalty periods had already expired by the time they applied 

for Medicaid coverage for long-term care and therefore they were eligible

when they applied. 

The DRA modified some of the eligibility requirements for Medicaid 

coverage for long-term care, including provisions related to asset 

transfers, and introduced new requirements. Most, but not all, of these 

DRA provisions became applicable on the date the law was enacted, 

February 8, 2006. In general, these DRA provisions do not apply to 

transfers that occurred prior to the law’s enactment. 

The DRA extended the look-back period, changed the beginning date of 

the penalty period, and provided additional conditions on the application 

process for undue hardship waivers. (See table 3.) 

The DRA 

 32For individuals in institutions, the look-back period was 36 months (or 60 months for 

certain types of trusts) from the date the individual was institutionalized and applied for 

Medicaid. 

33States had the option to begin the penalty period on either the first day of the month in 

which the asset was transferred for less than FMV or the first day of the month following 

the month of transfer. 

Page 14 GAO-07-280 Medicaid and Asset Transfers 
Table 3: DRA Changes to Provisions Related to Transfers of Assets 

Topic Provisions prior to the DRA DRA provisions 

Look-back period 36 months for most assets, 60 months for 

transfers involving certain types of trusts, from 

the date the individual was institutionalized and 

applied for Medicaid 

60 months for all assets, from the date the individual was 

institutionalized and applied for Medicaida

Beginning date of 

penalty period

Approximately the date of the asset transferbGenerally, 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 is eligible for Medicaid 

and would otherwise be receiving coverage for long-term 

care services, were it not for ineligibility due to the imposition

of the penalty period 

Undue hardship Penalty period for asset transfers would not be

applied if the state determines that the denial of 

eligibility would create an undue hardship as

determined on the basis of criteria established 

by the Secretary of Health and Human Services 

(HHS) 

• Undue hardship exists if application of the penalty period

would deprive an individual of (1) medical care such that 

the individual’s health or life would be endangered or 

(2) food, clothing, shelter, or other necessities of lifec

• Allows the long-term care facility to apply for an undue 

hardship provision on behalf of a resident, with that 

resident’s consent 

Source: GAO analysis of the Social Security Act before and after the DRA. 

a

The DRA provides that only transfers of assets made on or after February 8, 2006, are subject to the 

60-month look-back period. Thus, transfers made prior to February 8, 2006, could result in a penalty 

period only if they occur within 36 months from the date an institutionalized person submitted an 

application. In contrast, transfers made on or after February 8, 2006, could result in a penalty period if 

they occur within 60 months of the date of application. Given this, as a practical matter, the look-back 

period will gradually increase from 36 to 60 months and will reach the full 60 months on February 8, 

2011. 

b

States had the option to begin the penalty period on either the first day of the month in which the 

asset was transferred for less than FMV or the first day of the month following the month of transfer. 

c

The criteria for determining undue hardship are the same as those that had previously been 

established by the Secretary of HHS in Medicaid guidance, namely The State Medicaid Manual. 

The DRA also introduced several new provisions, which are summarized 

in table 4. 

Page 15 GAO-07-280 Medicaid and Asset Transfers 
Table 4: New Provisions Introduced by the DRA Related to Medicaid Eligibility for Long-Term Care and Asset Transfers 

DRA provision Description 

Asset review and verification

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

• 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 considered as individual retirement 

accounts or purchased with the proceeds of certain retirement accounts and meet 

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

Continuing care retirement communities States are required to consider certain entrance fees for continuing care retirement 

communities or life care communities as countable resources. 

Home equity An individual with an equity interest in his/her home of more than $500,000 is excluded 

from eligibility for Medicaid payment for long-term care. (A state can elect to increase this 

value up to $750,000.) However, an individual would not be excluded from eligibility if 

his/her spouse, child under age 21, or child who is considered blind or disabled lives in the 

home. 

Income-first rule When calculating the community spouse’s minimum needs allowance, states are required 

to allocate the available income of the institutionalized spouse before allocating any 

available resources to the community spouse. 

Life estates A purchase of a life estate interest in another person’s home is treated 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.a

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. 

Imposition of penalty period 

Imposition of partial months of ineligibility A state cannot “round down” or disregard any fractional period of ineligibility when 

determining the penalty period. 

Treatment of multiple transfers For an individual or an individual’s spouse who makes multiple fractional transfers of 

assets (i.e., transfers for less than FMV that are worth less than 1 month of nursing home 

cost of care) during the look-back period, states may determine the penalty period by 

treating the total, cumulative uncompensated value of all the assets transferred as one 

transfer. 

Source: GAO analysis of the DRA. 

a

A life interest, or life estate, is an interest in real property that gives the owner of the interest the right 

to use and possess the property only for the duration of the life of a person, usually the person who

occupies the premises. 

Page 16 GAO-07-280 Medicaid and Asset Transfers 
Nationwide, most elderly individuals had nonhousing resources valued 

under $70,000 at the time they entered the nursing home; nursing home 

care is estimated to cost over $70,000 a year for a private-pay patient.34 In 

general, Medicaid-covered elderly nursing home residents had lower 

nonhousing resources and income at the time of entry than non-Medicaidcovered residents. The percentage of Medicaid-covered elderly nursing 

home residents who reported transferring cash was lower and the median 

amounts they reported transferring were similar to those for nonMedicaid-covered residents. 

According to data from the HRS, nursing home residents covered by 

Medicaid had fewer assets than residents not covered by Medicaid. Over 

70 percent of all elderly nursing home residents had nonhousing resources 

of $70,000 or less at the time they entered the nursing home, which is less 

than the estimated average annual cost for nursing home care.

35 Median 

nonhousing resources for all elderly nursing home residents were $5,794 at 

the time they entered the nursing home.36 (See fig. 1.) Sixty-two percent of 

all elderly nursing home residents had nonhousing resources of $25,000 or

less while 11 percent had nonhousing resources of $300,000 or above.

Median nonhousing resources for Medicaid-covered elderly nursing home 

residents ($48) were lower than for non-Medicaid-covered residents 

($36,123). Approximately 92 percent of Medicaid-covered residents had 

nonhousing resources of $25,000 or less compared to 46 percent of nonMedicaid-covered residents. 

Nationwide, Most 

Nursing Home

Residents’ 

Nonhousing 

Resources Were 

Lower than Annual 

Nursing Home Costs 

Medicaid-Covered Nursing 

Home Residents Generally 

Had Fewer Assets than 

Those Not Covered by 

Medicaid 

 34For the purpose of our analysis, “nonhousing resources” refers to the net value of stocks,

checking accounts, CDs, bonds, individual retirement accounts/Keogh plans, other real

estate, vehicles, business, and other resources, excluding the home as well as mortgages 

and loans on the home. Since the data for this analysis are from multiple years, we 

converted all dollar figures into 2004 dollars, using the current methods series of the CPI 

for all urban consumers.

35For couples, nonhousing resources are assessed at the household level. 

36Mean (average) nonhousing resources were $121,201 and ranged from less than zero to

$6,625,498. Ninety-five percent of all elderly nursing home residents had nonhousing 

resources of $622,506 or below. An individual or household can have resources valued at

less than zero if debt is greater than the value of resources. 

Page 17 GAO-07-280 Medicaid and Asset Transfers 
Figure 1: Distribution of Nonhousing Resources as Reported by Elderly Nursing 

Home Residents at the Time They Entered the Nursing Home, 1992-2004 

Source: GAO analysis of data from the Health and Retirement Study, 1992-2004.

Median for all elderly nursing home residents

Median for Medicaid-covered elderly nursing home residents

Median for non-Medicaid-covered elderly nursing home residents

Percentage

Total nonhousing resources

0

5

10

15

20

25

30

35

Above 

$300,000

$200,001-

$300,000

$100,001-

$200,000

$75,001-

$100,000

$50,001-

$75,000

$25,001-

$50,000

$1-

$25,000

$0 or 

less

M

N 

A

$48 $36,123

$5,794

N

A

M

Note: The data for this analysis are from multiple years; therefore, we converted all dollar figures into

2004 dollars, using the current methods series of the Consumer Price Index (CPI) for all urban 

consumers. 

Approximately 92 percent of all elderly nursing home residents had an 

annual income of $50,000 or less at the time they entered the nursing 

home; about 65 percent of elderly nursing home residents had incomes of 

$20,000 or less. Median annual income for elderly nursing home residents 

was $14,480 at the time of entry.37 (See fig. 2.) Median annual income of 

Medicaid-covered elderly nursing home residents ($9,719) was about half 

that of non-Medicaid-covered residents ($18,600). Approximately 

90 percent of Medicaid-covered elderly nursing home residents had annual 

 37Mean (average) annual income for all elderly nursing home residents was $22,182 and it 

ranged from zero to $556,357 at the time they entered the nursing home. Ninety-five 

percent of all elderly nursing home residents had annual income of $58,773 or below. 

Page 18 GAO-07-280 Medicaid and Asset Transfers 
incomes of $20,000 or less compared to approximately 53 percent of nonMedicaid-covered residents. 

Figure 2: Distribution of Annual Income as Reported by Elderly Nursing Home 

Residents at the Time They Entered the Nursing Home, 1992-2004 

Source: GAO analysis of data from the Health and Retirement Study, 1992-2004.

Median for all elderly nursing home residents

Median for Medicaid-covered elderly nursing home residents

Median for non-Medicaid-covered elderly nursing home residents

M

N 

A

Percentage

Total annual income

0

5

10

15

20

25

Above 

$50,000

$40,001-

$50,000

$30,001-

$40,000

$20,001-

$30,000

$15,001-

$20,000

$10,001-

$15,000

$5,001-

$10,000

$1-

$5,000

$0

$9,719 $14,480 $18,600

M A N 

Note: The data from this analysis are from multiple years; therefore, we converted all dollar figures 

into 2004 dollars, using the current methods series of the CPI for all urban consumers. 

Page 19 GAO-07-280 Medicaid and Asset Transfers 
Nationwide, the percentage of Medicaid-covered elderly nursing home 

residents who reported transferring cash was about half that of nonMedicaid-covered residents at the time they entered the nursing home and 

during the 4 years prior to entry. For example, at the time they entered the 

nursing home, 9.2 percent of Medicaid-covered residents reported 

transferring cash, compared with 23.2 percent of non-Medicaid-covered 

residents. However, the median amount of cash transferred as reported by 

Medicaid-covered residents and non-Medicaid-covered residents did not 

vary greatly.38 (See table 5.) 

Nationwide, Fewer 

Medicaid-Covered Nursing 

Home Residents Reported 

Transferring Cash 

Compared with NonMedicaid-Covered 

Residents 

Table 5: Amounts of Cash Transferred at Entry and Prior to Entry into the Nursing Home Reported by Elderly Nursing Home

Residents, by Payer Source, 1992-2004 

Amount of cash transferred (in 2004 dollars) 

Time in relation to 

entry into the 

nursing home Payer source

Percentage of

residents who 

transferred cash Minimum

Median 

(midpoint)

Mean

(average) 95th percentile Maximum

At entry Medicaid 9.2 $1 $2,194 $5,439 $23,174 $23,174

Non-Medicaid 23.2 12 2,194 9,328 30,986 383,928

2 years prior to entry Medicaid 12.4 6 2,194 4,655 14,873 43,380

Non-Medicaid 23.8 116 2,194 5,935 23,174 74,366

4 years prior to entry Medicaid 12.0 46 1,239 2,278 9,915 15,493

Non-Medicaid 25.1 110 1,859 6,119 19,614 301,266

Source: GAO analysis of data from the Health and Retirement Study, 1992-2004. 

Note: The data from this analysis are from multiple years; therefore, we converted all dollar figures 

into 2004 dollars, using the current methods series of the CPI for all urban consumers. 

 38Very few elderly nursing home residents (approximately 5 percent or less) reported

transferring the deeds to their homes to their children or grandchildren. 

Page 20 GAO-07-280 Medicaid and Asset Transfers 
Similar to the nationwide results, the majority of the 540 applicants whose 

Medicaid nursing home application files we reviewed in selected counties

in three states (Maryland, Pennsylvania, and South Carolina) had few 

nonhousing resources.39 The majority of applicants (approximately 

65 percent) were single females. About 76 percent of all applicants were 

approved the first time they applied, while the remaining applicants 

(23 percent) were initially denied, often for financial reasons—having 

income or resources that exceeded the states’ financial eligibility 

standards. About three-quarters of the applicants initially denied only for 

financial reasons were subsequently approved, primarily after the value of

their nonhousing resources decreased. For the applicants who were 

initially denied for financial reasons, the time span between their initial 

and subsequent applications averaged a little over 5 months. During this 

time, their median nonhousing resources decreased from $22,380 to 

$10,463, with a maximum decrease of $283,075. For about one-third of 

these applicants who were initially denied for financial reasons and were 

subsequently approved, at least part of the decrease in their nonhousing 

resources could be attributed to spending on medical or nursing home 

care. 

Of the 540 Medicaid nursing home application files we reviewed in 

selected counties in three states, about 75 percent of the applicants were 

female, most of whom were single. Over 80 percent of the applicants were 

already living in a long-term care facility. These individuals had been living 

in facilities for an average of a little over 4 months at the time of 

application. About 90 percent—488 applicants—had total nonhousing 

resources of $30,000 or less. (See fig. 3.) Eleven percent—59 applicants—

did not have any nonhousing resources, while about 5 percent had total 

nonhousing resources of $60,000 or more. For all applicants whose files 

we reviewed, median nonhousing resources were $3,365.40 Married 

applicants, who made up about 21 percent of the applicants, had higher 

Majority of Medicaid 

Applicants in Selected 

Counties in Three 

States Had Few 

Nonhousing 

Resources and Were 

Approved upon Initial 

Application 

Majority of Medicaid 

Applicants Reviewed Were 

Single, Female, and Had 

Nonhousing Resources of 

Less than $30,000 

 39We were unable to obtain home values for about 18 percent of applicants

(25 applicants) who reported owning homes. Therefore, for this analysis, we focused on

total nonhousing resources—which include all resources except for the value of an

applicant’s home—instead of total resources—which includes the home value. Total

nonhousing resources include nonhousing resources that are counted and those that are 

generally not counted toward determining financial eligibility for Medicaid. 

40Mean (average) nonhousing resources were $13,440, and ranged from $0 to $355,387. 

Page 21 GAO-07-280 Medicaid and Asset Transfers 
median nonhousing resources ($8,407) than single applicants.41 Of the 

single applicants, females, who made up approximately 65 percent of all 

applicants, had higher median nonhousing resources ($3,109) than males 

($1,628), who made up about 14 percent of all applicants. 

Figure 3: Distribution of Nonhousing Resources of Medicaid Applicants in Selected 

Counties in Three States 

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006.

Median for all applicants

Median for single females

Median for single males

Median for married applicants

Number of applicants

Total nonhousing resources

0

50

100

150

200

250

Above 

$60,000

$50,001-

$60,000

$40,001-

$50,000

$30,001-

$40,000

$20,001-

$30,000

$10,001-

$20,000

$5,001-

$10,000

$1-

$5,000

$0

$3,365

$1,628

$3,109

$8,407

Note: For purposes of determining eligibility for Medicaid coverage for nursing home care, an 

applicant’s resources are considered to be both those of the applicant and those of the spouse. 

 41For purposes of determining Medicaid eligibility, an applicant’s resources are considered 

to be both those of the applicant and those of the spouse. 

Page 22 GAO-07-280 Medicaid and Asset Transfers 
Eighty-five percent of the Medicaid applicants whose files we reviewed 

(459 applicants) had annual incomes of $20,000 or less. The median annual 

income of all applicants was $11,382.42 (See fig. 4.) Single male applicants 

generally had higher annual incomes than single females. 

Figure 4: Distribution of Annual Income of Medicaid Applicants in Selected

Counties in Three States 

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006.

Median for all applicants

Median for single females

Median for single males

Median for married applicants

Number of applicants

Total annual income

0

50

100

150

200

$40,001-

$50,000

$30,001-

$40,000

$20,001-

$30,000

$15,001-

$20,000

$10,001-

$15,000

$5,001-

$10,000

$1-

$5,000

$0

$11,382

$12,708

$11,316

$10,908

Note: For purposes of determining eligibility for Medicaid coverage for nursing home care, only the 

income of an applicant is considered, regardless of the applicant’s marital status. 

 42Mean (average) annual income was $13,083 and ranged from $0 to $47,316. All three states 

in which we reviewed applications have provisions that allow certain applicants to obtain 

Medicaid coverage for nursing home care even if their income exceeds the standards. For 

example, South Carolina requires such applicants to place excess income in an income

trust, which is used to pay for the applicant’s care. In addition, based on federal law, a 

portion of a married applicant’s income may be contributed to the community spouse’s

minimum needs allowance, thereby decreasing the applicant’s income stream. 

Page 23 GAO-07-280 Medicaid and Asset Transfers 
Applicants had several different types of nonhousing resources, some of 

which were not counted toward determining eligibility for Medicaid 

coverage for nursing home care. For example, a little over half 

(53 percent) of all applicants whose files we reviewed had prepaid burial 

or funeral arrangements, with a median value of $2,614. Additionally, 

about 38 percent of the applicants had life insurance. Whether the burial 

arrangements or life insurance policies counted toward determining 

Medicaid eligibility depended on their type and value as well as the state in

which the applicant applied.43

Of the 540 applicants whose files we reviewed, 137 applicants (25 percent) 

owned homes and 83 of the home owners (about 61 percent) were single. 

Based on the applications we reviewed, home ownership varied by state, 

with 32 percent of the applicants we reviewed in selected counties in 

South Carolina owning homes, compared with 28 percent and 16 percent 

in Pennsylvania and Maryland, respectively. For the 112 applicants in all 

selected counties for whom we were able to determine a value for their 

homes, the median value was $52,954.44

Most Medicaid Applicants 

Reviewed Were Approved 

upon Initial Application 

About 76 percent of the Medicaid applicants whose files we reviewed were 

approved upon initial application (408 applicants), while 23 percent 

(122 applicants) were denied.45 The majority of the approved applicants 

were single and female. Of the 122 applicants who were initially denied, 

57 were approved upon submitting a subsequent application.

46 Therefore, 

465 applicants, or 86 percent of all applicants whose files we reviewed, 

 43For example, with regard to life insurance policies, Maryland and Pennsylvania do not 

count an applicant’s life insurance policies if they have a combined face value of $1,500 or

less. If the policies have a combined face value of more than $1,500, then Maryland counts

the total cash value of the policies, while Pennsylvania counts the total cash value of the 

policies less $1,000. South Carolina counts the total cash value of an applicant’s life 

insurance policies if those policies have a combined face value of more than $5,000. 

44Mean home value was $70,668 and ranged from less than zero to $535,500. One applicant 

had a home valued at $535,500 while the rest of the applicants had homes with values of

$358,600 or below. An applicant can have a home valued at less than zero if his or her debt

is greater than the value of the home.

45Two percent of the applicants withdrew their applications before receiving an eligibility 

determination. These percentages do not add to 100 because of rounding. 

46At the time of our application file reviews, 65 of the applicants whose initial applications

were denied did not have a subsequent approved application in their files. We do not know

if they submitted applications after the time of our review and were subsequently 

approved. 

Page 24 GAO-07-280 Medicaid and Asset Transfers 
were eventually approved.

47 Figure 5 provides a breakdown of applicants 

by application status. 

Figure 5: Percentage of All Applicants in Selected Counties in Three States, by 

Application Status (n=540) 

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006.

12.0%

10.6%

75.6%

1.9%

Withdrawn/other

Denied and not approveda

Approved upon initial application

Initially denied and

subsequently approved

Note: Percentages do not add to 100 due to rounding. 

a

At the time of our application file reviews, 65 of the applicants whose initial applications were denied 

did not have a subsequent approved application in their files. We do not know if they submitted 

applications after the time of our review and were subsequently approved. 

Almost half of the denied applicants (56 of 122) were denied only for 

financial reasons—having income or resources that exceeded the 

standards, most having to do with resources exceeding the standards. For 

those applicants who were denied for having excess resources, their 

resources exceeded the standards by an average of $25,116; the median 

amount of excess resources was $13,260.48 Other reasons for denial 

included failing to provide the requested documentation, not being in a 

nursing home or meeting functional eligibility criteria, or a combination of 

two or more of these reasons. (See fig. 6.) 

 47The number of approved applicants varied by state. Specifically, of the files we reviewed, 

approximately 75 percent of applicants in South Carolina were approved, compared to 

91 percent and 93 percent in Maryland and Pennsylvania, respectively. 

48The amount of these applicants’ excess resources ranged from $75 to $205,440. 

Page 25 GAO-07-280 Medicaid and Asset Transfers 
Figure 6: Percentage of Initially Denied Applicants in Selected Counties in Three 

States, by Reasons for Denial (n=122) 

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006.

31.2%

45.9%

Other/unknown

9.0%

8.2%

5.7%

Failure to provide documentation

Multiple reasons

Financial

Not in a nursing home or functionally eligible

Majority of Medicaid 

Applicants Reviewed Who 

Were Initially Denied Only 

for Financial Reasons 

Were Eventually Approved 

Of the 56 applicants who were initially denied only for financial reasons,

41 (73 percent) reapplied and were later approved. The time span between 

their initial and subsequent applications averaged a little over 5 months 

and ranged from less than 1 month to 31 months. 

Of the 41 applicants who were initially denied only for financial reasons 

and were subsequently approved, their nonhousing resources generally

decreased between the initial and subsequent applications, while their 

annual incomes stayed about the same. (See fig. 7.) Between the two 

applications, median nonhousing resources decreased from $22,380 to

$10,463, with a maximum decrease of $283,075. For most of these 

applicants, the overall decrease in nonhousing resources was specifically

due to a decrease in financial holdings such as checking or savings 

accounts, stocks, and mutual funds.49 For example, a married applicant 

initially applied and was denied for having countable resources that 

exceeded the state standards by $51,213. The applicant applied again just 

 49Additionally, 9 of the 41 applicants owned homes at the time of their initial application; 

2 of these applicants sold them prior to applying again. 

Page 26 GAO-07-280 Medicaid and Asset Transfers 
over 9 months later and had resources within the state standards. 

Therefore, the applicant was approved. 

Figure 7: Median Nonhousing Resources and Median Annual Income of Reviewed 

Applicants in Selected Counties in Three States Who Were Initially Denied Only for 

Financial Reasons and Subsequently Approved, at Time of Initial Application and

Subsequent Application (n=41)

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006.

0

5,000

10,000

15,000

20,000

25,000

Subsequent applications

Initial applications

Median 

annual

income

Median

nonhousing

resources

Dollars

 $22,380

 $10,463

$14,616 $14,832

Some of the files of applicants who were initially denied for financial 

reasons and were subsequently approved indicated that the applicants 

spent at least some of their resources on medical expenses or nursing 

home care, although this was not the case for all of them. In the files we 

reviewed for 13 of these applicants (32 percent), there were indications 

that the applicant had spent at least some of his or her resources on 

medical expenses, nursing home care, or both. For example, one applicant 

sold stock and received cash in exchange for a life insurance policy, 

spending about $12,150 for 3 more months of nursing home care before 

being approved for Medicaid. In the remaining 28 applicants’ files 

(68 percent), there was no indication that their resources were used for 

medical or nursing home care. For example, one married applicant was 

initially denied for having resources of $205,440 above the state’s standard. 

Page 27 GAO-07-280 Medicaid and Asset Transfers 
The file indicated that when the applicant reapplied and was approved 

about 6 months later, $140,000 of the applicant’s resources was used to 

purchase an annuity to create an income stream for the community 

spouse, which was not counted toward the applicant’s eligibility.50

Few of the approved applicants whose files we reviewed in selected 

counties in three states were found to have transferred assets for less than 

FMV during the 36-month look-back period,51 and those who did transfer 

assets for less than FMV rarely experienced a delay in eligibility for 

Medicaid coverage for nursing home care as a result.52 The proportion of 

approved applicants found to have transferred assets for less than FMV 

varied both within and among the three states, and the variation may be 

due, in part, to counties’ or states’ Medicaid application review 

procedures. At the time these applicants applied for Medicaid—state fiscal 

year 2005 or earlier—none of the three states reviewed imposed penalties 

for partial months, and the penalty period began at the time of the asset 

transfer; under these circumstances, only two of the applicants received a 

penalty that delayed their eligibility for Medicaid coverage for nursing 

home care as a result of transferring assets for less than FMV. The other 

applicants were either not assessed a penalty, because the penalty would 

have been for less than 1 month of coverage, or the penalty they were 

assessed had expired by the time they submitted their Medicaid 

application. Thus, these applicants did not experience a delay in their 

Medicaid coverage as a result of transferring assets for less than FMV. The

total amount of assets transferred for less than FMV varied by applicant, 

as did the number of transfers each applicant made. In terms of the kinds 

of assets transferred for less than FMV, applicants most commonly 

transferred financial holdings such as cash or stocks, and their children or 

grandchildren were the most common recipients of the transfer. 

Few Transfers below 

FMV Identified for 

Applications 

Reviewed and 

Penalties Rarely 

Delayed Eligibility 

 50The file did not indicate how the applicant spent the remaining $65,440. 

51Prior to the DRA, the look-back period for asset transfers was generally 36 months. 

52When discussing asset transfers for less than FMV, we are referring to transfers that the 

state determined would be subject to the penalty provisions. We are not referring to

transfers that, under federal law, are exempt from the penalty provisions. Such exemptions

include transfers of assets to the individual’s spouse, transfers to another individual for the

spouse’s sole benefit, or transfers to a disabled child. Additionally, transfers do not result in

a penalty period if the individual can show that the transfer was made exclusively for 

purposes other than qualifying for Medicaid. 

Page 28 GAO-07-280 Medicaid and Asset Transfers 
Of the 465 approved applicants whose files we reviewed from selected 

counties in three states, the files for 47 applicants (10 percent) indicated

that the applicants had transferred assets for less than FMV during the 

36-month look-back period.53 The proportion of approved applicants found 

to have transferred assets for less than FMV varied both within and among 

the states reviewed, ranging from a high of approximately 24 percent of 

approved applicants in Orangeburg County, South Carolina, to a low of 

approximately 4 percent in Allegheny County, Pennsylvania (see table 6).

Approximately 10 Percent 

of Approved Applicants 

Transferred Assets for Less 

than FMV 

Table 6: Percentage of Approved Applicants Whose Files Indicated They Had

Transferred Assets for Less than FMV, by State and Selected County 

Approved applicants 

State County

Number who 

transferred assets 

for less than FMV Total 

Percentage who 

transferred assets 

for less than FMV 

Maryland Baltimore 11 57 19.3%

Baltimore City 3 48 6.3

Montgomery 3 58 5.2

Subtotal 17 163 10.4

Pennsylvania Allegheny 3 72 4.2

Montgomery 3 30 10.0

Philadelphia 3 65 4.6

Subtotal 9 167 5.4

South Carolina Charleston 9 46 19.6

Greenville 8 72 11.1

Orangeburg 4 17 23.5

Subtotal 21 135 15.6

Total 47 465 10.1%

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006. 

The variation in the proportion of applicants who were identified as having 

transferred assets for less than FMV may be due, in part, to states’ ability 

to identify transfers not reported by the applicant. About half of the assets 

transferred for less than FMV by applicants in South Carolina were 

 53Our analysis of asset transfers focused on applicants who were approved for Medicaid 

coverage, because if an applicant appears likely to be denied Medicaid coverage, states 

might not conduct a complete review to determine if an applicant transferred assets for 

less than FMV.

Page 29 GAO-07-280 Medicaid and Asset Transfers 
identified by the eligibility workers as opposed to being reported by an 

applicant. Eligibility workers in Maryland and Pennsylvania identified 

9 percent and 4 percent of transfers, respectively.

The approved applicants who transferred assets for less than FMV were 

predominately single females. Although single females accounted for 

65 percent of approved applicants, they accounted for over 78 percent of 

the approved applicants who transferred assets for less than FMV. (See 

fig. 8.) Additionally, 89 percent of approved applicants who transferred 

assets for less than FMV resided in a long-term care facility before 

applying for Medicaid. These individuals were in the facility for an average 

of over 5 months before they applied for Medicaid coverage. 

Figure 8: Percentage of Approved Applicants and Approved Applicants Who Transferred Assets for Less than FMV, by

Gender and Marital Status

Approved applicants (n = 465)

20.4%

14.4%

65.2%

Married

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006.

Single males

Single females

Approved applicants who transferred assets for less than FMV

(n = 47)

8.5%

12.8%

78.7%

Married

Single males

Single females

Approved applicants who transferred assets for less than FMV were better 

off financially (i.e., they had higher income and resources), even after 

excluding the amount transferred, compared with the universe of 

approved applicants. For example, approved applicants who transferred 

assets had higher median nonhousing resources ($8,138) compared with

all approved applicants ($2,940). (See fig. 9.) 

Page 30 GAO-07-280 Medicaid and Asset Transfers 
Figure 9: Median Nonhousing Resources and Income for Approved Applicants and 

Approved Applicants Who Transferred Assets for Less than FMV 

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006.

0

5,000

10,000

15,000

Approved applicants who transferred assets for less than FMV (n = 47)

Approved applicants (n = 465)

Median 

annual

income

Median

nonhousing

resources

Dollars

$13,004

$10,980

$8,138

$2,940 

Note: The amount of nonhousing resources for the approved applicants who transferred assets for 

less than FMV reflects the amount after excluding the assets transferred. 

Transfers for Less than 

FMV Rarely Delayed 

Medicaid Eligibility 

Transfers for less than FMV rarely led to delays in eligibility for Medicaid 

coverage for nursing home care, as most applicants’ assessed penalty

periods expired before they applied for Medicaid. Among the 47 approved

applicants who transferred assets for less than FMV, the length of the 

penalty period assessed averaged about 6 months, with a median penalty

period of 2 months. (See fig. 10.) At the time these applicants applied for

Medicaid (state fiscal year 2005 or earlier), the three states in which we 

reviewed applications did not assess penalties for partial months; that is, 

the length of penalties assessed was rounded down to the closest whole 

month.54 As a result, 9 of the 47 approved applicants who transferred 

 54Pennsylvania began assessing partial-month penalties during its 2006 fiscal year, 

specifically in August 2005. With the passage of the DRA, all states are required to assess 

partial-month penalties.

Page 31 GAO-07-280 Medicaid and Asset Transfers 
assets for less than FMV (about 19 percent) were not assessed a penalty 

because they transferred assets valued at less than the cost of a month of 

nursing home coverage for a private-pay patient in their state.55

Furthermore, because penalty periods began at approximately the date of

the asset transfer, 36 applicants’ penalty periods expired prior to the 

submission of their application for Medicaid coverage for nursing home 

care.56 Thus, only 2 applicants experienced delays in Medicaid coverage 

resulting from their transfers of assets for less than FMV; the delays were 

for 1 and 6 months, respectively. 

Figure 10: Distribution of 47 Approved Applicants Who Transferred Assets for Less than FMV, by Length of Assessed Penalty 

Periods, in Months

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006.

0

2

4

6

8

10

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 45

Number of applicants

Length of penalty (months)

Median = 2

Mean = 6.04

 55In state fiscal year 2005, the average monthly cost for a private-pay patient in a nursing 

facility—the figure used for calculating the penalty period—was $4,300.00 in Maryland,

$5,787.38 in Pennsylvania, and $4,234.00 in South Carolina. 

56The DRA changed the timing of the penalty period. For transfers made on or after 

February 8, 2006, the penalty period will begin on the later of (1) the first day of the month 

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

which the individual is eligible for Medicaid and would otherwise be receiving coverage for

long-term care services, were it not for ineligibility due to the imposition of the penalty 

period. 

Page 32 GAO-07-280 Medicaid and Asset Transfers 
Among those who transferred assets for less than FMV, the total amount 

of the assets transferred varied, with a median amount of $15,152.57 The 

applicant with the lowest total transfer amount made a onetime cash gift 

of $1,000 to her child, while the applicant with the highest total transfer 

amount used funds from a trust established for her care to buy and resell

property. Since the trust fund should have only been used for the 

applicant’s care, the use of the funds to pay real estate fees, which totaled

$201,516, was considered a transfer of assets for less than FMV. Figure 11

shows the distribution of the amounts of transfers for less than FMV per 

approved applicant. Nearly half of the applicants who transferred assets 

for less than FMV (22 of 47) transferred $10,000 or less; 10 of the 

22 applicants transferred $5,000 or less. In contrast, 6 of the 47 applicants 

(about 13 percent) transferred more than $80,000 in assets. 

Amounts of Assets 

Transferred for Less than 

FMV Varied 

Figure 11: Distribution of 47 Approved Applicants Who Transferred Assets for Less than FMV, by Amount Transferred 

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006.

0

5

10

15

20

25

Above 

$100,000

$90,001

to

$100,000

$80,001

to

$90,000

$70,001

to

$80,000

$60,001

to

$70,000

$50,001

to

$60,000

$40,001

to

$50,000

$30,001

to

$40,000

$20,001

to

$30,000

$10,001

to

$20,000 

$1

to

$10,000

Number of applicants

Median = $15,152

Mean = $30,246

Amount transferred

 57The mean amount of all assets transferred for less than FMV was $30,246 and ranged from

$1,000 to $201,516. 

Page 33 GAO-07-280 Medicaid and Asset Transfers 
The number of transfers for less than FMV made by applicants also varied,

averaging slightly over two transfers per applicant. Specifically, 23

applicants made a single transfer and 1 applicant made eight transfers (see 

fig. 12). The eight transfers spanned a 11⁄2-year period and ranged from an 

over $4,000 cash gift to a grandchild to a stock transaction in which the 

applicant gave a relative over $33,000 of her stock.

Figure 12: Distribution of 47 Approved Applicants Who Transferred Assets for Less

than FMV, by Number of Transfers 

0

5

10

15

20

25

1 2 3 4 5 6 7 8 

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006.

Number of applicants

Number of transfers for less than FMV

Median = 2

Mean = 2.26

The majority of asset transfers for less than FMV (approximately 

84 percent) involved the transferring of financial holdings such as cash or 

stocks. However, the types of assets transferred varied by state (see 

table 7). This variation may be related, in part, to differences in counties’

or states’ Medicaid application review procedures. Specifically, based on

our review of the files, county officials in South Carolina conducted 

searches of real property tax databases, which likely allowed South 

Carolina eligibility workers to identify property transfers that were not 

reported by the applicant. For example, a South Carolina applicant was 

penalized because the eligibility worker identified that the applicant had 

transferred property for less than FMV—a house valued at $84,700 to her 

son for $5. In contrast, although Maryland eligibility workers could search 

the state’s property tax records, state officials told us that workers’ 

searching abilities were limited because they needed to know the county 

Page 34 GAO-07-280 Medicaid and Asset Transfers 
and street name of the property. As a result, it likely would be difficult for 

Maryland eligibility workers to identify unreported transfers of property. 

Table 7: Percentage of Assets Transferred for Less than FMV by Type of Asset for 

47 Approved Applicants in Selected Counties in Three States 

Asset type Maryland Pennsylvania South Carolina Total

Financial holdingsa95.5% 82.6% 71.8% 84.0%

Real property 0 4.4 25.6 10.4

Automobile 2.3 8.7 0 2.8

Otherb2.3 4.4 2.6 2.8

Source: GAO analysis of Medicaid nursing home application data from nine counties as of July 2006. 

Note: Percentages may not add to 100 because of rounding. 

a

Financial holdings includes items such as cash or stocks. 

b

Includes instances where the type of asset transferred was unknown. 

Applicants most frequently transferred assets to their children and 

grandchildren. Approximately 47 percent of transferred assets were given 

to children or grandchildren, 15 percent were given to other relatives, and

38 percent were given to other individuals.58

The extent to which some DRA long-term care provisions may affect

applicants’ eligibility for Medicaid coverage for long-term care is 

uncertain. Our review of a sample of Medicaid applications indicated that 

the DRA penalty period provisions could increase the likelihood that 

individuals who transfer assets for less than FMV on or after the date of 

enactment will experience a delay in eligibility for Medicaid coverage for

long-term care. However, the extent of the delay is uncertain. The effects 

on eligibility of other DRA provisions—specifically those related to 

annuities, home equity, the allocation of assets to community spouses, and 

life estates—may be limited because they only apply to a few applicants, 

affect applicants in some states but not in others, or both. 

Extent to Which Some 

DRA Long-Term Care 

Provisions May Affect 

Eligibility Is 

Uncertain 

 58“Other individuals” includes instances where the recipient of the transfer was unknown. 

Page 35 GAO-07-280 Medicaid and Asset Transfers 
The DRA requires states to change when a penalty period is applied and 

how it is calculated.59 First, the DRA changes the beginning date of a 

penalty period from approximately the date of the transfer—which could

precede the date of a Medicaid application by days, months, or years—to 

the later of (1) generally the first day of a month during or after which an 

asset has been transferred for less than FMV or (2) the date on which the 

individual is eligible for Medicaid and would otherwise be receiving

coverage for long-term care services, were it not for ineligibility due to the 

imposition of the penalty period. All applicants who transfer assets for less 

than FMV during the look-back period on or after February 8, 2006 (the 

date the DRA was enacted) will experience a delay in eligibility for 

Medicaid coverage for long-term care, whereas before that date, some 

applicants’ penalty periods expired before they applied for Medicaid 

coverage.60 Second, regarding the calculation of the penalty period, the 

DRA prohibits states from “rounding down” or disregarding fractional 

periods of ineligibility when determining the penalty period. This provision 

could result in longer penalty periods for some applicants. (See fig. 13,

which illustrates the potential effects of the DRA penalty period 

provisions.) 

DRA Provisions Related to 

Penalty Periods Could 

Delay Eligibility for Those 

Who Transfer Assets for 

Less than FMV, but the 

Extent of the Delay Is 

Uncertain 

 59Additionally, the DRA gives states the option of treating an applicant’s total, cumulative 

value of all assets transferred for less than FMV as one transfer when determining the 

applicant’s penalty period. 

60The DRA provides that only transfers of assets made on or after February 8, 2006, are

subject to the 60-month look-back period. Thus, transfers made prior to February 8, 2006, 

could result in a penalty period only if they occur within 36 months from the date an

institutionalized person submitted an application. In contrast, transfers made on or after 

February 8, 2006, could result in a penalty period if they occur within 60 months of the date

of application. Given this, as a practical matter, the look-back period will gradually 

increase from 36 to 60 months and will reach the full 60 months on February 8, 2011.

Page 36 GAO-07-280 Medicaid and Asset Transfers 
Figure 13: Example of How the DRA Penalty Period Provisions Could Delay Medicaid Eligibility for Applicants Who Transfer 

Assets for Less than FMV 

Source: GAO.

Scenario 2: Applicant makes transfers for less than FMV after passage of the DRA

Scenario 1: Applicant makes transfers for less than FMV prior to passage of the DRA

Applicant 

transferred 

$12,500

Applicant 

transferred 

$2,500

Application 

submitted

Penalty calculation: 

2.5 months.

a 

Penalty is not rounded down. 

Penalty period: 

2.5 months.

Penalty calculation: 

0.5 months.

a 

Penalty is not rounded down. 

Penalty period: 

0.5 months.

Medicaid 

coverage 

begins

Month

Month

Applicant 

transferred 

$12,500

Applicant 

transferred 

$2,500

Application 

submitted

Penalty calculation: 

2.5 months.

a

Penalty is rounded down. 

Penalty period: 

2 months.

Penalty calculation: 

0.5 months.

a 

Penalty is rounded down. 

Penalty period: 

none.

7

Month

Medicaid 

coverage 

begins

1 2 3

Penalty period

1 2 3

Penalty period

4 5 6 7

4 5 6

a

The penalty period is calculated by dividing the dollar amount of the assets transferred by the 

average monthly private-pay rate for nursing home care in the state (or the community, at the option 

of the state). In this example, we assumed that the average monthly private-pay rate for nursing 

home care was $5,000. 

If these DRA penalty period provisions had been in effect for the 

applicants whose files we reviewed, all 47 approved applicants who 

transferred assets for less than FMV would have experienced a delay in 

Medicaid coverage, compared with only 2 who actually experienced a 

delay. Additionally, the penalty period would have been longer for 45 of 

the 47 approved applicants. The increase in the penalty period would have 

ranged from less than 1 day to almost 6 months, with a median increase of 

about 21⁄2 weeks. As a result, the median delay in eligibility would have 

Page 37 GAO-07-280 Medicaid and Asset Transfers 
been approximately 3 months and ranged from about 1 week to over 

47 months.61

An increase in the number of applicants whose eligibility is delayed may 

be mitigated by two factors. First, states may see an increase in the 

number of approved applicants seeking to waive their penalty periods 

because they would create an undue hardship—that is, the application of 

the penalty would deprive the applicants of (1) medical care that would 

endanger the applicants’ health or life or (2) food, clothing, shelter, or 

other necessities of life.62 Officials from the three states in which we 

reviewed applications commented that they received few undue hardship

requests prior to the DRA but expected to see an increase in requests as 

the DRA provisions are implemented. Second, the extent to which 

individuals are subject to penalty periods may change as individuals may 

make different decisions regarding the transferring of assets as a result of 

the DRA. 

Other DRA Provisions May 

Have Limited Effects on 

Eligibility 

The effects on eligibility for Medicaid coverage for long-term care of other 

DRA provisions may be limited. This is primarily because few Medicaid 

applicants appear to have resources that are specifically addressed by the 

DRA, namely annuities, home equity of more than $500,000, or life estates. 

Additionally, the provision on allocating income and resources to the 

community spouse will only affect married applicants in certain states, 

thus limiting the effects that the DRA might have on eligibility. 

• Annuities. The DRA added requirements for states regarding the 

treatment of annuities. A state must treat the purchase of an annuity as a 

transfer for less than FMV unless certain conditions, such as a requirement 

that the state be named as a remainder beneficiary, are met. However, the 

effect of this provision may be limited because few Medicaid applicants 

appear to have annuities. We found that 3 percent of the approved 

 61This analysis assumes the DRA penalty period provisions had been in effect at the time 

the applicants made the transfers. However, if an applicant transfers assets before the date

of enactment, then the transfer will be subject to the rules for transfers before the DRA was 

enacted. In contrast, if an applicant transfers assets on or after the date of enactment, then 

the transfer will be subject to the DRA rules. If an applicant transfers assets both before 

and on or after the date of enactment, then the pre-DRA rules apply to the earlier transfer 

and the DRA rules apply to the latter. 

62Under the DRA, states are required to establish procedures to allow nursing homes (or 

other long-term care facilities) to file a request to waive a resident’s penalty period if it 

would create an undue hardship for that resident. 

Page 38 GAO-07-280 Medicaid and Asset Transfers 
applicants (14 of 465) whose application files we reviewed owned an 

annuity.63 These 14 applicants’ annuities would have been considered 

transfers for less than FMV under the DRA because they did not name the 

state as a remainder beneficiary, had a balloon payment, or both. While the 

incidence of annuities among Medicaid beneficiaries is not nationally 

known, a January 2005 study undertaken at the request of CMS estimated 

that, among the five states examined, the percentage of Medicaid longterm care beneficiaries who had an annuity ranged from less than 

1 percent in two states to more than 3 percent in one state.64

• Home Equity. Under the DRA, certain individuals with home equity 

greater than $500,000 are not eligible for Medicaid payment for long-term 

care, including nursing home care.65 The effect of this provision may be 

limited because it appears that few individuals who apply for Medicaid 

coverage for nursing home care have homes valued at more than $500,000. 

For example, 23 percent of the 465 approved Medicaid nursing home 

applicants whose files we reviewed owned homes. Of the homes for which 

we could determine values, the median value was $57,600.66 Only one 

approved applicant owned a home valued at more than $500,000. Although

we do not know this applicant’s equity interest in the home, the applicant 

would not have been subject to the DRA home equity provision, since the

applicant’s spouse lived in the home. Additionally, our review of 2004 HRS 

data indicated that no elderly nursing home residents owned a home 

valued at more than $500,000. 

 63Among the approved applications we reviewed, there were eight applicants with annuities

in Maryland, three in Pennsylvania, and three in South Carolina. We were unable to 

determine annuity values for one of the approved applicants who owned annuities. Of the

annuities for which we could determine values, the median value was $18,000, the mean

value was $77,073, and the values ranged from $1,147 to $565,000. 

64See R.A. Levy et al., Analysis of the Use of Annuities to Shelter Assets in State Medicaid 

Programs (January 2005). 

65An individual with equity in his or her home of greater than $500,000 may still be eligible 

for Medicaid payment for long-term care if the individual has a spouse, child under age 21, 

or child who is considered blind or disabled living in the home. States have the option to 

increase the home equity limit up to $750,000. As of summer 2006, all three of the states 

included in our review elected to keep the threshold at $500,000. 

66We were unable to determine home values for approximately 18 percent (19 of 108) of all 

approved applicants who owned homes. Of the homes for which we could determine 

values, the mean value was $77,276 and the values ranged from $200 to $535,000. This 

analysis does not account for any debt that applicants may have on their homes. 

Page 39 GAO-07-280 Medicaid and Asset Transfers 
• Life Estates. The DRA requires states to treat the purchase of certain life

estates as a transfer of assets for less than FMV unless the purchaser (the 

applicant) lived in the house for at least 1 year after the date of purchase.67

The effect of this provision may be limited because we found that few 

approved Medicaid nursing home applicants whose files we reviewed had 

life estates. Specifically, the proportion of approved applicants who owned 

life estates ranged from zero in Pennsylvania to 2 percent in South 

Carolina.68

• Income First. The DRA’s income-first provision has the potential to affect 

married applicants in states that did not already use the income-first 

methodology. Under the income-first methodology the difference between

a community spouse’s income and his or her minimum needs allowance is

made up by transferring income from the institutionalized spouse. 

According to CMS, approximately half of all states did not use the incomefirst methodology before the passage of the DRA.69 Of the three states we 

reviewed, only Pennsylvania will be affected by this provision.70 Among 

approved applicants in Pennsylvania, 6 of the 42 married applicants whose 

files we reviewed would have been affected by this change because these 

applicants had retained resources in excess of the standards to create 

income streams for their community spouses. Specifically, they created 

annuities for the community spouses with values ranging from $7,372 to

$77,531, with a median value of $39,912. Pennsylvania officials told us that 

almost all institutionalized spouses in their state have enough income to 

supplement the income needs of their community spouses. As a result, 

under the DRA, applicants would not be allowed to retain resources in 

excess of the standards as they had previously through the creation of 

annuities. Rather, resources in excess of those allowed by the Medicaid 

program would need to be reduced in order for the institutionalized 

spouse to be eligible for Medicaid. 

 67A life estate is an interest in real property that gives the owner of the interest the right to 

use and possess the property only for the duration of the life of a person, usually the 

person who occupies the premises.

68We were not able to assess whether the DRA provision on the treatment of life estates

would apply to the life estates that these approved applicants had. 

69These data are based on a telephone survey conducted by CMS in 2001. 

70Before enactment of the DRA, Pennsylvania allowed married applicants to allocate 

resources to the community spouse before allocating the institutionalized spouse’s income. 

The other two states, Maryland and South Carolina, already used the income-first 

methodology. 

Page 40 GAO-07-280 Medicaid and Asset Transfers 
We provided copies of a draft of this report to CMS and the three states in

which we reviewed Medicaid nursing home application files: Maryland, 

Pennsylvania and South Carolina. We received written comments from 

CMS (see app. II) and South Carolina (see app. III). Maryland provided 

comments via e-mail, while Pennsylvania did not comment on the draft 

report. 

In its written comments, CMS generally agreed with our findings, but 

noted the limited number of states in which we reviewed applications and 

that study was done before the effects of the DRA could be assessed. We 

agree that the actual effects of the DRA are not yet known. However, our 

findings based on applications submitted prior to the implementation of 

the DRA provide insight into what its effects may be. CMS also 

commented that the DRA will be working as Congress intended if 

applicants experience delays in Medicaid eligibility as a result of 

transferring assets for less than FMV.

Maryland and South Carolina generally agreed with our findings. In 

addition, Maryland emphasized the difficulties faced by Maryland 

eligibility workers in identifying unreported transfers of assets due to their 

limited ability to search the state’s property tax records. South Carolina 

highlighted our finding that 15.6 percent of the approved applicants whose 

files we reviewed in South Carolina were found to have transferred assets 

for less than FMV, as compared to 10.4 percent and 5.4 percent in the 

other two selected states. The state attributed this difference to the 

effectiveness of South Carolina’s eligibility process and its training of 

eligibility workers to enable them to identify transfers of assets not 

reported by an applicant. In response to our finding that only 2 of the 47 

approved applicants who transferred assets for less than FMV experienced 

a delay in Medicaid eligibility as a result of transferring assets, South 

Carolina recommended that we clarify that this occurred despite the fact 

that the states were adhering to federal requirements. We did not make a 

change, as we believe the report clearly states why the other applicants 

did not experience a delay in Medicaid eligibility. 

Technical comments from CMS were incorporated into the report as 

appropriate.

Agency and State 

Comments and Our 

Evaluation 

Page 41 GAO-07-280 Medicaid and Asset Transfers 
As agreed with your offices, unless you publicly announce its contents 

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

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

of this report. GAO staff who made major contributions to this report are 

listed in appendix IV. 

Kathryn G. Allen 

Director, Health Care 

Page 42 GAO-07-280 Medicaid and Asset Transfers 
Appendix I: Scope and Methodology 

Page 43 GAO-07-280 Medicaid and Asset Transfers

Appendix I: Scope and Methodology 

To examine the financial characteristics of elderly nursing home residents 

nationwide, including the extent to which they transferred cash, we 

analyzed data from the Health and Retirement Survey (HRS). HRS is a 

longitudinal national panel survey of individuals over age 50 sponsored by 

the National Institute on Aging and conducted by the University of 

Michigan. HRS includes individuals who were not institutionalized at the 

time of the initial interview and tracks these individuals over time, 

regardless of whether they enter an institution. Researchers conducted the 

initial interviews in 1992 in respondents’ homes and follow-up interviews 

over the telephone every second year thereafter.1

 HRS questions pertain to

physical and mental health status, insurance coverage, financial status, 

family support systems, employment status, and retirement planning.2

For this analysis, we used HRS data from 1992 to 2004.

3

 We limited our 

analysis to elderly nursing home residents who had been surveyed at least

once before they entered a nursing home. We defined an elderly individual 

as anyone 65 years of age or older. On the basis of individuals’ answers on 

HRS, we defined a nursing home resident as anyone who met one of the 

following three criteria:

1. answered “yes” to permanently living in a nursing home; 

2. answered “no” to permanently living in a nursing home but spent more 

than 360 nights in a nursing home; or 

3. answered “no” to permanently living in a nursing home but spent 180 

to 360 days in one and 

a. died in a later survey period; 

b. had three or more limitations in activities of daily living (ADL); or 

 1

HRS defines each 2-year survey period as a wave. Each wave corresponds to the second 

year of a survey period in which the survey was conducted (wave one—1992—up to wave

seven—2004). 

2

For more information about HRS, see http://hrsonline.isr.umich.edu/ (accessed on Dec. 8,

2006). 

3

Since the data from this analysis are from multiple years, we converted all dollar figures 

into 2004 dollars, using the current methods series of the Consumer Price Index (CPI) for 

all urban consumers.
Appendix I: Scope and Methodology 

c. had cancer, lung disease, or heart disease and some difficulty 

(rating of three or more) with mobility.4

We used the HRS data from the 1,296 individuals who met these criteria; 

this sample represented a population of 4,217,795 individuals. From these 

data, we estimated the financial characteristics of elderly nursing home 

residents as well as the percentage of residents who transferred cash or 

deeds to their homes, the amount transferred, and whether it varied by 

how they paid for their care (i.e., Medicaid-covered or non-Medicaidcovered).5

 This analysis underestimates the percentage of elderly 

households that transferred assets and the amount of assets transferred 

because HRS data included only transfers of cash and deeds to the home.

Additionally, HRS does not assess whether the transfers relate to 

individuals’ attempts to qualify for Medicaid coverage for nursing home 

services. 

In order to assess the reliability of the HRS data, we reviewed related 

documentation regarding the survey and its methods of administration. We 

also conducted electronic data tests to determine whether there were 

missing data or obvious errors. On the basis of this review, we determined 

that the data were sufficiently reliable for our purposes. 

To analyze the demographic and financial characteristics of elderly 

individuals who applied for Medicaid coverage for nursing homes and if 

they applied more than once, as well as the extent to which they 

transferred assets for less than fair market value (FMV) and were subject 

to penalty periods, we reviewed Medicaid eligibility determination 

practices and Medicaid nursing home application files in three states. To 

select states, we assessed the ranking of five factors for each of the 

51 states. 

1. The percentage of the population aged 65 and over, which we 

determined using 2000 census data from the U.S. Census Bureau. 

 4

Mobility is a summary index using five limitations: walking one block, walking several 

blocks, walking across a room, climbing one flight of stairs, and climbing several flights of 

stairs. The mobility rating is on a scale of zero (no difficulty or limitations with summary

measurements) to five (some difficulty or limitation in all five summary measurements). 

5

Payer source for non-Medicaid-covered residents could include self-pay, Medicare, or

other third-party insurance.

Page 44 GAO-07-280 Medicaid and Asset Transfers
Appendix I: Scope and Methodology 

2. The cost of a nursing home stay for a private room for a private-pay

patient based on data from a 2004 survey conducted for the MetLife 

Company. 

3. The proportion of elderly (aged 65 and over) with incomes at or above 

250 percent of the U.S. poverty level, which was based on information 

from the U.S. Census Bureau using the 2000 and 2002 Current 

Population Surveys. 

4. The extent of Medicaid nursing home expenditures as reported by 

states to the Centers for Medicare & Medicaid Services (CMS).6

5. The availability of legal services specifically to meet the needs of the 

elderly and disabled, based on membership data from the National 

Academy of Elder Law Attorneys. 

For each factor, we ranked the states from low to high (1 to 51) and then 

summed the five rankings for each state. On the basis of these sums, we 

grouped the states into three clusters (low, medium, and high), using 

natural breaks in the data as parameters (see table 8). 

Table 8: Clusters Used for State Sample Selection

Cluster States

Low Arkansas, Georgia, Idaho, Louisiana, Mississippi, Montana, New Mexico, 

South Carolina, South Dakota, Utah, Vermont, Wyoming 

Medium Alabama, Alaska, Arizona, Colorado, Delaware, District of Columbia, 

Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, 

Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, North

Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, Tennessee, 

Texas, Virginia, Washington, West Virginia 

High California, Connecticut, Florida, Massachusetts, New Jersey, New York, 

Ohio, Pennsylvania, Wisconsin 

Sources: GAO analysis of data from the U.S. Census Bureau, CMS, the MetLife Market Survey of Nursing Home & Home Care Costs, 

and the National Association of Elder Law Attorneys. 

We judgmentally selected one state from each cluster. In making this 

selection, we excluded some states, such as states that did not have the 

technical ability to generate the data needed to select Medicaid nursing 

 6

Each quarter, states submit Medicaid program expenditures to CMS using the CMS-64 

form. Our analysis used fiscal year 2000 nursing home expenditures as reported on the 

CMS-64. 

Page 45 GAO-07-280 Medicaid and Asset Transfers
Appendix I: Scope and Methodology 

home application files for review. The states we selected were South 

Carolina (low), Maryland (medium), and Pennsylvania (high).

To choose counties in our selected states, we considered four factors. 

1. Number of individuals aged 65 and over who applied for, or were 

enrolled in, Medicaid coverage for nursing home services.7

2. Number of licensed nursing home beds.8

3. Population aged 65 and over.9

4. Median and range of household income.10

For the first three factors, we ranked the counties within each selected 

state from high to low. Separately, we ranked the counties by median 

household income and split them into low, medium, and high groups, 

using natural breaks in the data as parameters. Of the counties that 

appeared in the top 10 ranking of each of the first three factors, we 

matched them with their respective median household income groups. 

Based on this assessment, we chose a county from each median household 

income group for each of the three states (see table 9). 

 7

To select counties, we used information sent from state officials in the three states. For 

Maryland and Pennsylvania, we used data on the number of applicants, while for South 

Carolina we used data on the number of enrollees. 

8

We used information from the Medicare Nursing Home Compare Web site, 

http://www.medicare.gov/NHCompare/Include/DataSection/Questions/SearchCriteria.asp, 

for Pennsylvania (accessed on Apr. 24, 2006) and South Carolina (accessed on Apr. 24,

2006), and the “Long Term Care in Maryland: A Pocket Chartbook, 2005” (Baltimore, Md.: 

Maryland Health Care Commission, June 2005), 

http://mhcc.maryland.gov/longtermcare/_longtermcare.htm (accessed on Mar. 10, 2006) for 

Maryland. 

9

We used information from J. Billings and R.M. Weinick, Monitoring the Health Care 

Safety Net—Book II (Rockville, Md.: Agency for Healthcare Research and Quality, 2003),

334-336 for Pennsylvania; Billings and Weinick, Monitoring the Health Care Safety Net—

Book II, 320-321, and the Maryland Association of Counties Web site, 

www.mdcounties.org/counties/demographics.cfm (accessed on Mar. 22, 2006) for 

Maryland; and Billings and Weinick, Monitoring the Health Care Safety Net—Book II, 336-

337, and the U.S. Census Bureau (2004 estimates) for South Carolina. 

10We used Billings and Weinick, Monitoring the Health Care Safety Net—Book II, 532-534

for Pennsylvania, 518-519 for Maryland, and 534-535 for South Carolina. 

Page 46 GAO-07-280 Medicaid and Asset Transfers
Appendix I: Scope and Methodology 

Table 9: Selected States and Counties, by County-Level Median Household Income 

Group 

Selected states and counties

County-level median 

household income group South Carolina Maryland Pennsylvania

Low Orangeburg Baltimore City Philadelphia

Medium Charleston Baltimore Allegheny

High Greenville Montgomery Montgomery

Source: GAO.

We reviewed a total of 180 nursing home application files in each selected

state, for a total of 540 files. Within each selected state, we based the 

number of application files reviewed in each county on the proportion of 

the county’s population of individuals aged 65 and over. (See table 10.) 

Table 10: Number of Files Reviewed, by Selected State and County

Selected state Selected county Number of files reviewed

South Carolina Orangeburg 22

Charleston 72

Greenville 86

Total 180

Maryland Baltimore City 51

Baltimore 68

Montgomery 61

Total 180

Pennsylvania Philadelphia 70

Allegheny 74

Montgomery 36

Total 180

Total 540

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 state fiscal year 2005. These lists also included individuals who 

applied in previous years but whose files had activity during fiscal year 

Page 47 GAO-07-280 Medicaid and Asset Transfers
Appendix I: Scope and Methodology 

2005.

11 For example, an individual may have applied in state fiscal year 

2004, but had his or her application approved in state fiscal year 2005. 

From the lists provided by the states, we randomly selected application 

files by unique identifying numbers. In order to compensate for application 

files that would need to be skipped because they did not meet our criteria 

or lacked adequate information, we requested additional files (10 to 

15 percent) in each county. Therefore, when we determined that an 

application file was unusable, we included the next application file on our 

randomly generated list.

We established a file review protocol whereby we reviewed and recorded 

the earliest Medicaid application for nursing home services in each file 

regardless of the date of the application. If the earliest application was 

denied, then we recorded data from that application as well as data from 

the earliest subsequently approved application, if there was one. From 

each application, we collected and analyzed data on the applicants’ 

demographic characteristics, income, nonhousing resources, and home 

value. We also collected and analyzed data on the number of applicants 

who transferred assets for less than FMV and the amount they transferred. 

Since the selected counties used the information in these application files 

to determine eligibility for Medicaid coverage for nursing home services, 

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 application files, we conducted independent file verifications, which 

resulted in a total verification of at least 20 percent of entries. Additionally, 

we conducted electronic tests of the data collected to determine whether 

there were missing data or 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—housing and nonhousing resources. Based on these 

procedures, we determined that the data were sufficiently reliable. 

Moreover, these data can be generalized to the individual county level but 

cannot be generalized to the state or national level. 

 11Therefore, the actual dates of the applications we analyzed ranged from March 1989 to 

April 2006. Ninety-nine percent of the applications we analyzed were from 2000 or later. 

Page 48 GAO-07-280 Medicaid and Asset Transfers
Appendix I: Scope and Methodology 

To assess the potential effect of provisions of the DRA, we used (1) HRS 

data and (2) data from our application file reviews. Specifically, we used 

2004 HRS data to identify the number of elderly individuals in nursing 

homes who had houses in excess of $500,000 and could be affected by the 

DRA home equity provision.12 Additionally, we used the data from our 

review of Medicaid application files in three counties in each of the three 

states to analyze the potential effects of the DRA provisions pertaining to 

penalty periods, annuities, home equity, and income-first. 

We performed our work from October 2005 through January 2007 in 

accordance with generally accepted government auditing standards. 

 12The data collection period for the 2004 HRS data was March 2004 to February 2005. The 

data we used were from a sample of 11,114 individuals that represented a population of

20,179,826 individuals. 

Page 49 GAO-07-280 Medicaid and Asset Transfers
Appendix II: Comments from the Centers for 

Medicare & Medicaid Services 

Page 50 GAO-07-280 Medicaid and Asset Transfers 

Appendix II: Comments from the Centers for 

Medicare & Medicaid Services 
Appendix II: Comments from the Centers for 

Medicare & Medicaid Services 

Now footnote 17 on p. 9. 

Now footnote 19. 

Now on p. 11. 

Now on p. 12. 

Now footnotes 22 and 23. 

Page 51 GAO-07-280 Medicaid and Asset Transfers 
Appendix II: Comments from the Centers for 

Medicare & Medicaid Services 

Now footnote 26. 

Now footnote 27 on p. 12 

and footnote 29 on p. 13. 

Page 52 GAO-07-280 Medicaid and Asset Transfers 
Appendix III: Comments from the State 

of South Carolina Department of Health and

Human Services 

Page 53 GAO-07-280 Medicaid and Asset Transfers 

Appendix III: Comments from the State of 

South Carolina Department of Health and 

Human Services 
Appendix III: Comments from the State 

of South Carolina Department of Health and

Human Services 

Page 54 GAO-07-280 Medicaid and Asset Transfers 
Appendix IV: 

A

GAO Contact and Staff 

cknowledgments 

Page 55 GAO-07-280 Medicaid and Asset Transfers

Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact Kathryn G. Allen (202) 512-7118 or allenk@gao.gov

In addition to the contact named above Carolyn Yocom, Assistant 

Director; Kaycee Misiewicz Glavich; Grace Materon; Kevin Milne; 

Elizabeth T. Morrison; Daniel Ries; Michelle Rosenberg; Laurie Fletcher 

Thurber; and Suzanne M. Worth made key contributions to this report. 

Acknowledgments 

(290502) 
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