States are responsible for assessing applicants’ financial eligibility for  Medicaid. States’ Determination of Applicants’ Financial Eligibility

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. Files Reviewed Showed 41 Percent of Approved Applicants Had Total Resources at or below $2,500, and 5 Percent Transferred Assets

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. Applicants Used Four Main Methods to Reduce Countable Assets and Qualify for Medicaid

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. Giving Away Some or All Countable Assets

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. 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. Eligibility Workers Considered Bank Statements the Most Useful Source to Identify and Verify Applicants’ Financial Eligibility

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. Eligibility workers also reported that reviews of bank statements could  lead to the identification of unreported assets or accounts. Life  insurance policies that have a cash value could affect an applicant’s  eligibility. Agency Comments

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. The median  age of applicants was 84 years old. Appendix II: Scope and Methodology

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. 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. 1.
Why GAO Did This Study

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.

What GAO Found

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.