Opinion ID: 2466469
Heading Depth: 3
Heading Rank: 1

Heading: Facts And Legislative History.

Text: On February 8, 2006, President George W. Bush signed the Deficit Reduction Act of 2005(DRA). [1] He stated that the bill tightens the loopholes that allowed people to game the system by transferring assets to their children so they can qualify for Medicaid benefits. [2] Even before the enactment of the DRA, federal Medicaid law imposed a period of ineligibility on a person who transferred assets for less than fair market value before applying for benefits. [3] The penalty period lasted approximately for the number of months that the applicant could have paid for her own health care using the transferred assets if the transfer had not been made. [4] But the law contained a provision allowing prospective Medicaid beneficiaries to engage in so-called half-a-loaf planning, according to which the prospective beneficiary makes a gift of a portion of [her] assets while retaining sufficient assets to pay for [her] nursing home care during the period of ineligibility that results from the gifts. [5] Because the penalty period began running roughly at the time of the asset transfer, [6] prospective beneficiaries were able to calculat[e] how long they would be ineligible for Medicaid benefits after a transfer and reserv[e] enough personal assets to pay for their care until the penalty period had run. [7] The Deficit Reduction Act eliminated the possibility of this estate planning strategy by changing the start date for the asset transfer penalty period. The DRA states that for asset transfers made after February 8, 2006, the penalty period begins on the first day of a month during or after which assets have been transferred for less than fair market value, or the date on which the individual is eligible for medical assistance under the State plan and would otherwise be receiving institutional level care . . . but for the application of the penalty period, whichever is later.[ [8] ] This rule makes it practically impossible for a potential Medicaid beneficiary to cover her own medical expenses while waiting out the asset transfer penalty period: The period will not start until her remaining assets are gone. On July 31, 2006, Alaska Governor Frank Murkowski signed House Bill (H.B.) 426, legislation that was intended to amend the Alaska Statutes to reflect the DRA's change to the penalty period start date. [9] The legislation added a subsection (m) to AS 47.07.020 that stated: Except as provided in (g) of this section, the department shall impose a penalty period of ineligibility for the transfer of an asset for less than fair market value by an applicant or an applicant's spouse consistent with 42 U.S.C. 1396p(c)(1). [10] Because 42 U.S.C. § 1396p(c)(1) codified the DRA's new asset transfer penalty period start date, AS 47.07.020(m) would have eliminated the possibility of a prospective beneficiary qualifying for Medicaid coverage by transferring some assets to a family member and then waiting out the penalty period using her remaining assets. But the legislature stated that AS 47.07.020(m) would only become effective July 1, 2006, or on the date of notification under sec. 13 of this Act of federal approval of a revised state plan for medical assistance coverage incorporating the changes made by secs. 1-7 and 9 of this Act, whichever is later. [11] This language proved problematic, because federal approval of the state plan did not arrive as anticipated in a single, all-encompassing gesture, with notification on a single date. [12] As a result, there was a great deal of uncertainty about the effective date of the effective clauses. [13] In order to resolve any uncertainty, Senate Bill (S.B.) 259 would eventually be passed in 2008 to eliminate the conditional language in AS 47.07.020(m) and give it retroactive effect to October 1, 2006. [14] While the preceding legislative changes took place through 2006, Sarah Pfeifer was living in Wichita, Kansas. Sarah was born in 1914. In 2005, her husband, Warren Pfeifer, was diagnosed with terminal cancer. He died in September 2006. After Warren's death, Sarah moved to Alaska, where her only son, John Pfeifer, lived with his wife. [15] According to John's testimony, his mother and father had said they wanted to give most of the proceeds of the sale of their house in Kansas to John and his wife as a gift. [T]he money remaining in the bank account, my parents' bank account, John testified, could be used to take care of my mom during the remaining months of her life. But before making the gift, Sarah and John wanted to make sure [they] were complying with all the applicable laws, especially those relating to Medicaid. John didn't want to do anything that would jeopardize [his] mother's future medical care. In November 2006, John met with an attorney specializing in elder law and Medicaid eligibility. The attorney told John that his parents' contemplated gift of roughly half of their assets should not cause a problem under the state regulations then in effect. According to John, the attorney suggested that if the asset transfer led to a penalty under Medicaid, Sarah would still have enough money in her bank account to pay for her care until the penalty period ended and she became eligible for coverage. In other words, the attorney advised John that half-a-loaf planning remained a viable estate planning strategy in Alaska. The attorney's advice was consistent with the most recent edition of the State's Aged, Disabled, and Long Term Care Medicaid Eligibility Manual (the Medicaid eligibility manual), released by the Division of Public Assistance (the Division). This manual was originally introduced in 2004 and has been updated on several occasions since then. Section 554 of the manual contains the rules governing the effect of asset transfers on Medicaid eligibility. The most recent version of the Medicaid eligibility manual available in November 2006, when John first met with the attorney, was the October 2006 edition. Though the record does not contain a copy of section 554 from the October 2006 edition, it is uncontested that this version of section 554 continued to feature the pre-DRA asset transfer penalty start date, according to which [t]he penalty period begins the month after the. . . transfer of assets. Thus the Medicaid eligibility manual continued to suggest in November 2006 that half-a-loaf planning remained viable in Alaska, despite the passage of the DRA and AS 47.07.020(m). The manual would not be revised to reflect the DRA's prevention of the half-a-loaf planning strategy until July 2007. [16] On February 27, 2007, the day that Sarah's house in Kansas sold, John spoke again with the attorney and confirmed that the relevant rules had not changed since their last consultation in November 2006. Sarah then signed a letter formalizing the transfer of $120,000 to John and his wife. The parties agree that for legal purposes, the transfer took place on February 27. [17] In July 2007, after Sarah's gift and before her application for Medicaid, Alaska changed its regulations in a way that reflected the new penalty start date in the DRA. Before this time, the main regulation dealing with asset transfer penalties, 7 Alaska Administrative Code (AAC) 40.295, only laid out the length of the penalty period, and was silent regarding the penalty period's start date. [18] Effective July 20, 2007, a new regulation at 7 AAC 100.510(g) provided: The penalty period [for a transfer of an asset for less than fair market value that occurs on or after February 8, 2006] begins on the first day of the following month, whichever is later: (1) the month immediately after the month the transfer occurred; (2) the month that the department determines the recipient is eligible to receive long-term care services. Also in July 2007, the Division released a revised version of its Medicaid eligibility manual that for the first time contained the post-DRA penalty start date. Finally, as noted above, in May 2008 the Alaska legislature passed S.B. 259, revising AS 47.07.020(m) to make it retroactive to October 1, 2006. [19] On August 19, 2008, Sarah, through John, applied for Medicaid long-term care services. She had been living by then for over a year in a nursing home in Soldotna. The Division temporarily denied her application after concluding that the $120,000 gift triggered a transfer of asset penalty that began on September 1, 2008 and prevented her application from being granted prior to July 15, 2009. The Division's decision cited no law other than stating that it is supported by Medicaid Manual Section 554, apparently a reference to the July 2007 Medicaid eligibility manual discussed above.