MassHealth Issues DRA Regulations

The Office of Medicaid heralded the July 4th weekend by issuing emergency regulations implementing the Deficit Reduction Act of 2005 (the DRA) changes to the MassHealth eligibility rules effective for all applications filed on or after July 1st. As emergency regulations, the comment period for suggestions to improve the regulations occurs after their implementation and runs through August 1st. In addition, a hearing on the regulations will be held on July 25th.

While some of the provisions may change over time and it may take years before we know the full impact of the regulations, following is an initial summary.

Home Equity

Under the DRA, equity in homes owned by nursing home residents in excess of $500,000 is countable against the asset limit for eligibility unless a spouse, or minor, blind or disabled child lives in the property. The states have the option of increasing this limit to $750,000. Massachusetts has adopted the higher limit. The Office of Medicaid will accept a property tax assessment as a determination of value. This new limit applies to all applications filed since January 1st of this year. 130 CMR 520.007(G)(3). It's not clear how this will apply where the application has already been approved.

The new regulations include a provision exempting over-equity homes where undue hardship will occur. Undue hardship is defined as existing where (1) the denial of long-term-care services deprive the applicant of necessary medical care, food, shelter, clothing, or other necessities of life, (2) the nursing facility is threatening discharge, and (3) there exists no less costly noninstitutional alternative. 130 CMR 520.007(G)(13).

Annuities

Under the new regulations, the purchase of an annuity on or after February 8th will be treated as a disqualifying transfer unless the annuity is irrevocable and unassignable, actuarially sound as defined in the regulation, and the Commonwealth of Massachusetts is named as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the annuitant (subject to certain exceptions). 130 CMR 520.007(J).

The limitation on repayment for benefits paid on behalf of the annuitant clearly permits community spouses to continue to spend down by purchasing annuities with no obligation that the Commonwealth be reimbursed MassHealth payments made on behalf of the nursing home spouse.

Promissory Notes

While a little confusing, the new regulations appear to permit the loaning of funds in exchange for a promissory note if the note (1) is actuarially sound, (2) provides for equal payments, and (3) is not cancelled at the death of the lender. 130 CMR 520.007(J)(3).

The confusing part is that the regulations says that the value of any outstanding balance of a promissory note that does not meet these requirements will be considered a disqualifying transfers of assets. One would think that the creation of the promissory note would be the disqualifying transfer of assets and the period of ineligibility would be determined by the value of the outstanding balance. Or, perhaps, the value of the outstanding balance could be considered to be a countable asset. Our guess is that the first of these two interpretations is what is meant.

Transfers: Look-Back Period

The new regulations extend the look-back period for transfers made on or after February 8th to five years stating as follows:

For transfers of resources occurring on or afer February 8th, 2006, the [look-back] period extends back in time 60 months. 130 CMR 520.019(B).

This is more confusing than it looks at first. This sentence is part of a paragraph which defines a look-back period as beginning on the first date the individual is both a nursing-facility resident and has applied for or is receiving MassHealth Standard. So, the look-back period is generally defined and thought of as a period dating back from the date of application for benefits. But the new sentence defines it in terms of the transfer rather than the application.

In theory, at least, except when a trust is involved, the look-back period should continue to be no longer than three years for all applications filed before February 8, 2009, and should gradually extend to five years from then until February 8, 2011. We will have to wait and see whether the Office of Medicaid changes its application form before then.

Transfers: Beginning Date of Ineligibility

The DRA's biggest change is to delay the beginning date for a period of ineligibility due to a transfer of assets from the first day of the month in which the transfer occurred to the date on which the nursing home resident would otherwise be eligible for MassHealth had he not made the transfer in other words, the date on which he has spent down to $2,000. The new regulations implement this change with the following sentence:

For transfers occurring on or after February 8, 2006, the period of ineligibility will begin on the first day of the month in which resources were transferred for less than fair-market value or the date on which the individual is otherwise eligible for MassHealth payment of long-term-care services, whichever is later. 130 CMR 520.019(G)(3).

Unfortunately, this barebones restatement of the DRA leaves many questions unanswered. For instance, how does one establish that he is otherwise eligible for MassHealth? Will this require an application in every case to start an ineligibility period due to a transfer? Must one be otherwise eligible throughout the penalty period, or simply at the beginning to get the penalty period started?

These and other questions will be answered either when revised regulations are issued after August 1st or over the course of the next several years as the Office of Medicaid responds to actual cases involving these issues.