Some States Still Say Penalty Period Can Never Begin for Waiver Applicants

Despite a federal district court ruling in New Jersey, some states continue to maintain that applicants for Home and Community-Based Services (HCBS) waivers who have transferred assets within the look-back period cannot have their penalty periods begin until they first enter nursing homes.

As we reported in April, New Jersey contended that in the case of three assisted living residents who applied for the state's home-based Medicaid waiver program, the penalty period could not begin to run until the applicants were receiving benefits. But in the state's Alice-Through-the-Looking-Glass reasoning, the applicants could never qualify for waiver benefits in the first place because they had made a transfer.

The National Senior Citizens Law Center (NSCLC) points out in an article in its Nov. 16, 2010, Washington Report that this sort of reasoning is resulting in never-ending transfer-of-assets penalties for people seeking waiver coverage for home and community-based services, "Because the period of ineligibility never starts, it never is able is run its course," the NSCLC writes. "The applicant is ineligible forever for Medicaid-funded HCBS waiver services, unless he enters a nursing home to start the period of ineligibility." NSCLC says that some Centers for Medicare and Medicaid Services employees are also taking this position.

Fortunately, in the New Jersey case sanity prevailed and the U.S. District Court for the District of New Jersey looked at the plain meaning of the Deficit Reduction Act of 2005 and ruled that when imposing a penalty on a Medicaid waiver applicant who made uncompensated transfers within the look-back period, the penalty period should begin to run when the applicant was otherwise eligible for Medicaid, not when the applicant is actually receiving benefits. See Frugard v. Velez(U.S. Dist. Ct., D. N.J., No. 08-5119 (GEB), April 8, 2010).

But the NSCLC observes that the court ruling "explicitly addressed only the individual plaintiffs, and state Medicaid programs are still imposing never-ending penalties on person seeking waiver coverage." By way of example, it cites Arkansas Dep't of Health & Human Servs., Division of County Operations, Policy Directive, Medical Services Policy Manual, MS 06-09, which states in pertinent part:

Note: Even though the vendor payment has been closed, Medicaid will continue to cover services not covered under the vendor payment. For Home and Community Based Waivers (HCBS), the imposition of a transfer of assets penalty negates any eligibility. The penalty for HCBS waiver recipients is the withholding of waiver services, the receipt of which is an eligibility requirement for that particular category. Unless the individual enters a nursing facility, the individual will remain ineligible. Upon entry into a nursing facility, the penalty period will begin and continue for the appropriate period of time.

Example: Ms. Jones applied for HCBS on 10-15-06 and was denied due to transfer of assets made on 6-1-06. The denial of waiver services prevents applying the penalty period. She then entered a nursing facility on November 14, 2006, and applied for Medicaid. The applicant was determined to be otherwise eligible except for the transfer of $55,000 for less than fair market value. The eligibility worker determined that the applicant is not eligible for Medicaid to pay the vendor payment for 14.469 months (55,000 divided by the divisor 3801). Ms. Jones will not be eligible for Medicaid to pay the vendor payment for long term care services until December 30, 2007.

Ms. Jones still can be approved for Medicaid services just not the vendor payment. Ms Jones then leaves the nursing home on December 15, 2006. The penalty period continues to run even though Ms. Jones leaves the nursing facility. Once the penalty period expires (12-30-07), Ms. Jones could apply and, if otherwise eligible without regard to this transfer, be approved for the HCBS.

If you know of someone affected by this rule or wish to report on how your state has interpreted and implemented this rule, please contact NSCLC's Gene Coffey in the Washington,DC office or Eric Carlson in the Los Angeles office.