February 24, Dear Ms. Kulishek:

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1 Maryland State Bar Association, Inc. February 24, 2006 Ms. Lisa Kulishek Chief of Beneficiary Services Department of Health & Mental Hygiene 201 West Preston Street SS-10 Baltimore, MD Dear Ms. Kulishek: We are requesting clarification from your office regarding how some of the provisions of the Deficit Reduction Act of 2005, P.L (DRA) 1 pertaining to Medicaid (sections 6011 through 6021) will be implemented in Maryland. We are asking for a prompt clarification of the issues raised in this letter because of their immediate effect on the administration of the Medicaid program and the resulting significant impact on seniors and individuals with disabilities in Maryland. In order to better understand the new legislation and its application we are requesting that you consider the following items. We welcome the opportunity to meet with you to discuss this further. ISSUE 1: The Effective Date President Bush signed the DRA on February 8, It provides States with time to come into compliance if State law would need to be altered to effectuate the changes. In Maryland, which, if any, of the changes required by DRA will become effective on February 8, 2006? Which of the changes required by DRA will require enacting legislation or rulemaking which must take place prior to the effective date? ISSUE 2: Change in Look-Back Period DRA Section 6011(a) changes the look back period for all transfers from thirty six months to five years. We recall that when the look back period was increased from 30 months to 36 months in August 1993, the increase was phased in beginning with the 3lst month after August Beginning in September 1995 the look back was increased by one month with each month until the full 36 month look back was in place. We understand that the same phase in process will be used with this change, i.e. beginning March 8, 2009 an additional month will be added to the look back period until the full five year look back is in place in February Please confirm that this is correct. 1 We understand that a lawsuit in U.S. District Court in Alabama has been filed challenging the constitutionality of this legislation. However, for purposes of this letter, we assume that the law is constitutional and validly enacted.

2 Page 2 ISSUE 3: Exempt Asset Transfers DRA Section 6011(b) changes the start date of the penalty period for making gifts from a date in the past, the month when the gift was made, to a time in the future when an individual is in a nursing home and otherwise eligible for benefits. Currently Maryland regulations provide that an individual may not be determined ineligible for MedicalAssistance by reason of the transfer of any asset, excluded or nonexcluded, if the individual furnishes convincing evidence that the asset was transferred exclusively for a purpose other than to qualify for Medical Assistance. COMAR B(8)(f). In our experience, all transfers occurring within the applicable look back period are treated as transfers subject to penalty regardless of their purpose. Donations to religious institutions, charitable organizations and political contributions are all treated as gifts subject to penalty along with gifts to family members and friends. We have also seen payments to caregivers be treated as transfers subject to penalty when the care was not being provided through an agency. Section 6011 (b)(2)(ii) of the new legislation and Maryland s policy that all transfers made after an individual turns 60 (Medicaid Manual Page ) are done for the purpose of establishing Medicaid eligibility regardless of the individual s health and wealth (or lack thereof) at the time of the transfer may cause disastrous unintended results. A series of small transfers made by the applicant many months or even years before the application date could cause months of ineligibility for the program. In light of this the following questions arise: 1) Is there a threshold amount below which transfers will be disregarded by Medicaid? 2) What constitutes convincing evidence that the transfer was made for purposes other than to qualify for Medicaid? Will it have any bearing if the transfer was made prior to a nursing home placement? 3) May contributions to charitable and/or religious organizations, educational and medical expenses of family members and/or friends, and payments to family and/or friends, who are providing assistance to the applicant or spouse, be categorically excluded from the transfer penalty? We propose that COMAR and the Maryland Medical Assistance Manual be amended to include a presumption that the following types of transfers were made for a purpose other than to qualify for Medicaid if made prior to nursing home admission within the look back period: 1) Contributions to an individual s church or temple or to other charitable organizations exempt from taxation under Section 501(c)(3) of the Internal Revenue Code, or contributions to political organizations. 2) Payment of medical expenses for family members or friends. 3) Payment of tuition or educational expenses for family members or friends. 4) Gifts of $1, or less to any one individual in any twelve month period.

3 Page 3 5) Donation of a vehicle more than five years old (except for an antique or collector s item) to a charitable organization or to a family member or friend. These types of gifts are made routinely by people over 60 as well as younger Maryland residents, motivated by generosity or religious faith, without any thought to future long-term care needs or possible future need to establish eligibility for Medicaid. Eliminating automatic imposition of a penalty period of ineligibility for these types of transactions would remove a source of great unfairness, and at the same time save the administrative cost required to evaluate gifts which are frequently minimal in amount. In considering these questions, we suggest you review a letter written by Chairman Nathan Deal of the Alabama delegation to the House of Representatives, and a member of the House Energy and Commerce Subcommittee on Health, to Representative Jo Bonner, also of Alabama. Mr. Deal stated that the imposition of periods of ineligibility based on contributions to churches and other charitable organizations is neither consistent with the statutory language nor the legislative intent of the Deficit Reduction Act. The conference agreement does not change the way in which charitable gifts are evaluated under Medicaid s asset transfer requirements. Transfers for a demonstrated exclusive purpose other than to qualify for Medicaid will continue to be permitted. Such transfers should not be penalized. This letter is quoted on Congressman Bonner s House of Representatives website and was quoted in the Brewton Standard (Brewton, Alabama) on January 30, 2006, in an article entitled, Bill Shouldn t Curtail Seniors Giving. Enclosed is a copy of the letter obtained from ISSUE 4: Hardship Waivers Regarding the availability of hardship waivers, Section 6011(d) of the new legislation requires each State to include a hardship waiver procedure in their plan. A process does exist now, as described at COMAR (K)(f), but this process needs to be revised in light of this legislation. We request the opportunity to propose specific procedures and to work with you to define specifically the Maryland guidelines for the granting of a hardship waiver. ISSUE 5: Home Equity The DRA places limits on the amount of equity an individual applicant can have in his or her home. Within Section 6014 regarding the disqualification for Long-Term Care Assistance for individuals with home equity in excess of $500,000.00, there is a provision described in Section 6014 (a)(1)(b) which allows the States to increase this threshold to $750, Based on the robust housing market in Maryland brought on more by inflation than by actual wealth, we ask the Department to take the necessary steps to increase this limit to $750, to avoid disqualification of many elders who own a home but have minimal cash assets. Because this section is intended to be effective for applications filed on or after January 1, 2006, as stated in Section 6014(b), this change must be considered immediately. ISSUE 6: Long-Term Care Partnerships Section 6021 resurrects the State Long-Term Care Partnership Program. This program is intended to encourage the purchase of long term care insurance by allowing owners of such policies to increase exempt assets not subject to liens and recovery from Medicaid, on a dollar-

4 Page 4 for-dollar basis, an amount equal to the benefits paid out by the policy. Maryland enacted such a program in 1993 see Md. Health General Code Section et seq. but the Maryland program was in effect barred by the estate recovery provisions of the Omnibus Reconciliation Act of As this will be beneficial to the State as well as to the citizens of Maryland, we would ask the State to implement the partnership program as soon as possible, as consistent with the DRA. In so doing, we request that the State plan allow conversion to a qualified plan of existing policies that meet the basic criteria. We would like clarification as to DHMH s intent on this issue. ISSUE 7: Annuities DRA Section 6012(e)(1) states the application of the individual for such assistance (including any recertification of eligibility for such assistance) shall disclose a description of any interest the individual or community spouse has in an annuity (or similar financial instrument, as may be specified by the Secretary), regardless of whether the annuity is irrevocable or is treated as an asset Such application or recertification form shall include a statement that under paragraph (2) the State becomes a remainder beneficiary under such an annuity or similar financial instrument by virtue of the provision of such medical assistance. Section 6012(e) (2) (A) states In the case of disclosure concerning an annuity under subsection (c)(1)(f), the State shall notify the issuer of the annuity of the right of the State under such subsection as a preferred remainder beneficiary in the annuity for medical assistance furnished to the individual. Concerning the above sections, please confirm that the State must be named as remainder beneficiary, after the community spouse and/or disabled child, for only those annuities where the owner of the annuity is the individual who has applied for or is receiving Medical Assistance. ISSUE 8: Promissory Notes Section 6016(c), Inclusion of Transfer of Certain Notes and Loans Assets, provides that promissory notes and mortgages will be deemed to be assets unless they have repayment terms that are actuarially sound, have equal payments during the term of the note, and prohibit cancellation of the principal balance upon the death of the lender. This section goes on to state that the value of notes and mortgages which do not comply with these requirements will be the outstanding principal balance as of the date of the Medicaid application. Current Maryland Medicaid policy treats the principal balance of any promissory note as a countable asset. Please confirm that Maryland, in accordance with federal law, will treat non-negotiable promissory notes and mortgages which meet the requirements of Section 6016(c) as income producing instruments that were purchased for fair market value and exclude the principal balance from consideration as a resource. In accordance with MR-113, the portion of the monthly payment due representing interest should be treated as income in the month of receipt

5 Page 5 and the portion of the monthly payment representing a return of principal be treated as a resource in the month of receipt. ISSUE 9: Return of Assets Transferred for Less Than Fair Market Value COMAR (B) (8) (g) allows for the total return of an asset transferred by an individual for less than fair market value, thereby effectively eliminating the penalty period that would have been established by the original transfer. Maryland policy has for many years provided that where part of the gift is returned to the applicant, the penalty period can be reduced or shortened, beginning with the final month of the penalty period and working backwards (Medicaid Manual page ). We want to confirm that this policy will remain unchanged, as the DRA only alters the start date for the penalty period. Once again, we welcome the opportunity to meet with you to discuss these issues further and look forward to hearing from you. Sincerely, Robin Weisse, Chair, Morris Klein, President Jason A. Frank, Chair MSBA Elder Law Section MD/DC NAELA Chapter Public Policy Committee, MD/DC NAELA Reply to: Jason Frank Chair, Public Policy Committee MD/DC Chapter NAELA 1400 Front Avenue, Suite 200 Lutherville, MD 21093