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entitled 'Medicaid: Financial Characteristics of Approved Applicants 
and Methods Used to Reduce Assets to Qualify for Nursing Home 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

May 2014: 

Medicaid: 

Financial Characteristics of Approved Applicants and Methods Used to 
Reduce Assets to Qualify for Nursing Home Coverage: 

GAO-14-473: 

GAO Highlights: 

Highlights of GAO-14-473, a report to congressional requesters. 

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 
nongeneralizable, 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. 

Figure: Distribution of Approved Applicants in Selected Counties in 
Three States by Amount of Total Resources (n=294): 

[Refer to PDF for image: vertical bar graph] 

Amount of total resources: $0; 
Number of approved applicants: 30. 

Amount of total resources: $1 to $2,500; 
Number of approved applicants: 91. 

Combination of two above: 41%; 

Amount of total resources: $2,501 to $5,000; 
Number of approved applicants: 15. 

Amount of total resources: $5,001 to $10,000; 
Number of approved applicants: 20. 

Amount of total resources: $10,000 to $20,000; 
Number of approved applicants: 30. 

Amount of total resources: $20,001 to $30,000; 
Number of approved applicants: 17. 

Amount of total resources: $30,001 to $40,000; 
Number of approved applicants: 10. 

Amount of total resources: $40,001 to $50,000; 
Number of approved applicants: 10. 

Amount of total resources: $50,001 to $100,000; 
Number of approved applicants: 27. 

Combination of six above: 44%; 

Amount of total resources: Greater than $100,000; 
Number of approved applicants: 42; 14%. 

Source: GAO analysis of Medicaid application data. 

Note: Data were from applications submitted during state fiscal year 
2012 or between July 1, 2012, and December 31, 2012. Amount of 
resources may be understated as the value of certain resources was not 
available. For two applicants, no values were available, thus 
percentages do not add to 100. 

[End of figure] 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-14-473]. For more 
information, contact Carolyn L. Yocom at (202) 512-7114 or 
yocomc@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

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

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

Eligibility Workers Considered Bank Statements the Most Useful Source 
to Identify and Verify Applicants' Financial Eligibility: 

Agency Comments: 

Appendix I: Summary of Application Files Reviewed in Selected Counties 
in Three States: 

Appendix II: Scope and Methodology: 

Appendix III: Contact and Staff Acknowledgments: 

Tables: 

Table 1: Types of Assets and Examples: 

Table 2: Income and Resource Standards for Selected Ways of Becoming 
Eligible for Medicaid Coverage, as of 2014: 

Table 3: Summary of Selected Provisions Regarding Transfers of Assets 
in the Deficit Reduction Act of 2005 (DRA): 

Table 4: Number of Approved Applicants in Selected Counties in Three 
States that Owned Resources, and the Value of Resources Owned, by Type 
of Resource: 

Table 5: Amount of Nonhousing Resources and Monthly Income Support 
Retained by the Community Spouse in Cases of Spousal Refusal, for 
Approved Applicants in Selected Counties in Three States: 

Table 6: Characteristics of Applicants Reviewed in Selected Counties 
in Three States (n=350): 

Table 7: Groups Used for State Sample Selection: 

Table 8: Selected States and Counties: 

Table 9: Number of Files Reviewed, by Selected State and County: 

Figures: 

Figure 1: Distribution of Approved Applicants in Selected Counties in 
Three States by Amount of Total Resources (n=294): 

Figure 2: Distribution of Approved Applicants in Selected Counties in 
Three States by Amount of Noncountable Resources (n=195): 

Figure 3: Proportion of Resources that Were Countable as Part of 
Applicants' Financial Eligibility Among Approved Applicants in 
Selected Counties in Three States, by Type of Resource: 

Figure 4: Distribution of Approved Applicants in Selected Counties in 
Three States by Annual Gross Income: 

Figure 5: Application Status of Medicaid Applicants Reviewed in 
Selected Counties in Three States (n=350): 

Abbreviations: 

AVS: asset verification system: 

CMS: Centers for Medicare & Medicaid Services: 

DRA: Deficit Reduction Act of 2005: 

FMV: fair market value: 

HHS: Department of Health and Human Services: 

SSI: Supplemental Security Income: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

May 22, 2014: 

The Honorable Tom Coburn, M.D. 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Richard Burr: 
Ranking Member: 
Subcommittee on Primary Health and Aging: 
Committee on Health, Education, Labor, and Pensions: 
United States Senate: 

The Honorable Darrell Issa: 
Chairman: 
Committee on Oversight and Government Reform: 
House of Representatives: 

The Honorable Trey Gowdy: 
House of Representatives: 

Long-term care, particularly nursing home care, can be costly; in 
2012, the estimated average annual cost for an individual to receive 
care in a nursing home was over $85,000.[Footnote 1] In that same 
year, nursing home expenditures in the United States amounted to $158 
billion, more than half of the nation's total spending for long-term 
care services. Medicaid--a joint federal-state health care financing 
program covering certain categories of low-income individuals--is the 
largest payer of long-term care services and accounted for 32 percent 
of nursing home expenditures in 2012. As the number of elderly 
Americans continues to grow and more individuals are likely to need 
long-term care, Medicaid spending for nursing home care is projected 
to increase, placing additional burden on already strained federal and 
state resources. 

Medicaid offers health care coverage, including coverage for long-term 
care services, to individuals whose assets--both income and resources--
are insufficient to meet the costs of necessary medical services. 
[Footnote 2] Individuals applying for Medicaid coverage for long-term 
care must meet certain financial and functional eligibility criteria. 
[Footnote 3] To meet the financial eligibility criteria, individuals 
must have assets that fall below established standards, which vary by 
state, but are within standards set by the federal government. Not all 
assets are countable in determining financial eligibility for 
Medicaid. For example, states generally exclude--within specified 
limits--the value of an individual's primary residence, car, and 
prepaid burial arrangements. Additionally, federal law includes 
provisions to discourage individuals from reducing their countable 
assets--for example, by transferring them to family members--in order 
to establish financial eligibility for Medicaid coverage. 
Specifically, those who transfer assets for less than fair market 
value (FMV) during a specified "look-back" period--a period of time 
before applying for Medicaid in which an individual's or couple's 
assets are reviewed--may be deemed ineligible for Medicaid coverage 
for long-term care for a period of time called the penalty period. 

As the day-to-day administrators of the Medicaid program, states are 
responsible for assessing applicants' financial eligibility for 
Medicaid coverage for long-term care; that is, determining whether an 
applicant's countable income and resources are below the state-
established standards, and whether an applicant transferred assets for 
less than FMV during the look-back period. The processing of Medicaid 
applications is generally performed by local or county-based 
eligibility workers. Our previous work found that, to determine 
eligibility, states generally required applicants to submit 
applications and provide documentation of certain assets. States 
varied, however, in the amount of documentation required from 
applicants, the information they obtained from third parties to verify 
the accuracy of applicants' reported assets,[Footnote 4] and in the 
proportion of applicants whom they identified as having transferred 
assets for less than FMV during the look-back period.[Footnote 5] Some 
of the variation we found raised questions about whether states had 
sufficient information about applicants' assets to implement federal 
requirements. Additionally, our previous work identified methods 
individuals used to reduce assets to qualify for Medicaid coverage of 
long-term care that would not, or may not, result in a penalty period, 
as they would not be considered a transfer for less than FMV.[Footnote 
6] 

Congress has acted on multiple occasions to address financial 
eligibility requirements for Medicaid coverage for long-term care. 
Most recently, the Deficit Reduction Act of 2005 (DRA), enacted in 
February 2006, amended some existing provisions regarding asset 
transfers and introduced new requirements related to financial 
eligibility for Medicaid coverage for long-term care.[Footnote 7] For 
example, the DRA extended the look-back period from 36 months to 60 
months for transfers occurring on or after its enactment, changed the 
calculation and timing of the penalty period for those transfers, and 
introduced new requirements for how certain types of assets--such as 
an individual's primary residence and an annuity--should be considered 
when determining Medicaid eligibility. Nevertheless, methods exist 
through which applicants, sometimes with the assistance of attorneys 
or financial planners, can reduce their assets in a manner consistent 
with existing law to qualify for Medicaid coverage. 

Given our past work related to states' Medicaid financial eligibility 
determination processes, you asked us to provide information on the 
extent to which individuals may be using available methods to become 
eligible for Medicaid coverage for long-term care. In this report, we 
(1) examine the financial characteristics of applicants approved for 
Medicaid nursing home coverage in selected states; (2) identify the 
methods used to reduce countable assets to qualify for Medicaid 
coverage for nursing home care; and (3) identify the information 
eligibility workers considered the most useful for identifying and 
verifying applicants' financial eligibility. 

To examine the financial characteristics of applicants approved for 
Medicaid nursing home coverage in selected states, we reviewed a 
random sample of Medicaid nursing home application files in selected 
counties in three states. To select the states, we determined the 
extent to which all states took one or more of three actions to verify 
applicants' reported assets using results from a 2011 GAO web-based 
survey of Medicaid officials from each of the 50 states and the 
District of Columbia.[Footnote 8] On the basis of this assessment, we 
ranked the states on the extent to which they reported taking these 
actions and placed them into three groups (low, medium, and high) 
using naturally occurring breaks in the data. We determined whether 
they could provide us with needed data in order to select a sample of 
application files from counties within the states. We then selected 3 
states--1 from the low group (Florida) and 2 from the high group 
(South Carolina and New York). Within each state, we selected two 
counties that, relative to other counties in the state, had a large 
number of elderly individuals (aged 65 and older), high median income 
of elderly households, and a high number of Medicaid nursing home 
applications. In total, we reviewed 350 Medicaid application files, 
294 of which were approved, including those that were approved and 
incurred a penalty period.[Footnote 9] (See appendix I for information 
about the applications reviewed.) From the 294 approved application 
files, we collected and analyzed data on applicants' assets (both 
income and resources), whether the resources were countable toward 
Medicaid eligibility, and whether applicants were found to have 
transferred assets for less than FMV. Our analysis was limited to 
information included in the application files, which states used to 
make their eligibility determinations. We did not independently verify 
the accuracy of this information. However, we examined the data we 
collected for obvious errors and tested the data; based on this, we 
determined that the data were sufficiently reliable for the purposes 
of this report. The data from the 294 approved application files 
cannot be generalized to other approved applicants. 

To identify the methods used to reduce countable assets to qualify for 
Medicaid coverage for nursing home care, we reviewed applicable 
federal laws and guidance, and spoke with officials from the Centers 
for Medicare & Medicaid Services (CMS), the agency within the 
Department of Health and Human Services (HHS) that oversees the 
Medicaid program. We interviewed nine attorneys recommended to us by 
the Director of the American Bar Association's Commission on Law and 
Aging and conducted undercover calls with representatives from 17 law 
offices whose websites indicated that they provided assistance to 
elderly individuals seeking Medicaid coverage for long-term care. We 
also interviewed state Medicaid officials from 12 states, and Medicaid 
eligibility workers from two counties in 6 of these 12 states, 
selected in part based on information collected from our interviews 
with attorneys, undercover calls with representatives from law 
offices, information from background literature, and demographic data 
on the population aged 65 and older. We supplemented this information 
with data collected from our review of Medicaid nursing home 
application files. 

To identify the information eligibility workers considered the most 
useful for identifying and verifying applicants' financial 
eligibility, we used information from our interviews with county 
eligibility workers in two counties in each of the six states. (See 
appendix II for more information about our scope and methodology.) 

We conducted this performance audit from September 2012 to May 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. We conducted 
our related investigative work in accordance with investigation 
standards prescribed by the Council of the Inspectors General on 
Integrity and Efficiency. 

Background: 

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. 

Financial Eligibility for Medicaid Coverage for Long-Term Care: 

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.[Footnote 10] 

* 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.[Footnote 11] 

* 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.[Footnote 
12] 

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.[Footnote 13] 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.[Footnote 14] 

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.) 

Table 1: Types of Assets and Examples: 

Type of asset: Income; 
Examples: 
* Money earned from work; 
* Money generated from resources, such as interest, dividends, and 
annuity payments[A]; 
* Money received from other sources, such as Social Security, worker's 
compensation, and unemployment benefits. 

Type of asset: Resources; 
Examples: 
* Cash; 
* Financial and investment resources, such as bank accounts, stocks, 
and bonds; 
* Trusts[B]; 
* Annuities; 
* Real property; 
* Vehicles, such as automobiles and boats; 
* Life insurance; 
* Promissory notes[C]. 

Source: GAO analysis of Supplemental Security Income policy. 

[A] Some resources produce income. For example, an annuity is a 
financial instrument that provides a fixed income over a defined 
period of time in return for an initial payment of principal. The 
principal of the annuity is considered a resource, while the payments 
it generates are considered income. 

[B] A trust is an arrangement in which a grantor transfers property to 
a trustee with the intention that it be held, managed, or administered 
by the trustee for the benefit of the grantor or certain designated 
individuals. 

[C] 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. 

[End of table] 

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.[Footnote 15] 

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. 

Table 2: Income and Resource Standards for Selected Ways of Becoming 
Eligible for Medicaid Coverage, as of 2014: 

Mandatory coverage: 

Ways of becoming eligible for Medicaid: Supplemental Security Income 
(SSI)[A]; 
Income standard: Less than $721 per month for an individual and less 
than $1,082 per month for a couple; 
Resource standard: Countable resources of less than $2,000 for an 
individual, and less than $3,000 for a couple. 

State-elected coverage (optional): 

Ways of becoming eligible for Medicaid: Medically needy; 
Income standard: State-set income standard; individuals may "spend 
down" to eligibility by deducting incurred medical expenses from 
income; 
Resource standard: State-set resource standard usually no lower than 
countable resources of less than $2,000 for an individual or $3,000 
for a couple. 

Ways of becoming eligible for Medicaid: Special income level for 
residents of a nursing facility or institution; 
Income standard: State-set income standard no higher than 300 percent 
of the SSI standard ($2,163 per month) for an individual[B]; 
Resource standard: Same as SSI. 

Sources: GAO analysis of Medicaid eligibility requirements. 

[A] Not all SSI recipients automatically qualify for Medicaid. Under 
Section 1902(f) of the Social Security Act, a state may use more 
restrictive Medicaid eligibility standards than SSI's standards, 
provided the standards are no more restrictive than those the state 
had in place as of January 1, 1972. As of March 2013, 11 states had 
opted to use these standards. These states are often referred to as 
209(b) states because the origin of this provision was § 209(b) of the 
Social Security Amendments of 1972, Pub. L. No. 92-603, 86 Stat. 1329, 
1381. 

[B] 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. 

[End of table] 

Spousal Impoverishment Protections: 

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).[Footnote 16] 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.[Footnote 17] The amount that 
the community spouse is allowed to retain is generally referred to as 
the community spouse resource allowance.[Footnote 18] 

* Income. A community spouse's income is not considered when 
determining financial eligibility for Medicaid coverage for nursing 
home care; the community spouse is allowed to retain all of his or her 
own income. States establish, within federal standards, a minimum 
amount of income--a minimum needs allowance--that a community spouse 
is entitled to retain.[Footnote 19] If the community spouse's income 
is less than the minimum needs allowance, then income from the 
institutionalized spouse can be transferred to the community spouse to 
make up the difference.[Footnote 20] 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. 
[Footnote 21] 

Transfers of Assets: 

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.[Footnote 22] 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-term 
care for a period of time, called the penalty period.[Footnote 23] The 
penalty 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.[Footnote 
24] 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.[Footnote 25] 
Additionally, a penalty would not be applied if 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. 

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. 

Table 3: Summary of Selected Provisions Regarding Transfers of Assets 
in the Deficit Reduction Act of 2005 (DRA): 

DRA provision: Annuities[A]; 
Description: 
* States are required to treat the purchase of an annuity as a 
transfer for less than fair market value (FMV) unless the annuity 
names the state as either (1) the remainder beneficiary in the first 
position for at least the total amount of Medicaid expenditures paid 
on behalf of the annuitant, or (2) a remainder beneficiary in the 
second position after the community spouse, or minor or disabled child 
(or in the first position if any of those individuals transfer the 
remainder of the annuity for less than FMV); 
* Annuities purchased by or on the behalf of an individual who applied 
for Medicaid coverage for long-term care shall be treated as a 
transfer of assets for less than FMV unless the annuity is 
irrevocable, nonassignable, actuarially sound, and provides for 
payments in equal amounts during the term of the annuity, with no 
deferral and no balloon payments; 
* Annuities purchased by or on the behalf of an individual who applied 
for Medicaid coverage for long-term care services that are defined as 
individual retirement accounts under federal tax code, or purchased 
with the proceeds of certain retirement accounts and meet certain 
federal tax code requirements are not considered transfers for less 
than FMV. 

DRA provision: Life estates; 
Description: States are required to consider a purchase of a life 
estate interest in another person's home as a transfer of assets for 
less than FMV unless the purchaser lived in the home for at least 1 
year after the date of purchase. 

DRA provision: Promissory notes and loans; 
Description: States are required to consider funds used to purchase a 
promissory note, loan, or mortgage as a transfer of assets for less 
than FMV unless the repayment terms are actuarially sound, provide for 
payments to be made in equal amounts during the term of the loan with 
no deferral or balloon payments, and prohibit the cancellation of the 
balance upon the death of the lender. 

Source: GAO analysis of the DRA. 

[A] The DRA also specified that applications for Medicaid coverage for 
long-term care shall: (1) describe any interest an applicant or 
community spouse may have in an annuity, regardless of whether the 
annuity is irrevocable or treated as an asset; and (2) include a 
statement that the state becomes a remainder beneficiary of an annuity 
purchased on or after enactment by virtue of the applicant's receipt 
of Medicaid assistance for long-term care. 

[End of table] 

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. 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.[Footnote 26] Such 
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. 

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. 
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. 

Forty-One Percent of Approved Applicants Reviewed Had Total Resources 
of $2,500 or Less; Nearly Three-Quarters Had Some Resources Not 
Countable for Eligibility Determination: 

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.[Footnote 27] Median total resources for 
all approved applicants was $7,660,[Footnote 28] which was less than 
the median net worth of elderly households in the United 
States.[Footnote 29] Married applicants, who made up 24 percent of the 
approved applicants, had higher median resources ($70,137) than single 
applicants ($3,034).[Footnote 30] (See figure 1.) 

Figure 1: Distribution of Approved Applicants in Selected Counties in 
Three States by Amount of Total Resources (n=294): 

[Refer to PDF for image: vertical bar graph] 

Amount of total resources: $0; 
Number of approved applicants: 30. 

Amount of total resources: $1 to $2,500; 
Number of approved applicants: 91. 

Combination of two above: 41%; 

Amount of total resources: $2,501 to $5,000; 
Median for single approved applicants: $3,034. 
Number of approved applicants: 15. 

Amount of total resources: $5,001 to $10,000; 
Median for all approved applicants: $7,660; 
Number of approved applicants: 20. 

Amount of total resources: $10,000 to $20,000; 
Number of approved applicants: 30. 

Amount of total resources: $20,001 to $30,000; 
Number of approved applicants: 17. 

Amount of total resources: $30,001 to $40,000; 
Number of approved applicants: 10. 

Amount of total resources: $40,001 to $50,000; 
Number of approved applicants: 10. 

Amount of total resources: $50,001 to $100,000; 
Median for married approved applicants: $70,137; 
Number of approved applicants: 27. 

Combination of six above: 44%; 

Amount of total resources: Greater than $100,000; 
Number of approved applicants: 42; 14%. 

Source: GAO analysis of Medicaid application data. 

Notes: Data for four counties were from applications submitted during 
state fiscal year 2012, while data for two counties were from 
applications submitted between July 1, 2012, and December 31, 2012. 

Consistent with how Medicaid eligibility is determined for coverage of 
nursing home care, our analysis of total resources for married 
applicants includes those of both the spouse and the applicant. 

For 2 of the 294 approved applicants who owned at least one resource, 
there was no information available on the value of any of their 
resources. As such, the percentages shown do not add to 100. Files for 
the remaining applicants included information on the value of at least 
one resource; all known values were summed to determine the total 
resources per applicant. However, if an applicant's file did not 
contain a value for every resource the applicant owned, then the 
amount of their total resources may be underestimated. 

[End of figure] 

Approved applicants most commonly owned the following types of 
resources: financial and investment resources (95 percent), burial 
contracts and prepaid funeral arrangements (39 percent), life 
insurance policies (34 percent), their primary residence (31 percent), 
and vehicles (26 percent). With the exception of the applicant's 
primary residence, the median value of these more commonly owned 
resources was less than that of other resources--namely annuities, 
life estates, promissory notes, or trusts--that were less commonly 
owned. (See table 4.) 

Table 4: Number of Approved Applicants in Selected Counties in Three 
States that Owned Resources, and the Value of Resources Owned, by Type 
of Resource: 

Resource: Financial and investment[B]; 
Number (percent) of approved applicants who owned resource: 278 (95%); 
Number of applicants for whom the value of resource owned was 
known[A]: 277; 
Median value of resource: $1,200. 

Resource: Burial contracts and prepaid funeral arrangements; 
Number (percent) of approved applicants who owned resource: 114 (39%); 
Number of applicants for whom the value of resource owned was 
known[A]: 95; 
Median value of resource: $9,311. 

Resource: Life insurance; 
Number (percent) of approved applicants who owned resource: 101 (34%); 
Number of applicants for whom the value of resource owned was 
known[A]: 86; 
Median value of resource: $2,422. 

Resource: Primary residence; 
Number (percent) of approved applicants who owned resource: 91 (31%); 
Number of applicants for whom the value of resource owned was 
known[A]: 66; 
Median value of resource: $68,350. 

Resource: Vehicle; 
Number (percent) of approved applicants who owned resource: 77 (26%); 
Number of applicants for whom the value of resource owned was 
known[A]: 51; 
Median value of resource: $3,110. 

Resource: Life estate; 
Number (percent) of approved applicants who owned resource: 10 (3%); 
Number of applicants for whom the value of resource owned was 
known[A]: 4; 
Median value of resource: $71,550. 

Resource: Real property other than primary residence; 
Number (percent) of approved applicants who owned resource: 10 (3%); 
Number of applicants for whom the value of resource owned was 
known[A]: 10; 
Median value of resource: $47,300. 

Resource: Trust; 
Number (percent) of approved applicants who owned resource: 9 (3%); 
Number of applicants for whom the value of resource owned was 
known[A]: 4; 
Median value of resource: $82,000. 

Resource: Promissory note or loan; 
Number (percent) of approved applicants who owned resource: 5 (2%); 
Number of applicants for whom the value of resource owned was 
known[A]: 5; 
Median value of resource: $116,500. 

Resource: Annuity; 
Number (percent) of approved applicants who owned resource: 3 (1%); 
Number of applicants for whom the value of resource owned was 
known[A]: 2; 
Median value of resource: $44,261. 

Resource: Other resources[C]; 
Number (percent) of approved applicants who owned resource: 6 (2%); 
Number of applicants for whom the value of resource owned was 
known[A]: 3; 
Median value of resource: $1,361. 

Source: GAO analysis of Medicaid application data. 

Notes: Data for four counties were from applications submitted during 
state fiscal year 2012, while data for two counties were from 
applications submitted between July 1, 2012, and December 31, 2012. 

Consistent with how Medicaid eligibility is determined for coverage of 
nursing home care, resources for married applicants include those of 
both the spouse and the applicant. 

[A] The value of a resource was considered to be known if the 
applicant's file included information on the value for at least one of 
that type of resource. For example, if an applicant had two bank 
accounts, the value of financial and investment resources was 
considered to be known if the applicant's file included information on 
the value of at least one of the accounts. Missing values may have 
affected the median values of each type of resource. 

[B] Financial and investment resources includes such items as checking 
or savings bank accounts, stocks, bonds, and retirement accounts. 

[C] Other resources include such items as cash, livestock, and 
unspecified property in safety deposit boxes or storage units. 

[End of table] 

Certain types of resources, such as prepaid burial arrangements, are 
generally not countable for purposes of determining Medicaid 
eligibility. Of the approved applicants whose files we reviewed, 74 
percent (218 of 294) owned at least some resources that were not 
countable as part of their financial eligibility determination, though 
the amount of noncountable resources owned varied. Files for 195 of 
these 218 applicants contained information on the value of at least 
one noncountable resource owned.[Footnote 31] Among these 195 
applicants, 55 percent (108 applicants) had $20,000 or less in 
noncountable resources, 27 percent (53 applicants) had noncountable 
resources between $20,001 and $100,000, and 17 percent (34 applicants) 
had greater than $100,000 in resources that were not countable toward 
eligibility. The median value of noncountable resources was 
$12,530.[Footnote 32] Approved applicants who were married had a 
greater median value of noncountable resources ($60,651) than single 
applicants ($9,931), which could be due, in part, to Medicaid 
eligibility rules that include provisions intended to protect the 
community spouse from impoverishment.[Footnote 33] (See figure 2.) 

Figure 2: Distribution of Approved Applicants in Selected Counties in 
Three States by Amount of Noncountable Resources (n=195): 

[Refer to PDF for image: vertical bar graph] 

Amount of total resources: $0; 
Number of approved applicants: 10. 

Amount of total resources: $1 to $2,500; 
Number of approved applicants: 32. 

Amount of total resources: $2,501 to $5,000; 
Number of approved applicants: 15. 

Amount of total resources: $5,001 to $10,000; 
Median for single approved applicants: $9,931; 
Number of approved applicants: 25. 

Amount of total resources: $10,001 to $20,000; 
Median for all approved applicants: $12,530; 
Number of approved applicants: 26. 

Combination of five above: 55%; 

Amount of total resources: $20,001 to $30,000; 
Number of approved applicants: 15. 

Amount of total resources: $30,001 to $40,000; 
Number of approved applicants: 5. 

Amount of total resources: $40,001 to $50,000; 
Number of approved applicants: 9. 

Amount of total resources: $50,001 to $100,000; 
Median for married approved applicants: $60,651 
Number of approved applicants: 24. 

Combination of four above: 27%; 

Amount of total resources: Greater than $100,000; 
Number of approved applicants: 34; 17%. 

Source: GAO analysis of Medicaid application data. 

Notes: Data for four counties were from applications submitted during 
state fiscal year 2012, while data for two counties were from 
applications submitted between July 1, 2012, and December 31, 2012. 

Within federal standards, states may elect not to count certain 
resources toward financial eligibility. Thus, the amount of 
noncountable resources reflects the value of the applicant's resources 
that the state elected not to count during eligibility determination. 
Consistent with how Medicaid eligibility is determined for coverage of 
nursing home care, noncountable resources for married applicants 
include those of both the spouse and the applicant. 

Of the 294 approved applicants whose files we reviewed, 218 owned at 
least one noncountable resource. For 23 of these 218 approved 
applicants, there was no information available on the value of their 
noncountable resources. Files for the remaining 195 applicants 
included information on the value of at least one noncountable 
resource; all known values were summed to determine the amount of 
noncountable resources per applicant. However, if an applicant's file 
did not contain a value for every noncountable resource the applicant 
owned, then the amount of their noncountable resources may be 
underestimated. 

Percentages shown do not add to 100 due to rounding. 

[End of figure] 

The extent to which the types of resources applicants owned were 
countable toward applicants' eligibility varied. While 79 percent of 
the financial and investment resources owned by approved applicants 
were countable, the majority of vehicles, and burial contracts and 
prepaid funeral arrangements were not countable as part of eligibility 
determination. Additionally, none of the applicants' annuities, 
promissory notes, or primary residences were countable. (See figure 
3.) Although an applicant's primary residence is typically not a 
countable resource, an applicant with significant equity interest in 
his or her home is not eligible for Medicaid payments for nursing home 
care.[Footnote 34] For the 51 applicants for whom we were able to 
determine the equity interest in the home, the median home equity was 
$50,000, and ranged from $0 to $700,000. 

Figure 3: Proportion of Resources that Were Countable as Part of 
Applicants' Financial Eligibility Among Approved Applicants in 
Selected Counties in Three States, by Type of Resource: 

[Refer to PDF for image: stacked horizontal bar graph] 

Financial and Investment Resources[A]: 
Resources that were countable: 78.8%; 
Resources that were not countable: 20.7%; 
Information on whether the resource was countable was not available: 
0.5%. 

Other Resources[B]: 
Resources that were countable: 28.6%; 
Resources that were not countable: 71.4%; 
Information on whether the resource was countable was not available: 0. 

Life Insurance: 
Resources that were countable: 26.2%; 
Resources that were not countable: 68.3%; 
Information on whether the resource was countable was not available: 
5.5%. 

Real Property Other than Primary Residence: 
Resources that were countable: 12.5%; 
Resources that were not countable: 75%; 
Information on whether the resource was countable was not available: 
12.5%. 

Trust: 
Resources that were countable: 11.1%; 
Resources that were not countable: 88.9%; 
Information on whether the resource was countable was not available: 0. 

Vehicle: 
Resources that were countable: 4.6%; 
Resources that were not countable: 94.3%; 
Information on whether the resource was countable was not available: 
1.1%. 

Burial Contracts and Pre-Paid Funeral: 
Resources that were countable: 0.7%; 
Resources that were not countable: 96.6%; 
Information on whether the resource was countable was not available: 
2.7%. 

Annuity: 
Resources that were countable: 0; 
Resources that were not countable: 100%; 
Information on whether the resource was countable was not available: 0. 

Primary Residence: 
Resources that were countable: 0; 
Resources that were not countable: 100%; 
Information on whether the resource was countable was not available: 0. 

Promissory Note or Loan: 
Resources that were countable: 0; 
Resources that were not countable: 100%; 
Information on whether the resource was countable was not available: 0. 

Life Estate: 
Resources that were countable: 0; 
Resources that were not countable: 80%; 
Information on whether the resource was countable was not available: 
20%. 

Source: GAO analysis of Medicaid application data. 

Notes: Data for four counties were from applications submitted during 
state fiscal year 2012, while data for two counties were from 
applications submitted between July 1, 2012, and December 31, 2012. 

[A] Financial and investment resources includes such items as checking 
or savings bank accounts, stocks, bonds, and retirement accounts. 

[B] Other resources include such items as cash, livestock, and 
unspecified property in safety deposit boxes or storage units. 

[End of figure] 

Almost Two-Thirds of Approved Applicants Reviewed Had Income of 
$20,000 or Less: 

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.[Footnote 35] The median annual gross income of 
approved applicants was $16,260 ($1,355 per month),[Footnote 36] which 
was less than the median annual income of the elderly in the United 
States.[Footnote 37] 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 figure 4.) 

Figure 4: Distribution of Approved Applicants in Selected Counties in 
Three States by Annual Gross Income: 

[Refer to PDF for image: vertical bar graph] 

Amount of total resources: $0; 
Number of approved applicants: 1. 

Amount of total resources: $1 to $5,000; 
Number of approved applicants: 10. 

Amount of total resources: 5,001 to $10,000; 
Number of approved applicants: 49. 

Amount of total resources: $10,001 to $15,000; 
Median for single approved applicants: $16,284; 
Median for married approved applicants: $16,260; 
Median for all approved applicants: $16,260; 
Number of approved applicants: 75. 

Amount of total resources: $15,001 to $20,000; 
Number of approved applicants: 15. 

Combination of five above: 65%; 

Amount of total resources: $20,001 to $30,000; 
Number of approved applicants: 62. 

Amount of total resources: $30,001 to $40,000; 
Number of approved applicants: 15. 

Amount of total resources: $40,001 to $50,000; 
Number of approved applicants: 11. 

Combination of three above: 30%; 

Amount of total resources: Greater than $50,00; 
Number of approved applicants: 44; 5%. 

Source: GAO analysis of Medicaid application data. 

Notes: Data for four counties were from applications submitted during 
state fiscal year 2012, while data for two counties were from 
applications submitted between July 1, 2012, and December 31, 2012. 

Consistent with how Medicaid eligibility is determined for coverage of 
nursing home care, income includes just that of the applicant, 
regardless of the applicant's marital status. 

[End of figure] 

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.[Footnote 
38] 

Files Reviewed Showed Five Percent of Approved Applicants Transferred 
Assets for Less Than Fair Market Value: 

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.[Footnote 39] 
Among applicants found to have 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. 

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. 

Spending Countable Resources on Goods and Services That Are Not 
Countable Toward Financial Eligibility: 

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. 

Side bar: 

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. 

[End of side bar] 

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. 

Converting Countable Resources into Noncountable Resources That 
Generate an Income Stream for the Applicant: 

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. 

Side bar: 

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. 

[End of side bar] 

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.[Footnote 40] 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. 

Another financial instrument applicants may be able to purchase to 
convert countable resources into noncountable resources with an income 
stream is a promissory note, under which applicants lend funds to 
another party, such as an adult child.[Footnote 41] States are 
required to determine whether the funds used to purchase a promissory 
note were a transfer for less than FMV.[Footnote 42] Additionally, 
according to CMS officials, if a promissory note is determined to have 
been purchased at FMV, states must also determine whether the 
principal of the note should be treated as a countable resource. Based 
on our interviews with state Medicaid officials, 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. 

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. 
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.[Footnote 43] 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.[Footnote 44] 

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.[Footnote 45] 

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. 

Side bar: 

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. 

[End of side bar] 

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. 

Increasing the Amount of Assets the Community Spouse Retains: 

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. 

Spousal Refusal: 

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.[Footnote 46] 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.[Footnote 47] According to information from state officials, 
some states take legal action to recoup funds from the community 
spouse in cases of spousal refusal, while other states do not. 

* 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.[Footnote 48] Six of the 13 applicants also 
provided monthly income support to their community spouse.[Footnote 49] 

Table 5: Amount of Nonhousing Resources and Monthly Income Support 
Retained by the Community Spouse in Cases of Spousal Refusal, for 
Approved Applicants in Selected Counties in Three States: 

Applicant: 1; 
Amount of nonhousing resources retained by the community spouse: 
$13,306; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $0. 

Applicant: 2; 
Amount of nonhousing resources retained by the community spouse: 
$47,214; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $1,874. 

Applicant: 3; 
Amount of nonhousing resources retained by the community spouse: 
$126,627; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $441. 

Applicant: 4; 
Amount of nonhousing resources retained by the community spouse: 
$146,862; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $0. 

Applicant: 5; 
Amount of nonhousing resources retained by the community spouse: 
$194,912; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $0. 

Applicant: 6; 
Amount of nonhousing resources retained by the community spouse: 
$212,611; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $0. 

Applicant: 7; 
Amount of nonhousing resources retained by the community spouse: 
$291,888; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $770. 

Applicant: 8; 
Amount of nonhousing resources retained by the community spouse: 
$352,936; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $0. 

Applicant: 9; 
Amount of nonhousing resources retained by the community spouse: 
$394,189; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $1,734. 

Applicant: 10; 
Amount of nonhousing resources retained by the community spouse: 
$432,860; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $0. 

Applicant: 11; 
Amount of nonhousing resources retained by the community spouse: 
$452,251; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $1,588. 

Applicant: 12; 
Amount of nonhousing resources retained by the community spouse: 
$1,429,209; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $2,088. 

Applicant: 13; 
Amount of nonhousing resources retained by the community spouse: 
$1,585,467; 
Amount of monthly income provided by the institutionalized spouse to 
the community spouse: $0. 

Source: GAO analysis of Medicaid application data. 

Note: Data for four counties were from applications submitted during 
state fiscal year 2012, while data for two counties were from 
applications submitted between July 1, 2012, and December 31, 2012. 

[End of table] 

Annuities for the 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.[Footnote 50] 

Side bar: 

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. 

[End of side bar] 

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. 

Court Order of Support: 

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.[Footnote 51] 

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 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. 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.[Footnote 52] 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.[Footnote 53] While 
applicants may submit itemized 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. 

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 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.[Footnote 54] 

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)[Footnote 55]--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.[Footnote 56] 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,[Footnote 57] 
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.[Footnote 58] 

Eligibility workers from one county reported using certain commercial 
investigative software that pulls together publicly 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. 

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. 

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 
[hyperlink, 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. 

Signed by: 

Carolyn L. Yocom: 
Director, Health Care: 

[End of section] 

Appendix I: Summary of Application Files Reviewed in Selected Counties 
in Three States: 

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. 

Table 6: Characteristics of Applicants Reviewed in Selected Counties 
in Three States (n=350): 

Characteristic: Age: 65 to 69; 
Number of applicants: 29; 
Percent of applicants: 8. 

Characteristic: Age: 70 to 74; 
Number of applicants: 38; 
Percent of applicants: 11. 

Characteristic: Age: 75 to 79; 
Number of applicants: 48; 
Percent of applicants: 14. 

Characteristic: Age: 80 to 84; 
Number of applicants: 68; 
Percent of applicants: 19. 

Characteristic: Age: 85 to 89; 
Number of applicants: 87; 
Percent of applicants: 25. 

Characteristic: Age: 90 and older; 
Number of applicants: 80; 
Percent of applicants: 23. 

Characteristic: Gender[A]: Female; 
Number of applicants: 234; 
Percent of applicants: 67. 

Characteristic: Gender[A]: Male; 
Number of applicants: 114; 
Percent of applicants: 33. 

Characteristic: Marital status: Married; 
Number of applicants: 88; 
Percent of applicants: 25. 

Characteristic: Marital status: Single; 
Number of applicants: 262; 
Percent of applicants: 75. 

Characteristic: Living in long-term care facility at time of 
application; 
Number of applicants: 278; 
Percent of applicants: 80. 

Source: GAO analysis of Medicaid application data. 

Note: Data for four counties were from applications submitted during 
state fiscal year 2012, while data for two counties were from 
applications submitted between July 1, 2012, and December 31, 2012. 

[A] We did not have information on the gender of two applicants. 

[End of table] 

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 figure 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.[Footnote 59] 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.[Footnote 60] 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. 

Figure 5: Application Status of Medicaid Applicants Reviewed in 
Selected Counties in Three States (n=350): 

[Refer to PDF for image: pie-chart with associated vertical bar graph] 

Approved: 84%; 
Denied: 15%; 
Number of denied applicants by reason for denial[A]: 
* Not functionally eligible: 4; 
* Financial reasons: 11; 
* Failure to provide documentation: 39; 
Withdrawn: 1%. 

Source: GAO analysis of Medicaid application data. 

Notes: Data for four counties were from applications submitted during 
state fiscal year 2012, while data for two counties were from 
applications submitted between July 1, 2012, and December 31, 2012. 

[A] A total of 52 of the 350 applicants whose files we reviewed were 
denied. However, three applicants were denied for more than one reason 
and are included in the count for both categories for which they were 
denied. 

[End of figure] 

[End of section] 

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.[Footnote 61] 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. 

Table 7: Groups Used for State Sample Selection: 

Group: Low; 
Total Number of States: 14; 
States: Arizona, Arkansas, California, District of Columbia, Florida, 
Idaho, Massachusetts, Minnesota, Nebraska, New Mexico, North Dakota, 
Tennessee, Virginia, West Virginia. 

Group: Medium; 
Total Number of States: 22; 
States: Alaska, Colorado, Delaware, Georgia, Illinois, Indiana, Iowa, 
Kansas, Kentucky, Louisiana, Michigan, Mississippi, Ohio, Oklahoma, 
Oregon, Pennsylvania, South Dakota, Texas, Utah, Washington, 
Wisconsin, Wyoming. 

Group: High; 
Total Number of States: 15; 
States: Alabama, Connecticut, Hawaii, Maine, Maryland, Missouri, 
Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina, 
Rhode Island, South Carolina, Vermont. 

Source: GAO survey of Medicaid officials in 50 states and the District 
of Columbia, 2011. 

[End of table] 

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.[Footnote 62] 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.[Footnote 63] 

2. Median income of households with householders aged 65 and older. 
[Footnote 64] 

3. Number of Medicaid nursing home applications received.[Footnote 65] 

For the three factors, we ranked the counties within each selected 
state from high to low. We chose two counties that appeared in the top 
20 ranking for all three factors in Florida,[Footnote 66] or the top 
10 ranking for all three factors in New York and South Carolina. (See 
table 8.) 

Table 8: Selected States and Counties: 

Selected state: Florida; 
Selected counties: Palm Beach and Sarasota. 

Selected state: South Carolina; 
Selected counties: Charleston and Richland. 

Selected state: New York; 
Selected counties: Nassau and Westchester. 

Source: GAO. 

[End of table] 

Each selected state sent us a list of individuals aged 65 or over who 
submitted an application for Medicaid coverage for nursing home care 
during our requested time period in our selected counties--for Florida 
and South Carolina, we received a list of applicants who applied for 
services from July 1, 2011, through June 30, 2012, and for New York, 
we received a list of applicants who applied from July 1, 2012, 
through December 31, 2012. From the lists provided by the states, we 
randomly selected application files. In order to compensate for 
application files that would need to be skipped because we determined 
that they did not meet our criteria or lacked adequate information, we 
requested additional files in each county. When we determined that an 
application file was unusable, we included the next application file 
on our randomly generated list. 

We based the number of application files selected for review in each 
county on the total number of Medicaid nursing home applications that 
the county received from applicants aged 65 and older during our 
requested time period. We reviewed a total of 350 nursing home 
application files, of which 294 were approved for Medicaid coverage of 
nursing home care, including those that were approved and incurred a 
penalty period. (See table 9.) 

Table 9: Number of Files Reviewed, by Selected State and County: 

Selected state: Florida; 

Selected county: Palm Beach; 
Total number of files reviewed: 67; 
Number of approved files reviewed: 53. 

Selected county: Sarasota; 
Total number of files reviewed: 59; 
Number of approved files reviewed: 53. 

Selected county: Total; 
Total number of files reviewed: 126; 
Number of approved files reviewed: 106. 

Selected state: New York; 

Selected county: Nassau; 
Total number of files reviewed: 57; 
Number of approved files reviewed: 50. 

Selected county: Westchester; 
Total number of files reviewed: 57; 
Number of approved files reviewed: 40. 

Selected county: Total; 
Total number of files reviewed: 114; 
Number of approved files reviewed: 90. 

Selected state: South Carolina; 

Selected county: Charleston; 
Total number of files reviewed: 52; 
Number of approved files reviewed: 47. 

Selected county: Richland; 
Total number of files reviewed: 58; 
Number of approved files reviewed: 51. 

Selected county: Total; 
Total number of files reviewed: 110; 
Number of approved files reviewed: 98. 

Selected state: Total; 
Total number of files reviewed: 350; 
Number of approved files reviewed: 294. 

Source: GAO. 

[End of table] 

We established a file review protocol whereby we reviewed and recorded 
the earliest Medicaid application for nursing home care in each file 
during the requested time period. If this application was denied, then 
we recorded data from that application, as well as certain data from 
the last application subsequently submitted by the time in which we 
reviewed files, if there was one. From each application, we collected 
and analyzed data on the amount and type of applicants' income and 
resources, including both countable and noncountable resources; 
certain applicant demographic information, such as marital status; and 
whether applicants were found to have transferred assets for less than 
fair market value (FMV) during the look-back period, how the assets 
were transferred, and the value of the assets transferred. 

Since the selected counties used the information in these application 
files to determine eligibility for Medicaid coverage for nursing home 
care, we did not independently verify the accuracy of the information 
contained in the files. However, to ensure that the information we 
entered into our data collection instrument was consistent with the 
information found in the application files, we conducted independent 
file verifications, which resulted in verification of at least 20 
percent of the files reviewed. For some applicants, while the 
application file noted the applicant had income from a certain source 
or owned a certain type of resource, the amount of income or value of 
the resource was missing. This missing information may have affected 
the distributions of applicants by their amount of income or 
resources, as well as the medians, averages, and ranges of income and 
resources we report. Where applicable, we provide information on the 
extent of missing information in our analysis. Additionally, we 
conducted electronic tests of the data collected to determine whether 
there were obvious errors. In some cases, we combined variables to 
create new ones. For example, we collected and identified several 
types of applicant resources, but ultimately combined them into two 
categories--total resources and noncountable resources. Based on these 
procedures, we determined that the data were sufficiently reliable for 
the purposes of this report. The data from the 294 approved 
application files cannot be generalized to other approved applicants. 

To identify the methods used to reduce countable assets to qualify for 
Medicaid coverage for nursing home care, we reviewed applicable 
federal laws and guidance, and spoke with officials from the Centers 
for Medicare & Medicaid Services (CMS), the agency within the 
Department of Health and Human Services (HHS) that oversees the 
Medicaid program. We also used information from the following sources: 

* Interviews with attorneys: We interviewed 9 of 16 attorneys 
recommended to us by the Director of the American Bar Association's 
Commission on Law and Aging. To select among the recommended 
attorneys, we considered the state in which the attorney practiced and 
our previously established grouping of the extent to which states take 
steps to verify applicants' assets. We selected attorneys from each 
group and from as many different states as possible, including states 
where we conducted file reviews. 

* Undercover calls with law office representatives: We conducted 
undercover calls with representatives from a selection of law offices 
whose websites indicated that they offered Medicaid planning services 
for elderly individuals.[Footnote 67] We contacted 36 law offices for 
the undercover calls and determined 17 of the calls to be successful--
that is, an attorney or another representative was willing to provide 
information over the phone and free of charge.[Footnote 68] During the 
calls, our investigator used one of three scenarios in which he posed 
as an adult child seeking advice on ways in which he could obtain 
Medicaid coverage for nursing home care for his parent, while 
preserving the parent's assets for a spouse or heirs. The different 
scenarios created were intended to test for potential differences in 
planning methods based on marital status and the timing of the need 
for nursing home care. Two scenarios involved an elderly parent with 
an immediate need for care (one for a married individual and one for a 
widow) and the third scenario involved an elderly parent for whom the 
need for long-term care services was not immediate, but would likely 
occur sometime in the future (possibly beyond the 60-month look-back 
period). 

* Interviews with state Medicaid officials: We interviewed state 
Medicaid officials from the 3 states in which we reviewed files, as 
well as 9 additional states (for a total of 12 states) about the 
methods used by applicants in their state to reduce countable assets, 
and any steps that the state has taken to try to alleviate or 
eliminate the use of such methods. We selected the states based on 
information collected from our calls with attorneys, undercover calls 
with representatives from law offices, information from background 
literature, and data on the percentage of the population aged 65 and 
older and the percentage of elderly (age 65 and older) with income at 
or above 150 percent of the poverty level. We also considered 
geographic variation. The 12 states from which we interviewed Medicaid 
officials were: Colorado, Connecticut, Florida, Massachusetts, 
Michigan, New Jersey, New York, Ohio, Rhode Island, South Carolina, 
Vermont, and Washington. 

* Interviews with county eligibility workers: We conducted in-person, 
semi-structured group interviews with eligibility workers from two 
counties from the three states in which we conducted file reviews, as 
well as from three additional states.[Footnote 69] To select the three 
additional states, we used information from interviews with attorneys, 
undercover calls with representatives from law offices, and 
literature. We also took into consideration geographic distribution of 
states. To choose counties in the additional states, we ranked the 
counties in each state based on the size of the population aged 65 and 
older,[Footnote 70] and median income of households with householders 
aged 65 and older.[Footnote 71] 

In addition, where feasible, we used information collected from our 
review of Medicaid nursing home application files to supplement the 
information obtained from our interviews and undercover calls. 

To identify the information eligibility workers considered the most 
useful for identifying and verifying applicants' financial 
eligibility, we used information from the interviews conducted with 
county eligibility workers in two counties in six states. 

We conducted this performance audit from September 2012 to May 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. We conducted 
our related investigative work in accordance with investigation 
standards prescribed by the Council of the Inspectors General on 
Integrity and Efficiency. 

[End of section] 

Appendix III: Contact and Staff Acknowledgments: 

GAO Contact: 

Carolyn L. Yocom, (202) 512-7114 or yocomc@gao.gov. 

Staff Acknowledgments: 

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. 

[End of section] 

Footnotes: 

[1] MetLife Mature Market Institute, Market Survey of Long-Term Care 
Costs (New York, N.Y.: November 2012). In addition to nursing home 
services, other health care services for long-term care include home 
health, personal care services, assisted living, and noninstitutional 
group living arrangements. 

[2] Assets include income, which is anything received during a 
calendar month that is used or could be used to meet food or shelter 
needs; and resources, which are anything owned, such as bank accounts 
or property, that can be converted to cash. This terminology is based 
on definitions provided in The State Medicaid Manual issued by the 
Centers for Medicare & Medicaid Services, which specifies that assets 
include both income and resources. 

[3] This report focuses on financial eligibility. Individuals applying 
for Medicaid coverage for long-term care must also meet functional 
eligibility criteria established by each state. Functional eligibility 
criteria generally involve a degree of impairment measured by 
limitations in an individual's ability to carry out certain activities 
of daily living, such as eating and dressing; and instrumental 
activities of daily living, such as preparing meals and grocery 
shopping. 

[4] GAO, Medicaid Long-Term Care: Information Obtained by States About 
Applicants' Assets Varies and May Be Insufficient, [hyperlink, 
http://www.gao.gov/products/GAO-12-749] (Washington, D.C.: July 26, 
2012). 

[5] GAO, Medicaid Long-Term Care: Few Transferred Assets Before 
Applying for Nursing Home Coverage; Impact of Deficit Reduction Act on 
Eligibility is Uncertain, [hyperlink, 
http://www.gao.gov/products/GAO-07-280] (Washington, D.C.: Mar. 26, 
2007). 

[6] GAO, Medicaid: Transfers of Assets by Elderly Individuals to 
Obtain Long-Term Care Coverage, [hyperlink, 
http://www.gao.gov/products/GAO-05-968] (Washington, D.C.: Sept. 2, 
2005). 

[7] See Pub. L. No. 109-171, §§ 6011-6016, 120 Stat. 4, 61-67 (2006). 

[8] The three actions were the extent to which states reported they 
(1) verified applicants' assets with financial institutions; (2) 
conducted property record searches; and (3) obtained information 
covering the 60-month look-back period. See [hyperlink, 
http://www.gao.gov/products/GAO-12-749] for the results of this survey. 

[9] The applications reviewed were of individuals aged 65 or older at 
the time they applied for Medicaid nursing home coverage. In Florida 
and South Carolina, we reviewed applications submitted in the state 
fiscal year ending in 2012 (July 1, 2011, through June 30, 2012). In 
New York, we reviewed applications submitted between July 1, 2012, and 
December 31, 2012, due to limitations in the state's data systems 
prior to that date. 

[10] Not all SSI recipients automatically qualify for Medicaid. Under 
Section 1902(f) of the Social Security Act, a state may use more 
restrictive Medicaid eligibility standards than SSI's standards, 
provided the standards are no more restrictive than those the state 
had in place as of January 1, 1972. As of March 2013, 11 states had 
opted to use these standards. These states are often referred to as 
209(b) states because the origin of this provision was § 209(b) of the 
Social Security Amendments of 1972, Pub. L. No. 92-603, 86 Stat. 1329, 
1381. 

[11] Medicaid and CHIP Payment and Access Commission, Report to the 
Congress on Medicaid and CHIP, March 2013 (Washington, D.C.: Mar. 15, 
2013). 

[12] Medicaid and CHIP Payment and Access Commission, Report to 
Congress, March 2013. 

[13] Money from this irrevocable trust is used to pay for specific 
costs, such as the applicant's care. Following the individual's death, 
the state receives all remaining amounts in this trust up to the 
amount spent by the state for the individual's care. 

[14] See 42 U.S.C. § 1396p(d)(4)(B). 

[15] An individual with substantial home equity is not excluded from 
eligibility for Medicaid payment for long-term care if a spouse, child 
under age 21, or child who is considered blind or disabled lives in 
the home. 42 U.S.C. § 1396p(f)(2). 

[16] 42 U.S.C. § 1396r-5. 

[17] 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. 

[18] We use community spouse resource allowance to refer to the amount 
of a couple's combined jointly and separately-owned resources 
allocated to the community spouse and considered unavailable to the 
institutionalized spouse when determining his or her eligibility for 
Medicaid. 

[19] The Social Security Act terms this the minimum monthly 
maintenance needs allowance. Throughout this report, we refer to this 
as the minimum needs allowance. 

[20] If the institutionalized spouse's income is not sufficient to 
make up the difference, then the community spouse would be allowed to 
keep resources above the community spouse resource allowance, so that 
the additional resources could be used to generate more income. 

[21] Per federal standards, as of January 1, 2014, the minimum needs 
allowance for Alaska must be at least $2,422.50 and for Hawaii must be 
at least $2,231.25. 

[22] Federal law requires states to apply the transfer of asset 
provisions to institutionalized individuals, who are defined in the 
Social Security Act as individuals who are inpatients in a nursing 
facility or in a medical institution that is being paid based on a 
level of care received in a nursing home, or certain recipients of 
home and community-based services. 42 U.S.C. § 1396p(h)(3). States 
have the option to apply such provisions to noninstitutionalized 
individuals. 

[23] The length of the penalty period, in months, is calculated by 
dividing the total cumulative amount of assets transferred for less 
than FMV by the average monthly private pay rate for nursing home care 
in the state (or the community in which the applicant is 
institutionalized, at the option of the state). 

[24] Additional exemptions from the penalty period include transfers 
of assets to an individual for the spouse's sole benefit or to a trust 
for a disabled child's sole benefit. Transfers of a home are also 
exempt if made to an individual's spouse, or minor or disabled child; 
an adult child residing in the home who has been caring for the 
individual for a specified time period; or a sibling who has an equity 
interest in the home and has resided in the individual's home for at 
least 1 year immediately prior to the date the individual became 
institutionalized. 42 U.S.C. § 1396p(c)(2)(A)-(c)(2)(B). 

[25] Transfers also do not result in a penalty when the individual can 
show that he or she intended to dispose of the assets at FMV or for 
other valuable consideration, or that all assets transferred for less 
than FMV have been returned to the individual. 42 U.S.C. § 
1396p(c)(2)(C). 

[26] For additional information on the extent to which states require 
individuals applying for Medicaid coverage for long-term care to 
document assets and obtain information about these applicants' assets 
from third parties, see [hyperlink, 
http://www.gao.gov/products/GAO-12-749]. 

[27] For two approved applicants who owned at least one resource, 
there was no information available on the value of any of their 
resources. As such, the percentages presented do not add up to 100 
percent. 

[28] Total resources of approved applicants averaged $60,375 and 
ranged from $0 to $1,551,344. 

[29] The median net worth of elderly households in the United States 
was $170,516 in 2011. Net worth is defined as the total value of all 
of the resources that an individual or household owns, including the 
value of real estate, stocks, bonds, retirement accounts, and other 
resources, minus debts or liabilities. Elderly households are those 
with a householder aged 65 or older; the householder is the person in 
whose name the home is owned or rented. See U.S. Census Bureau, Survey 
of Income and Program Participation, 2008 Panel, Wave 10, accessed 
March 28, 2014, [hyperlink, 
http://www.census.gov/people/wealth/files/Wealth_Tables_2011.xlsx]. 

[30] Total resources for approved applicants who were married averaged 
$169,968 and ranged from $0 to $1,551,344; for single applicants, 
total resources averaged $25,822 and ranged from $0 to $460,147. 

[31] Twenty-three approved applicants whose files we reviewed owned at 
least one noncountable resource but there was no information available 
on the value of any of the noncountable resources that they owned. 

[32] Noncountable resources for approved applicants averaged $80,427 
and ranged from $0 to $1,541,565. 

[33] Noncountable resources for approved applicants who were married 
averaged $180,594 and ranged from $12 to $1,541,565; for single 
applicants, noncountable resources averaged $36,972 and ranged from $0 
to $446,166. 

[34] The amount of allowable home equity interest is established by 
each state within federal guidelines and could range from $543,000 to 
$814,000 in 2014. However, an individual with home equity greater than 
the state's allowable amount is not excluded from eligibility if a 
spouse, child under age 21, or child who is blind or disabled lives in 
the home. 

[35] In Florida and South Carolina, applicants can place income above 
the special income level for nursing home residents in a qualified 
income trust, which is used to pay for the applicants' care. New York 
has a "medically needy" option, whereby applicants can qualify for 
coverage if their income, after subtracting any medical expenses, is 
less than or equal to the state's income standard. 

[36] Annual gross income for all approved applicants averaged $20,607 
and ranged from $360 to $161,064. 

[37] The median annual income of the elderly in the United States was 
$20,308 ($2,828 per month) in 2012. See U.S. Census Bureau, Current 
Population Survey, 2013 Annual Social and Economic Supplements, 
accessed April 1, 2014, [hyperlink, 
http://www.census.gov/hhes/www/cpstables/032013/perinc/pinc02_000.htm]. 

[38] The average amount of approved applicants' income that was 
provided to the community spouse was $1,186 per month, and the amount 
ranged from $178 to $3,535 per month. Applicant files for five married 
applicants did not indicate whether income from the institutionalized 
spouse was provided to the community spouse. 

[39] Applicants in South Carolina and New York were subject to a 60-
month look-back period. Florida, however, did not implement the DRA 
provision to extend the look-back period from 36 months to 60 months 
until 2010, after which it was phased in over time. As a result, 
applicants whose files we reviewed in Florida were subject to a 36-
month look-back period. 

[40] Irrevocable means that the annuity cannot be changed or 
terminated, and nonassignable means that the annuity cannot be 
transferred to another individual. As previously noted, the DRA 
specified that annuities purchased by or on behalf of the individual 
applying for Medicaid must meet criteria such as being actuarially 
sound--that is, they must pay out during the applicant's life 
expectancy; providing payments in equal amounts during the term of the 
annuity; and naming the state as the primary remainder beneficiary 
unless there is a community spouse or minor or disabled child. 
Otherwise, the annuity would be considered a transfer for less than 
FMV. 

[41] 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. 

[42] The purchase of a promissory note is to be considered a transfer 
for less than FMV unless the repayment terms are actuarially sound, it 
provides for payments to be made in equal amounts during the term of 
the loan with no deferral or balloon payments, and it prohibits the 
cancellation of the balance upon the death of the lender. 42 U.S.C. § 
1396p(c)(1)(I). 

[43] For example, if the applicant transferred $35,000 worth of assets 
for less than FMV and the average monthly private pay rate for nursing 
home care in the state was $7,000, the penalty period would be 5 
months. 

[44] As we previously reported, prior to the DRA, individuals used a 
mechanism commonly referred to as the "half-a-loaf" strategy, which 
involved transferring a portion (e.g., half) of one's assets and 
waiting out a penalty period before applying for Medicaid coverage of 
nursing home care. However, the DRA changes to the start date of the 
penalty period eliminated the availability of the "half-a-loaf" 
strategy. According to state Medicaid officials and attorneys we spoke 
with, the "reverse half-a-loaf" mechanism has since emerged. 

[45] If all of the transferred assets are returned, then the penalty 
period is eliminated. However, the returned assets will likely be 
considered countable assets for purposes of determining the 
individual's Medicaid eligibility. 

[46] Generally, when an applicant assigns his or her support rights to 
a state, the state supports and pays for the medical care of the 
applicant. In exchange, the applicant agrees to cooperate in providing 
information and assisting the state in pursuing support from the 
community spouse. 

[47] Under federal law, an institutionalized spouse cannot be 
considered financially ineligible due to excess resources if one of 
the following three conditions are met: (1) the institutionalized 
spouse has assigned to the state their rights to support from the 
community spouse; (2) the institutionalized spouse lacks the ability 
to execute an assignment of support rights due to physical or mental 
impairment, but the state has the right to sue the community spouse 
for support without such assignment; or (3) the state has determined 
that denial of eligibility would result in an undue hardship to the 
institutionalized spouse. 42 U.S.C. § 1396r-5(c)(3). 

[48] The average amount of nonhousing resources the community spouse 
retained was $436,949, and ranged from $13,306 to $1,585,467. 
According the federal standards, the maximum amount of countable 
resources that a community spouse can retain is $117,240 in 2014. That 
amount was $113,640 in 2012. 

[49] The amount of monthly income support provided to the community 
spouse averaged $1,416 and ranged from $441 to $2,088. 

[50] Per federal law, a month after eligibility is determined, and 
during the continuous period in which the institutionalized spouse 
remains in an institution, the community spouse's resources are deemed 
unavailable and thus not countable. 42 U.S.C § 1396r-5(c)(4). 

[51] 42 U.S.C. § 1396r-5(d)(4). 

[52] [hyperlink, http://www.gao.gov/products/GAO-12-749]. 

[53] [hyperlink, http://www.gao.gov/products/GAO-12-749]. 

[54] [hyperlink, http://www.gao.gov/products/GAO-12-749]. 

[55] In 2008, Congress passed legislation that required states to 
implement electronic AVS to verify the assets of aged, blind, or 
disabled applicants for Medicaid, including those seeking Medicaid 
coverage for long-term care, with financial institutions. Supplemental 
Appropriations Act, 2008, Pub. L. No. 110-252, § 7001(d)(1), 122 Stat. 
2323, 2391 (codified at 42 U.S.C. § 1396w). 

[56] Florida began a pilot of its AVS in selected counties in October 
2012, and implemented the program statewide in February 2013. 

[57] The Supplemental Appropriations Act, 2008, required California, 
New Jersey, and New York to implement an AVS for aged, blind, and 
disabled applicants by the end of fiscal year 2009, and directed the 
Secretary of HHS to require the remaining states to implement their 
systems in a manner that results in a specified percentage of aged, 
blind, and disabled Medicaid applicants being subject to this type of 
asset verification each year of the 5-year period from fiscal year 
2009 through fiscal year 2013. 

[58] [hyperlink, http://www.gao.gov/products/GAO-12-749]. 

[59] Three applicants were denied for more than one reason. 

[60] The amount of excess income averaged $166 per month and ranged 
from $9 to $412 per month. The amount of excess resources averaged 
$59,063 and ranged from $7,964 to $182,649. 

[61] GAO, Medicaid Long-Term Care: Information Obtained by States 
about Applicants' Assets Varies and May be Insufficient, [hyperlink, 
http://www.gao.gov/products/GAO-12-749] (Washington, D.C.: July 26, 
2012). The survey requested information about the types of 
documentation, if any, that states require applicants for Medicaid 
coverage for long-term care to submit for 13 types of assets: (1) 
earned income, (2) unearned income, (3) financial and investment 
resources, (4) life insurance, (5) primary residence, (6) real 
property other than primary residence, 

(7) vehicles, (8) annuities, (9) burial contracts and prepaid funeral 
arrangements, (10) continuing care retirement community entrance fees, 
(11) life estates, (12) promissory notes or loans, and (13) trusts. In 
addition, the survey asked about the number of months of documentation 
states required for earned income, unearned income, and financial and 
investment resources. The survey also asked about states' practices to 
obtain information from third parties to verify applicants' assets, 
such as whether, and to what extent, states conduct data matches with 
10 sources, including the Social Security Administration and the 
Internal Revenue Service, which primarily allow states to verify 
applicants' income. Finally, the survey asked about any additional 
documentation states require or additional steps states take to 
determine whether applicants transferred assets for less than fair 
market value during the 60-month look-back period. 

[62] In making this selection, we excluded some states, such as states 
that had smaller populations, states that had lower median incomes 
among the population aged 65 and older; and states that, to our 
knowledge, had not implemented the Deficit Reduction Act of 2005 by 
our time period of interest, which was generally state fiscal year 
2012. 

[63] We used information from the Profile of General Population and 
Housing Characteristics: 2010, U.S. Census Bureau. 

[64] We used information from the Median Household Income in the Past 
12 Months (in 2010 Inflation-Adjusted Dollars) by Age of Householder, 
U.S. Census Bureau, 2006-2010 American Community Survey. 

[65] We used information provided by state officials in each of the 
three states. For Florida and South Carolina, we used data on the 
number of applications received for Medicaid coverage for nursing home 
services from individuals aged 65 and older from July 1, 2011, through 
June 30, 2012. Due to limitations in New York's data systems, we used 
data on the number of applications received for Medicaid coverage for 
nursing home services from individuals aged 65 and older from July 1, 
2012, through December 31, 2012. 

[66] No counties in Florida were in the top 10 for all three factors. 

[67] To identify these professionals, we conducted an Internet search 
using search terms related to Medicaid planning and long-term care to 
identify attorneys or financial planners that offered Medicaid 
planning services for elderly individuals. We took the first 100 
results from the search, all of which were law offices, and selected 
offices to contact based on the services they advertised providing, 
and taking into consideration geographic variation. In case some law 
offices were not responsive to our inquiry, we had a methodology for 
selecting alternatives to ensure continued geographic variation. 

[68] We considered our contacts with the other 19 law offices as 
unsuccessful for the following reasons: the office informed us that 
they required a fee for consultation, an in-person consultation, or 
both (10 offices); the office informed us that they were unable to 
provide assistance, but could provide a referral to someone else (2 
offices); or we were unable to make contact with the office after 
repeated contact attempts (7 offices). 

[69] We requested that the eligibility workers interviewed had 
reviewed Medicaid long-term care applications for at least 12 months, 
were considered specialists in Medicaid long-term care applications or 
primarily process these types of applications, and were not 
supervisors. 

[70] We used information from the Profile of General Population and 
Housing Characteristics: 2010, U.S. Census Bureau. 

[71] We used information from the Median Household Income in the Past 
12 Months (in 2010 Inflation-Adjusted Dollars) by Age of Householder, 
U.S. Census Bureau, 2006-2010 American Community Survey. 

[End of section] 

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