3. For example, states may  disregard certain types or amounts of income and may elect not to count  certain resources. Income. 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. Approximately   90 percent of Medicaid-covered elderly nursing home residents had annual  incomes of $20,000 or less compared to approximately 53 percent of non- Medicaid-covered residents. Majority of Medicaid Applicants in Selected Counties in Three States Had Few Nonhousing Resources and Were Approved upon Initial Application

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. 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. 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. 3.) The median annual  income of all applicants was $11,382. 4.) 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. 6.) Few Transfers below FMV Identified for Applications Reviewed and Penalties Rarely Delayed Eligibility

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, 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. 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. 10.) Extent to Which Some DRA Long-Term Care Provisions May Affect Eligibility Is Uncertain

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. 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. The DRA added requirements for states regarding the  treatment of annuities. Home Equity. Maryland and South Carolina generally agreed with our findings. 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). 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. 3. To assess the potential effect of provisions of the DRA, we used (1) HRS  data and (2) data from our application file reviews.
Why GAO Did This Study

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.

What GAO Found

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.