	Background

To be eligible for Medicaid, individuals must be within certain eligibility  categories, such as children or those who are aged or disabled. In most states, to be financially eligible for Medicaid long-term care  services, an individual must have $2,000 or less in countable resources  ($3,000 for a couple). For all elderly households, the  higher their asset levels, the more likely they were to have reported  transferring cash to another individual. Overall, severely  disabled elderly households—those reporting three or more limitations in  ADLs—were less likely to transfer cash than nondisabled elderly  households. Greatest Proportion of Elderly Had Incomes of $50,000 or Less and Nonhousing Resources below $100,000

According to data from the 2002 HRS, total income for the nation’s  approximately 28 million elderly households was $1.1 trillion and total  nonhousing resources were $6.6 trillion. Approximately 80 percent of  elderly households had annual incomes of $50,000 or less. Elderly Households’ Level of Assets Varied Depending on Level of Disability, Marital Status, and Gender

Disabled elderly households—which are at higher risk of needing long- term care—had lower levels of assets than nondisabled elderly  households. Approximately 6 million, or about 22 percent, of all elderly households  reported transferring cash during the 2 years prior to the HRS survey. Other methods, however, could result in a penalty  period, depending on the specific arrangements made and the policies of  the individual state. Other Methods to Reduce Assets Could Delay Medicaid Coverage for Long-Term Care Services

Some of the other methods elderly individuals use to reduce their  countable assets could result in a penalty period and thus could delay  Medicaid coverage for long-term care services, according to the elder law  attorneys and state and federal officials we contacted. Gifts. Financial Instruments. Transfer of Property Ownership. The nine states we reviewed  generally relied on applicants’ self-reporting of financial information and  varied in the amount of documentation they required and in the extent to  which they verified the assets reported. According to officials in these  states, transfers that were not reported by applicants were difficult to  identify. States Reviewed Did Not Systematically Track and Analyze Applicants’ Transfers of Assets

Although officials from the nine states reviewed reported that some  individuals transferred assets for purposes of qualifying for Medicaid,  these states did not systematically track and analyze data on the incidence  of asset transfers or associated penalties. Nationwide, States Request Information on Assets and Transfers of Assets as Part of the Medicaid Application Process

Nationwide, states used the application process—application forms,  interviews, or both—to determine the level of assets held by Medicaid  applicants and whether applicants transferred assets. CMS Provides Guidance on Transfers of Assets through the State Medicaid Manual and in Response to Specific Questions from States

To help states comply with requirements related to asset transfers and  Medicaid, CMS has issued guidance primarily through the State Medicaid  Manual. The portion of the manual relating to asset transfers and trusts generally  includes definitions of relevant terms, such as assets, income, and  resources; information on look-back periods; penalty periods and  penalties for transfers of less than fair market value; exceptions to the  application of such penalties; and spousal impoverishment provisions. CMS has provided additional guidance to states about asset transfers  through conferences and one special study:    Conferences. In 2005, the agency released a report that examined the  use of annuities as a means for individuals to shelter assets to become  Medicaid-eligible. CMS central office officials said that the agency faces  challenges in issuing guidance that would be applicable to all situations  given the constantly changing methods individuals use to transfer assets in  a manner that avoids the imposition of a penalty period. CMS  acknowledged, however, the difficulty of gathering data on the extent and  cost of asset transfers to the Medicaid program.
Why GAO Did This Study

In fiscal year 2004, the Medicaid program financed about $93 billion for long-term care services. To qualify for Medicaid, individuals' assets (income and resources) must be below certain limits. Because long-term care services can be costly, those who pay privately may quickly deplete their assets and become eligible for Medicaid. In some cases, individuals might transfer assets to spouses or other family members to become financially eligible for Medicaid. Those who transfer assets for less than fair market value may be subject to a penalty period that can delay their eligibility for Medicaid. GAO was asked to provide data on transfers of assets. GAO reviewed (1) the level of assets held and transferred by the elderly, (2) methods used to transfer assets that may result in penalties, (3) how states determined financial eligibility for Medicaid long-term care, and (4) guidance the Centers for Medicare & Medicaid Services (CMS) has provided states regarding the treatment of asset transfers. GAO analyzed data on levels of assets and cash transfers made by the elderly from the 2002 Health and Retirement Study (HRS), a national panel survey; analyzed states' Medicaid applications; and interviewed officials from nine states about their eligibility determination processes.

What GAO Found

In 2002, over 80 percent of the approximately 28 million elderly households (those where at least one person was aged 65 or over) had annual incomes of $50,000 or less, and about one-half had nonhousing resources, which excluded the primary residence, of $50,000 or less. About 6 million elderly households (22 percent) reported transferring cash, with amounts that varied depending on the households' income and resource levels. In general, the higher the household's asset level, the more likely it was to have transferred cash during the 2 years prior to the HRS study. Overall, disabled elderly households--who are at higher risk of needing long-term care--were less likely to transfer cash than nondisabled elderly households. Certain methods to reduce assets, such as spending money to pay off debt or make home modifications, do not result in penalty periods. Other methods, such as giving gifts, transferring property ownership, and using certain financial instruments, could result in penalty periods, depending on state policy and the specific arrangements made. None of the nine states GAO contacted tracked or analyzed data on asset transfers or penalties applied. These states required applicants to provide documentation of assets but varied in the amount of documentation required and the extent to which they verified the assets reported. These states generally relied on applicants' self-reporting of transfers of assets, and officials from these states informed GAO that transfers not reported were difficult to identify. To help states comply with requirements related to asset transfers, CMS has issued guidance primarily through the State Medicaid Manual. CMS released a special study in 2005 to help states address the issue of using annuities as a means of sheltering assets. Additionally, CMS officials provide ongoing technical assistance in response to state questions, but noted the challenge of issuing guidance applicable to all situations given the constantly changing methods used to transfer assets in an attempt to avoid a penalty period. In commenting on a draft of this report, CMS noted the complexity of the current law and commented that data on the precise extent and cost of asset transfers to the Medicaid program have been difficult to gather.