To qualify for Medicaid coverage for long-term care, including nursing home care, individuals must be within certain eligibility categories—such as those who are aged or disabled—and meet functional and financial eligibility criteria. The financial eligibility standards differ based on whether an individual is married or single. Federal law also limits Medicaid payments for long-term care for individuals who have transferred assets for less than FMV during a specified time period. States are responsible for assessing applicants’ financial eligibility for Medicaid. Common ways individuals become financially eligible for Medicaid coverage of long-term care, including nursing home care, are provided below. Supplemental Security Income (SSI). Individuals who participate in SSI, a program that provides cash assistance to aged, blind, or disabled individuals with limited income and resources, are generally eligible for Medicaid. Medically needy. Individuals who incur high medical costs may be able to “spend down” their income below the state-determined income eligibility limit for Medicaid. Such individuals are referred to as “medically needy.” In 2012, 32 states and the District of Columbia had a medically needy option, although not all extended this option to those who needed nursing home care. Special income level for residents of a nursing home or institution. Individuals can qualify for Medicaid if they reside in nursing facilities or other institutions in states that have elected to establish a special income level under which individuals with incomes up to 300 percent of the SSI benefit (300 percent of the benefit was $2,163 per month in 2014) are eligible for Medicaid. In 2012, 43 states and the District of Columbia had elected this option. Some states also allow applicants to place income in excess of the special income level into a qualified income trust and receive Medicaid coverage for their care. This type of trust, also known as a Miller trust, is available in states that offer the special income level option but do not also offer the medically needy option for nursing home care. The Medicaid program generally bases its characterization of assets— income and resources—for individuals who are 65 years or older or have disabilities on that used by SSI. Income is anything received during a calendar month, paid either in cash or in-kind, that is used or could be used to meet food or shelter needs. Resources are cash or real or personal property that are owned that can be converted to cash and be used for food or shelter. (See table 1 for examples of different types of assets.) In establishing policy for determining financial eligibility for Medicaid coverage for long-term care, including nursing home care, states can decide, within federal standards, which assets are countable. For example, states may disregard certain types or amounts of income, and may elect not to count certain resources toward financial eligibility. Although the resources that are considered not countable varies by state, for the purposes of determining Medicaid eligibility for long-term care, they generally include an individual’s primary residence (typically if the individual expresses the intent to return home), an automobile, household goods and personal effects, burial spaces, burial arrangements up to a certain value, and certain types of life insurance. While an individual’s primary residence is generally not a countable resource for determining Medicaid eligibility, federal law specifies that an individual with substantial equity interest in his or her home is to be excluded from eligibility for Medicaid payment for long-term care; the amount of allowable equity interest is established by each state within federal guidelines. For 2014, these guidelines specified that state established allowable equity interest amounts could range from $543,000 to $814,000. In most states, to be financially eligible for Medicaid coverage for long- term care, including nursing home care, individuals must have $2,000 or less in countable resources ($3,000 for a married couple). However, specific income and resource standards vary depending on the way an individual becomes eligible for Medicaid. (See table 2.) Eligible individuals generally must contribute a portion of their income toward the costs of nursing home care but are allowed to retain a small personal needs allowance, which varies by state but must be at least $30 per month, to pay for the individual’s clothing and other personal needs. Federal law requires states to use specific minimum and maximum income and resource standards in determining Medicaid eligibility for married applicants when one spouse is in an institution (referred to as the institutionalized spouse), such as a nursing home, and the other remains in the community (referred to as the community spouse). These provisions enable the institutionalized spouse to become eligible for Medicaid, while leaving the community spouse with sufficient assets to avoid impoverishment. Resources. The resources of both the institutionalized spouse and the community spouse are considered when determining initial financial eligibility for Medicaid coverage for nursing home care. The community spouse may retain an amount equal to one-half of the couple’s combined countable resources, up to the state-specified maximum resource level. States’ maximum resource levels cannot exceed the maximum federal standard, which was $117,240 for 2014. generally referred to as the community spouse resource allowance. If one-half of a couple’s combined countable resources is less than a state-specified minimum resource level, then the community spouse may retain resources up to the minimum level. States’ minimum resource levels cannot be less than the federal minimum resource standard, which was $23,448 for 2014. to make up the difference. As of January 1, 2014, federal standards specified that most states’ minimum needs allowance can be no lower than $1,938.75, and no higher than $2,931.00 per month. Federal law limits Medicaid payment for long-term care services, including nursing home care, for individuals who divest themselves of—or “transfer”—their assets for less than FMV within a specified time period. 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 applicant (or his or her spouse, if married) transferred assets to another person or party. Per the DRA, the look-back period for transfers made on or after February 8, 2006, is 60 months; prior to the DRA, the look-back period was generally 36 months. If the state determines that an applicant transferred an asset for less than FMV during the look-back period, the individual may be ineligible for Medicaid coverage for long- The penalty term care for a period of time, called the penalty period.period generally begins on the later of (1) the first day of a month during or after an individual transfers assets for less than FMV, or (2) the date on which the individual would otherwise be eligible to receive coverage for services were it not for the penalty period. Federal law exempts certain transfers made during the look-back period from the penalty provisions. Exemptions include certain transfers of assets to a spouse or a disabled child, among other things. A transfer does not result in a penalty period if the individual can demonstrate to the state that the transfer was made exclusively for purposes other than qualifying for Medicaid.the state determined that application of the penalty would result in an undue hardship; that is, it would deprive the individual of (1) medical care such that the individual’s health or life would be endangered, or (2) food, clothing, shelter, or other necessities for life. Additionally, a penalty would not be applied if The DRA also specified circumstances under which the purchase of certain assets—such as an annuity, promissory note, or loan—is considered a transfer for less than FMV for purposes of determining Medicaid eligibility. (See table 3 for a summary of these selected DRA provisions.) Most, but not all, of these provisions became applicable on the date of the DRA’s enactment, February 8, 2006. To assess applicants’ financial eligibility for Medicaid coverage for long- term care, including nursing home care, and to determine whether they transferred assets for less than FMV, states generally require applicants to submit applications and to provide documentation of certain assets reported on the applications. Our prior work has shown that states varied in the amount of documentation required from applicants; for example, 17 states required all applicants to provide 60 months of documentation of financial and investment resources, while 27 states required applicants to provide just the current month’s documentation. We also previously found that all state Medicaid programs obtained some amount of asset information from third parties, such as financial institutions or other government agencies, such as the Social Security Administration.information helps states verify the accuracy of applicants’ reported assets, and to determine if applicants have assets they failed to report or transferred for less than FMV during the look-back period. The processing of Medicaid applications—including the collection of documentation and information from applicants and third parties—is generally performed by local or county-based eligibility workers. Forty-one percent of the 294 approved applicants whose Medicaid nursing home application files we reviewed had total resources—both countable and not countable resources—of $2,500 or less; and nearly 75 percent of the approved applicants owned at least some resources that were not countable in their financial eligibility determination. Almost two-thirds of approved applicants had annual gross incomes of $20,000 or less, and 5 percent were found to have transferred assets for less than FMV. Of the 294 approved Medicaid nursing home applicants whose files we reviewed in selected counties in three states, 41 percent—121 applicants—had total resources of $2,500 or less. Total resources included both resources that were countable and those that were not countable as part of applicants’ Medicaid financial eligibility determination and, for married applicants, resources of both the applicant and the spouse. Another 44 percent of approved applicants—129 applicants— had between $2,501 and $100,000 in total resources, and 14 percent of approved applicants—42 applicants—had over $100,000 in total resources. Median total resources for all approved applicants was $7,660, which was less than the median net worth of elderly households in the United States. Married applicants, who made up 24 percent of the approved applicants, had higher median resources ($70,137) than single applicants ($3,034). (See fig. 1.) (See fig. 2.) Sixty-five percent of approved applicants whose files we reviewed—192 applicants—had annual gross incomes of $20,000 or less, another 30 percent—88 applicants—had annual gross incomes between $20,001 and $50,000, and 5 percent—14 applicants—had annual gross incomes greater than $50,000. The median annual gross income of approved applicants was $16,260 ($1,355 per month), which was less than the median annual income of the elderly in the United States. In contrast to resources, the median annual gross income of married approved applicants ($16,260) was nearly the same as that of their single counterparts ($16,284); consistent with how Medicaid eligibility is determined, applicants’ income includes just that of the applicant, regardless of marital status. (See fig. 4.) Social Security was the primary source of income for approved applicants we reviewed, comprising three-quarters of their annual income, on average. Almost all approved applicants—95 percent—received Social Security, and nearly half—45 percent—received income from a retirement account or pension. Few applicants received income from other sources, such as an annuity, trust, or promissory note. For slightly more than half (33) of the 60 married approved applicants who had a spouse living in the community, the community spouse was allowed to retain at least some of the applicant’s income to bring their monthly income up to the state’s minimum needs allowance. The median value of the amount of the applicant’s income that the community spouse was allowed to retain was $1,102 per month. Files for 5 percent of approved applicants reviewed—15 applicants— showed transfers of assets for less than FMV during the look-back period; such transfers are to result in the assessment of a penalty period. The median amount of assets transferred was $24,608, and the amounts ranged from $5,780 to $296,221. The majority of applicants identified as transferring assets for less than FMV—14 of the 15 applicants— transferred money. Applicants typically transferred assets to a child or grandchild (9 of the 15 applicants). Thirteen of the 15 applicants found to have transferred assets were not married. All but one of the applicants found to have transferred assets were from New York, the remaining applicant was from South Carolina.transferred assets, the median length of the penalty period assessed was nearly 4 months, and the length ranged from half a month to nearly 25 months. We identified four main methods used by applicants—or described by eligibility workers, state officials, attorneys, or other representatives from law practices—to reduce countable assets and qualify for Medicaid coverage for nursing home care. These four methods are: (1) spending countable resources on goods and services that are not countable, (2) converting countable resources into noncountable resources that generate an income stream, (3) giving away countable assets, and (4) increasing the amount of assets the community spouse retains. One method Medicaid applicants could use to reduce assets is paying off existing debt or making certain purchases. When such purchases and payments convert a countable resource, such as money in the bank, into a good or service that is not countable toward Medicaid financial eligibility, they effectively reduce the applicants’ assets. Eligibility workers mentioned possible goods that would not be countable that applicants could purchase. Eligibility workers in 10 of the 12 counties interviewed stated that purchasing burial contracts and prepaid funeral arrangements, which are generally noncountable resources, was a common way applicants reduced their countable assets; and eligibility workers from one state said they recommend making such purchases to applicants. Eligibility workers also reported that applicants spend down their countable resources on upgrades to their homes, such as a new roof or carpeting. States may require applicants to provide documentation related to these purchases, such as construction contracts or receipts, to verify that the purchases were not made for less than FMV. Applicants can also use countable resources to purchase services, which are not considered a resource. For example, applicants may pay for a personal service contract, also referred to as a care agreement, which is an arrangement in which an individual pays another person, often an adult child, to provide certain services—such as grocery shopping or transportation to medical appointments—over a period of time. Although personal service contracts are not considered a resource, payment for the contracts involve a transfer of resources, and thus must be assessed to determine whether the transfer was made for less than FMV. If such contracts are determined to have been made for less than FMV, then the applicant would be subject to a penalty period. According to CMS, states can establish reasonable standards for assessing whether or not a transfer using a personal service contract is made for less than FMV. Our interviews with state Medicaid officials indicate that states’ standards for assessing the FMV of personal service contracts vary. Some states require that payments under the contract be made at the time the services are rendered; thus, these states would consider a lump sum payment made for services that had been provided sometime in the past or for services that will be provided in the future to be a transfer for less than FMV. In contrast, officials from one state we spoke with indicated that the state does not have standards regarding when payment must be made. Officials from this state reported seeing at least 100 applications each month containing personal service contracts. Personal Service Contracts The files we reviewed included a $7,055 personal service contract between an applicant and her daughter for the provision of 10 hours of care per week at a rate of $11 per hour for an estimated 1.2 years. Another applicant had a $134,316 contract with her son to provide 20 hours of services per week at a rate of $35 per hour for an estimated 3.7 years. Under both personal service contracts, the provider received one lump sum payment. Among the Medicaid application files that we reviewed in selected states, 16 of the 294 approved applicants (5 percent) had a personal service contract—all of which were determined to be for FMV. The median value of the personal service contracts was $37,000; the value of the contracts ranged from $4,460 to $250,004. Applicants may reduce their countable resources by purchasing certain financial instruments that generate an income stream. While the income stream is likely countable, the principal of the financial instrument might not be a countable resource when determining an applicant’s financial eligibility. For these purchases to be effective in helping the individual qualify for Medicaid coverage, the income generated would need to be less than the applicant’s expenses, including the cost of nursing home care; otherwise the applicant would not likely be income-eligible for Medicaid coverage for nursing home care. Additionally, the principal would need to be a noncountable resource, otherwise the applicant would not likely be resource-eligible for Medicaid coverage. Irrevocable Annuities In certain circumstances an irrevocable annuity can be considered a countable resource. For example, according to CMS, if the annuity can be sold on the secondary market because its owner or payee may be changed (i.e. the annuity is assignable), then the annuity is a countable resource. One instrument applicants can purchase to convert countable resources into noncountable resources with an income stream is an irrevocable and nonassignable annuity that complies with the DRA. A representative from one law office that we spoke to in an undercover capacity indicated that an annuity is an option that could allow at least some resources to be left for the applicant’s heirs. While the individual noted that the income generated from the annuity must be spent on nursing home care, he explained that the applicant may be able to save some money to leave to his children because the amount the applicant would have to pay toward his nursing home care would be based on the Medicaid nursing home payment rate, which is likely less than what the applicant would have otherwise had to pay privately. Medicaid officials from more than half the states for which we conducted interviews indicated that the use of annuities has increased over the past few years, and officials from one of these states indicated that this increase was a result of clearer guidelines in the DRA on annuities. A promissory note is a written, unconditional agreement, usually given in return for goods, money loaned, or services rendered, whereby one party promises to pay a certain sum of money at a specified time (or on demand) to another party. states’ standards for determining whether to treat the principal of promissory notes as a countable resource vary. Medicaid officials from one state told us that the principal of promissory notes could be considered a countable resource if it were negotiable. Medicaid officials from another state said that the principal would be a countable resource if the note could be converted into cash within 20 days. Applicants may reduce their countable assets by giving some or all of their assets as a gift to another individual, such as an adult child. Such gifts are typically treated as a transfer for less than FMV and, if given during the look-back period, would likely result in a penalty period. The length of the penalty period is calculated based on the value of the gift and the private payment rate for nursing home services in the state or locality. However, our interviews identified mechanisms that either reduce the length of the penalty period after it has started or provide funds to pay for care during the penalty period. These mechanisms are referred to as “reverse half-a-loaf” because they can be used to preserve at least half of an individual’s resources. A “reverse half-a-loaf” mechanism that reduces the length of the penalty period involves gifting countable assets to someone else and then, after eligibility has been determined and the penalty period begins, having a portion of the gift returned to the applicant. This option only works in states that choose to consider a partial return of transferred assets in recalculating the penalty period. According to CMS, states can choose whether or not to consider a partial return of transferred assets. In states that consider partial returns, the original length of the penalty period would be shortened in proportion to the amount of assets returned. Another “reverse half-a-loaf” mechanism involves an applicant gifting a portion of their countable resources, incurring a penalty, and converting other countable resources into an income stream for the applicant—such as through an annuity or promissory note—to pay for nursing home care during the penalty period. The amount of income generated from the annuity or promissory note would be equivalent to the shortfall between the applicant’s other monthly income, such as Social Security and retirement income, and the cost of his/her nursing home care during the penalty period. A representative from one law office we spoke to in an undercover capacity suggested that the applicant could gift about 50 percent of her resources, and while serving a penalty period, the applicant would use monthly income from a promissory note plus other monthly income to pay for the nursing home care. Another representative from a law office mentioned that the larger the applicant’s income, the larger the amount that the applicant can gift. This is because an applicant with higher income would need less additional income from an annuity or promissory note to cover the costs of nursing home services during the penalty period. Thus, an applicant with higher income would need to place a smaller amount of their countable resources into an annuity or promissory note, allowing them to gift more of their countable resources even if it may result in a longer penalty period. Reverse Half-a-Loaf One applicant who appeared to use the “reverse half-a-loaf” mechanism gifted $62,470 to his children and was assessed a 6 month penalty period. This applicant also loaned $63,118 to one of his children in return for a promissory note that provided $10,543 in income per month during the 6 months of the applicant’s penalty period. Among the 294 approved applicants whose files we reviewed, we identified 5 applicants (2 percent) who appeared to have used one of the “reverse half-a-loaf” mechanisms; 4 of the applicants appeared to use the mechanism that involved creating an income stream through a promissory note to pay for nursing home care during the penalty period. These 4 applicants gifted between $20,150 and $227,250 worth of resources, and had penalty periods of between 2 months and 22 months. An additional method married applicants could use to reduce countable assets is to increase the amount of assets that the community spouse is able to retain. Given the federal law regarding the treatment of the community spouse’s resources and provisions intended to protect married individuals, there are several different mechanisms for increasing the assets retained by the community spouse. Federal law permits the community spouse to retain an amount equal to one-half of the couple’s combined countable resources, up to the state- specified maximum resource level. However, our work identified a mechanism that could result in a community spouse retaining more than the maximum standard in instances where the state did not exercise its right to sue the community spouse to recoup the resources due to the institutionalized spouse. Under this mechanism, an institutionalized spouse may transfer all his or her resources to the community spouse, while assigning to the state the right to bring a support proceeding against the community spouse. In this way, a community spouse who refuses to make any resources available to the institutionalized spouse may be able to retain all of the couple’s resources unless the state chooses to sue the community spouse for support.officials, some states take legal action to recoup funds from the community spouse in cases of spousal refusal, while other states do not. According to information from state Medicaid officials from one state told us that they do not see many applications claiming spousal refusal, adding this is likely because the state would take legal action against the community spouse to recoup expenses. Officials from other states told us that, in cases of spousal refusal, they do not take action against the community spouse. Of the 70 married approved applicants whose files we reviewed, 13 had applications that contained a claim of spousal refusal. (See table 5.) These 13 applicants resided in two states and the community spouse retained a median value of $291,888 in nonhousing resources; two of the community spouses were able to retain over $1 million in nonhousing resources. Six of the 13 applicants also provided monthly income support to their community spouse. Married applicants may reduce their countable assets by purchasing an irrevocable and nonassignable annuity that pays out income to the community spouse. Although annuities for the community spouse must be actuarially sound—that is, they must pay out during the community spouse’s life expectancy—and must name the state as a remainder beneficiary, there are no other limitations on the time period in which annuities must pay out. Additionally, there is no limit on the amount of income from the annuity, as the community spouse’s income is not countable as part of the institutionalized spouse’s eligibility. While any portion of the income from the annuity that is not spent in the month it is received becomes a resource, a community spouse’s resources are generally not assessed again after his or her spouse is initially deemed eligible, and thus would not affect the institutionalized spouse’s eligibility. Annuities for the Community Spouse State Medicaid officials, county eligibility workers, and attorneys who provided information on the value of annuities for the community spouse reported average values ranging from $50,000 to $300,000. Officials from one state reported seeing annuities for the community spouse worth more than $1 million. Medicaid officials from one state indicated that they have seen annuities that disbursed all of the payments to the community spouse shortly after the annuity was purchased, while officials from another state said that annuities can have large monthly payments for the community spouse, such as $10,000 per month. Thus, married applicants may use countable resources to purchase an irrevocable annuity that pays potentially large amounts of income for the community spouse over a short period of time without affecting the institutionalized spouse’s eligibility. A representative from one law office we spoke to in an undercover capacity suggested that the creation of an annuity can be done quickly and therefore, is a tool for last minute planning. Similar to the annuities for the applicant, Medicaid officials from several states said that the use of annuities for the community spouse has increased over the past few years. Officials from three states said that the increase may be a result of the passage of the DRA, because it clarified how annuities for the community spouse could be set up. Married applicants may seek a court order that requires the institutionalized spouse to pay a specified monthly income or provide additional resources to support the community spouse. Such court orders could allow the community spouse to receive income or resources in excess of maximum standards. Federal law requires that a community spouse’s income allowance be no less than the amount of the court order of support. One state Medicaid official that we spoke to said that applicants who use court orders will have a preeligibility asset test, or needs assessment, conducted to determine the amount of excess resources that the married couple would have to spend down before applying for Medicaid, after which they will seek a court order of resource support that allows the spouse to keep an amount of the couple’s combined resources that is above the state’s maximum resource allowance. Of the 70 married approved applicants whose files we reviewed, 1 applicant had a court order of spousal income support that required the institutionalized applicant to divert $5,014 of her monthly income to the community spouse, which was greater than the state’s minimum needs allowance. Eligibility workers from all 12 counties in which we conducted interviews stated that bank statements were the most useful source of information for identifying and verifying applicants’ financial eligibility. According to the eligibility workers we spoke with, bank statements show transactions, such as payments of life insurance premiums, the movement of lump sums of money over time, or transfers of money in and out of accounts. Presumably, these workers had access to itemized bank statements— periodic statements issued by a financial institution to its customers detailing all account activity for that period. Eligibility workers from one county said that bank statements allowed them to best understand an applicant’s financial history. Additionally, bank statements can include red flags or triggers that can lead eligibility workers to ask the applicant for additional information. For example, eligibility workers from counties in which we conducted interviews indicated that large withdrawals or patterns of withdrawals, incomplete documentation (e.g., missing pages), or an applicant having a large number of accounts can prompt further inquiry. Eligibility workers also reported that reviews of bank statements could lead to the identification of unreported assets or accounts. The most commonly unreported asset those eligibility workers reported finding in bank statements were life insurance policies. Specifically, eligibility workers from 7 of the 12 counties in which we conducted interviews reported that life insurance policies are commonly not reported and may be found while reviewing itemized bank statements because the statements may show a payment for the life insurance premium. Life insurance policies that have a cash value could affect an applicant’s eligibility. Although eligibility workers indicated that bank statements are the most useful source of information on applicants’ assets, we have previously found that over half of states require only a single month’s documentation for financial and investment resources, such as bank accounts. Having only a single month’s bank statement could be sufficient to determine the current value of an applicant’s account, but it may not allow eligibility workers to identify patterns of withdrawals over time which could indicate the need for additional review. All the eligibility workers we interviewed, however, said they ask for additional information if they see large withdrawals in the bank statements that were submitted. For example, eligibility workers from one county that requires only a single month of documentation said if there is questionable information in the documentation they will request that the applicant submit additional months of documentation. Additionally, we previously found that few states require applicants to provide itemized bank statements as documentation of their resources.bank statements even if not required, without such detailed statements, eligibility workers may not be able to discover unreported assets, such as life insurance policies. While applicants may submit itemized Some eligibility workers we interviewed indicated that applicants’ income tax returns were also a helpful source of information to identify applicants’ unreported assets. Specifically, eligibility workers from three counties (in two states) told us that that they ask applicants for a copy of their federal tax return. For example, eligibility workers from one county stated that they require applicants to provide 5 years of tax returns. These workers indicated that income tax returns include much information that workers would otherwise not be able to access, such as information about ownership of life insurance policies, stocks, or any other asset that earns dividends. In our previous work, we found that only one state requires the submission of income tax returns. In addition to bank statements and tax returns, eligibility workers also reported finding some asset-related search tools helpful in identifying and verifying applicants’ assets and transfers. Workers from one county in Florida that had recently begun piloting an electronic asset verification system (AVS)—a system that allows workers to contact multiple financial institutions to determine if an applicant has, or had, an account and the value of any existing accounts—noted that this new system has been useful in identifying unreported assets and transfers. The state’s AVS collects information from participating banks on any accounts held by an applicant for nursing home coverage in the prior 60 months. If a bank account is found, the information is populated into the state’s electronic eligibility system for eligibility workers to use in evaluating applicants’ financial eligibility. Officials from Florida told us that their AVS is connected to the vast majority of banks operating in their state. Although all states were required to have an electronic AVS in place by the end of fiscal year 2013, only 2 of the 12 states for which we conducted interviews reported having implemented an AVS. In our prior work, we found that states identified challenges to implementing an AVS, including a lack of resources—money, staff, or time—to implement the system, and challenges getting financial institutions to participate. Eligibility workers from one county reported using certain commercial investigative software that pulls together publically available information nationwide to help verify or identify applicants’ assets or transfers. This software can help eligibility workers find information on unreported assets and transfers, such as information about property deeds or ownership of a business. The workers reported that this software is used in cases where the eligibility worker suspects the applicant owns, for example, an out-of-state unreported asset. In this county, only the two eligibility worker supervisors and investigative staff have access to this software. We provided a draft of this report to HHS for review. HHS had no general comments but provided technical comments that we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Administrator of CMS and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-7114 or yocomc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Of the 350 Medicaid applicants whose files we reviewed in selected counties in three states (Florida, New York, and South Carolina), most were over 75 years old, single, and female. (See table 6.) The median age of applicants was 84 years old. A majority of applicants— 80 percent—had been living in a long-term care facility, such as a nursing home, at the time they applied for Medicaid coverage of nursing home care. The median length of time these applicants had been living in facilities was 2.3 months; the length of time ranged from less than 1 month to 6 years. Some applicants—15 percent—were already covered under Medicaid for basic medical services at the time that they applied for coverage of nursing home care. Additionally, 24 percent of the applicants had evidence in their application file that they received assistance from an attorney or financial planner in applying for Medicaid coverage for nursing home care. Over 80 percent of the applicants whose files we reviewed (294 of 350) were approved for Medicaid coverage for nursing home care, while 15 percent of applicants (52 of 350) were initially denied Medicaid coverage. (See fig. 5.) Most of these applicants (39 of 52) were denied because they failed to provide required documentation, a few were denied because they were not functionally eligible (4 of 52), and some applicants (11 of 52) were denied for financial reasons, including having income or resources that exceeded financial eligibility standards. For applicants denied for having excess income, the median amount of excess income was $77 per month; for those denied for excess resources, the median amount of excess resources was $20,407. Most applicants (9 of 11) who were initially denied for financial reasons reapplied and were later approved for Medicaid coverage for nursing home care. Of the 9 applicants who were later approved for Medicaid, 3 applicants spent down assets on long-term care or medical expenses, 2 applicants spent down assets on other goods or services, 2 applicants placed excess income into a qualified income trust, and 2 applicants were later approved for other or unknown reasons. To examine the financial characteristics of applicants approved for Medicaid nursing home coverage, we reviewed a random sample of Medicaid nursing home application files in selected counties in three states. To select states, we used information from a 2011 GAO web- based survey of Medicaid officials from each of the 50 states and the District of Columbia. We scored states based on their survey responses to questions on the extent to which they: 1. verify applicants’ assets with financial institutions; 2. conduct property record searches; and 3. obtain information covering the 60-month look-back period. Weighing each question equally, we ranked states on the basis of their total score and placed them into three groups (low, medium, and high) using naturally occurring breaks in the data. (See table 7.) In selecting states, we considered the geographic dispersion of states, as well as the following: among states in the “low” group, we focused on states that reported generally obtaining only 1 month of documentation; and among states in the “high” group, we focused on states that reported conducting all three activities to some extent—verifying assets with financial institutions, conducting property searches, and obtaining 60 months of documentation. From the ranked group of low and high states, we selected an initial set of states plus additional alternative states, and conducted interviews with state officials to determine whether they could provide us with needed data in order to select a sample of counties and application files to review. If a state informed us they were unable to provide such data, we replaced the state with the next alternative state from the respective group. We interviewed officials from a total of 11 states. Officials from 6 states (2 high and 4 low) told us they were unable to produce needed data due to data system limitations. Officials from 1 state (a high state) told us they were technically able to produce needed data but would not be able to do so within a reasonable timeframe due to competing demands for their information technology resources. This left us with 4 states—2 high states and 2 low states—that were able to produce the data we needed. Based on these interviews, we selected one state from the low group (Florida) and two states from the high group (New York and South Carolina). In 2012, Medicaid spending for institutional long- term care was $3.3 billion in Florida, $11.5 billion in New York, and $801 million in South Carolina. To choose counties in our selected states, we considered three factors. 1. Size of the population aged 65 and older.2. Median income of households with householders aged 65 and older.3. Number of Medicaid nursing home applications received. Carolyn L. Yocom, (202) 512-7114 or yocomc@gao.gov. In addition to the contact named above, Michelle B. Rosenberg, Assistant Director; Kaycee M. Glavich; Robert Graves; Drew Long; Katherine Mack; Linda McIver; Vikki Porter; Daniel Ries; Laurie F. Thurber; and Jennifer Whitworth made key contributions to this report.

Summary: Medicaid paid for nearly one-third of the nation's $158 billion in nursing home expenditures in 2012. To be financially eligible for Medicaid, individuals cannot have assets above certain limits. Not all assets are countable in determining Medicaid eligibility; federal law discourages individuals from reducing their countable assets, for example by transferring them to family members, to qualify for Medicaid. Although Congress has acted multiple times to address financial eligibility requirements for Medicaid coverage of nursing home care, methods exist through which individuals, sometimes with the help of attorneys, can reduce their assets and qualify for Medicaid. GAO was asked for information on the extent to which individuals may be using available methods to qualify for Medicaid coverage. GAO (1) examined financial characteristics of applicants approved for Medicaid nursing home coverage in selected states; (2) identified methods used to reduce countable assets to qualify for Medicaid; and (3) identified information eligibility workers consider the most useful in assessing applicants' financial eligibility. GAO analyzed a random, but nongeneralizeable, sample of Medicaid nursing home applications in two counties in each of three states (Florida, New York, and South Carolina), selected based on several factors including states' asset verification efforts and demographics. GAO also interviewed officials from the Centers for Medicare & Medicaid Services, state Medicaid officials, county-based Medicaid eligibility workers, and attorneys. GAO's review of 294 approved Medicaid nursing home applications in three states showed that 41 percent of applicants had total resources—both countable and not countable as part of financial eligibility determination—of $2,500 or less and 14 percent had over $100,000 in total resources. Nearly 75 percent of applicants owned some noncountable resources, such as burial contracts; the median amount of noncountable resources was $12,530. GAO identified four main methods used by applicants to reduce their countable assets—income or resources—and qualify for Medicaid coverage: 1. spending countable resources on goods and services that are not countable towards financial eligibility, such as prepaid funeral arrangements; 2. converting countable resources into noncountable resources that generate an income stream for the applicant, such as an annuity or promissory note; 3. giving away countable assets as a gift to another individual—such gifts could lead to a penalty period that delays Medicaid nursing home coverage; and 4. for married applicants, increasing the amount of assets a spouse remaining in the community can retain, such as through the purchase of an annuity. Eligibility workers GAO spoke with identified bank statements as the most useful source of information for assessing financial eligibility. They explained that bank statements could lead to the identification of unreported assets, such as life insurance policies, or show patterns of withdrawals that prompt further inquiry. The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.