DEPARTMENT OF HEALTH AND SOCIAL SERVICES
Statutory Authority: 31 Delaware Code, Ch. 5, Section 512 (31 Del.C. §512)
Long Term Care Medicaid - Annuities
In compliance with the State's Administrative Procedures Act (APA - Title 29, Chapter 101 of the Delaware Code) and under the authority of Title 31 of the Delaware Code, Chapter 5, Section 512, Delaware Health and Social Services (DHSS) / Division of Medicaid and Medical Assistance (DMMA) / is proposing to amend existing rules in the Division of Social Services Manual (DSSM) to comply with the treatment of annuities provisions mandated by the Deficit Reduction Act (DRA) of 2005 (Public Law 109-171).
Any person who wishes to make written suggestions, compilations of data, testimony, briefs or other written materials concerning the proposed new regulations must submit same to Sharon L. Summers, Policy and Program Development Unit, Division of Medicaid and Medical Assistance, 1901 North DuPont Highway, P.O. Box 906, New Castle, Delaware 19720-0906 or by fax to 302-255-4425 (new fax number) by November 30, 2006.
The action concerning the determination of whether to adopt the proposed regulation will be based upon the results of Department and Division staff analysis and the consideration of the comments and written materials filed by other interested persons.
SUMMARY OF PROPOSED AMENDMENT
Deficit Reduction Act of 2005 (Public Law 109-171), enacted on February 8, 2006
On February 8, 2006, the Deficit Reduction Act (DRA) of 2005 was signed into law. The DRA made changes to certain Medicaid eligibility provisions in Section 1917(c)(1)(B)(i) of Social Security Act affecting Long Term Care services and supports.
Summary of Proposals
The DRA contains a number of provisions necessitating changes to Delaware rules. This regulatory action incorporates the mandatory provisions as it relates to Disclosure and Treatment of Annuities and State Named as Remainder Beneficiary.
DSSM 20330.4.1 is revised and updated as follows:
Disclosure and Treatment of Annuities
Current law provides that the term “trust,” for purposes of asset transfers and the look-back period, includes annuities only to the extent that the HHS Secretary defines them as such. CMS guidance (Transmittal Letter 64) asks states to determine the ultimate purpose of an annuity in order to distinguish those that are validly purchased as part of a retirement plan from those that abusively shelter assets.
Section 6012 of the DRA requires individuals, upon Medicaid application for long term care services and redetermination of eligibility, to disclose to the state, a description of any interest the individual or community spouse has in an annuity (or similar financial instrument), and regardless of whether the annuity is irrevocable or is treated as an asset.
Disclosure and Treatment of Annuities on or after February 8, 2006
For the purposes of being eligible for long term care services under Medicaid, the applicant or the applicant’s spouse must disclose any interest in an annuity (or similar financial instrument). Section 6012 of the DRA:
• Mandates the disclosure and treatment of annuities.
• Mandates that the purchase of an annuity be treated as a transfer of assets for less than fair market value unless the State is named as the remainder beneficiary.
• Mandates that an annuity shall be treated as a transfer of assets for less than fair market value unless the annuity is irrevocable, non-assignable, actuarially sound, and provide for equal payments.
State Named as the Remainder Beneficiary
Current law only requires the State be named a remainder beneficiary when the annuitant is the client, not the community spouse.
Section 6012(b) of the DRA changes this to include annuities purchased for or by a person who is the community spouse on or after February 8, 2006.
20330 Countable Resources Computation
Vehicles are defined as automobiles, boats, travel trailers, motorcycles etc. The current market value of a vehicle is the average price that it will sell for (based on year, make, model and condition) on the open market in a certain geographic area. Current market value can be determined by using the NADA book (trade in value) or a written appraisal from a disinterested, knowledgeable source. One vehicle may be excluded under Section 20310.5 . Only one vehicle may be excluded for a married couple.
If NO vehicle is excluded per Section 20310.5, up to $4650 of the CMV of ONE vehicle is excluded. If the CMV exceeds $4650, the excess counts as a resource, unless the vehicle can be excluded under some other provision (i.e., co-owner refuses to sell). It is unlikely the $4650 exclusion will be used. This is because most vehicles are used for either a medical problem or for essential daily activities and can be excluded per Section 20310.5 .
Any vehicle an individual owns in addition to the vehicle that was totally or partly excluded (up to $4650), is a resource in the amount of its equity value. The equity value is the CMV minus amount owed on the vehicle. The exclusion is applied in the manner most advantageous to the individual. If one of two vehicles can be excluded as necessary for medical treatment, the exclusion is applied to the vehicle with the greater equity value regardless of which vehicle is used to obtain medical treatment.
20330.2 Financial Institutions Accounts
Financial institution accounts which include savings accounts, checking accounts, certificates of deposit, etc., are an individual's resource if the individual owns the account and can use the funds for his or her support and maintenance. We determine whether an individual owns the account and can access the funds by looking at how the account is titled.
If an individual is designated as sole owner by the account title, all of the funds are that individual's resource unless legal restrictions preclude the owner from using the funds for his or her support and maintenance. We do not provide an opportunity for the owner of an individually-held account to rebut the presumption of 100% ownership.
If the account is in the name of a Medicaid applicant/recipient and another Medicaid applicant/recipient, assume all account funds belong to each individual in equal shares. If the account is in the name of a Medicaid applicant/recipient and another individual who is not applying for Medicaid or who is not a Medicaid recipient, then assume all of the funds belong to the Medicaid applicant/recipient.
If the applicant or recipient disagrees with the ownership presumption on jointly-held accounts, we give the individual the opportunity to rebut the presumption. Rebuttal is a procedure which permits an individual to furnish evidence and establish that some or all of the funds in a jointly-held account do not belong to him or her. Obtain the individual's statement on a form containing the penalty clause regarding who owns the funds, why there is a joint account, who has made deposits to and withdrawals from the account, and how withdrawals have been spent. Inform the individual that he or she must submit the following evidence within 30 days:
• a corroborating statement from the other account holder(s). If the other account holder is incompetent or a minor, have the individual submit a corroborating statement from anyone aware of the circumstances surrounding establishment of the account; account records showing deposits, withdrawals and interest paid for the months that ownership is an issue; if the individual owns none of the funds, evidence showing that he or she can no longer withdraw funds from the account; if the individual owns only a portion of the funds, evidence showing removal from the account of the individual's funds or removal of the funds owned by the other account holder(s) and redesignation of the account.
Any funds that the evidence establishes were owned by the other account holder(s) are not and were not the individual's resources. The effect of a successful rebuttal is retroactive as well as prospective.
20330.3 Promissory Notes, Loans and Property Agreements
A loan is an advance from a lender to a borrower that the borrower must repay, with or without interest. Loan proceeds are not income to the borrower because of the borrower's obligation to repay. Any portion of the borrowed funds that the borrower does not spend is a countable resource if retained into the month following the month of receipt.
If the Medicaid applicant is the owner of a promissory note, loan, or property agreement (mortgage), assume the value of the agreement is its outstanding principal balance unless the individual furnishes reliable evidence that it has a current market value of less than that or no current market value at all. If the note, loan or mortgage is not salable, it has no current market value.
If the outstanding principal balance plus other countable resources exceeds the resource limit, inform the individual that DSS/Medicaid will use the outstanding principal balance in determining resources unless the individual submits within 30 days the following information.
a. evidence of a legal bar to the sale of the agreement
b. an estimate from a knowledgeable source (financial institution, bank, real estate broker) showing the current market value of the agreement is less than its outstanding principal balance. The estimate must show the name, title and address of the source.
Payments received against the principal balance are not income. They are conversion of a resource. The portion of the payment which represents interest is unearned income.
20330.4 Retirement Funds
Retirement funds are annuities or work-related plans for providing income when employment ends, such as pensions, individual retirement accounts (IRA), disability, Keogh plans and some profit sharing plans.
The value of a retirement fund is the amount of money that an individual can currently withdraw. If there is a penalty for early withdrawal, the fund's value is the amount available after the penalty deduction. Any taxes due are not deductible in determining the fund's value. A retirement fund is not a resource if an individual must terminate employment in order to obtain any payment.
If an individual is eligible for periodic retirement benefits, the individual must apply and accept the periodic benefit. If the individual has a choice between periodic benefits and a lump sum, the individual must choose the periodic benefits.
An annuity is a financial device between an individual and a commercial company that conveys a right to receive periodic payments for life or a fixed number of months or years.
A. Treatment of annuities purchased prior to February 8, 2006:
While the annuity itself may or may not be an available resource, the stream of income generated by the annuity is a countable asset. The applicant must demonstrate to
DSS DMMA that will determine if there is a market to purchase the annuity stream of income does not exist. If there is a market exists, DSS DMMA will consider the annuity to be an it to be available resource. for the applicant's or spouse's support and maintenance. See 20 CFR 416.1201 (a).
To calculate the value of the annuity's stream of income,
DSS DMMA will use the amount at which the annuity was originally purchased and subtract all payments received to date. The remainder is the value of the annuity's income stream. DSS DMMA will require the annuity income stream be sold at Fair Market Value as a condition of eligibility. See DSSM 20350.1.7. DSS DMMA will not count the value of an annuity purchased by a third party, e.g., the applicant's employer, as a retirement benefit to the applicant. However, DSS DMMA will count the value of the income generated from a third party annuity.
An annuity that is revocable is always a countable resource. Revocable annuities are able to be converted to cash.
Spouses that claim the income allowance is inadequate to meet the needs of the Community Spouse may request additional resources be set aside to bring their income up to the minimum maintenance needs allowance. These requests MUST go through the fair hearing process in order to retain excess resources for their protected income share. See DSSM 20970 and 42 USC 1396r-5(e). In these cases, at the death of the annuity's owner, the beneficiary of the annuity must be the estate of the Medicaid recipient.
8 DE Reg. 1617 (5/01/05)
B. Treatment of Annuities purchased on or After February 8, 2006:
An applicant or his/her representative shall disclose to DMMA any interest in any revocable or irrevocable annuity that the Medicaid applicant or his/her spouse has in an annuity or similar financial instrument. Failure to report an annuity to DMMA may result in possible civil and criminal charges, and potential recovery of benefits that were incorrectly paid. The total purchase price of the annuity minus any income received to date will be counted as a resource.
As a condition of eligibility, the State of Delaware must be named as the beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the annuitant. Unless there is a community spouse, minor child or disabled child who resides in the applicant's home. In such a case, the State must be named as a beneficiary in the correct position or the purchase of the annuity shall be considered a transfer for less than fair market value.
The State of Delaware shall notify the issuer of the annuity of its interest and beneficiary status. This notice shall require the issuer to notify the State of any changes in the amount of income, principal or beneficiary to the annuity. Any transactions that occur on or after 2/8/06, subject the annuity to Deficit Reduction Act rules, even if the annuity was originally purchased prior to 2/8/06. Transactions may include such things as addition of principal, elective withdrawals, requests to change the beneficiary, and elections to annuitize the contract. The applicant/recipient may be held liable for the issuer's failure to respond to the agency's request for information. Should the issuer not respond to agency requests in a timely manner, it will be assumed that a transfer of assets has occurred and the applicant/recipient's Medicaid benefits may be denied and or terminated.
Annuities purchased where the community spouse is the annuitant will be considered as part of the community spouse resource and /or income allocation. Any annuities which bring the community spouse's total income allowance over the maximum monthly needs allowance will be counted in the resource calculation. The total purchase price of the annuity shall be the value counted in the spousal resource calculation.
The purchase of an annuity shall be treated as a transfer of assets without fair consideration unless:
1. The annuity is
a. irrevocable and nonassignable; and
b. is actuarially sound according to the life expectancy table developed by the Social Security Administration at http://www.ssa.gov/OACT/STATS/table4c6.html
c. Provides for payments in equal amounts during the term of the annuity with no deferral or balloon payments; and
2. The State of Delaware, Department of Health and Social Services, Division of
Medicaid and Medical Assistance, is named as the remainder beneficiary in the first position for the total amount of medical assistance paid on behalf of the individual; or
3. The State of Delaware, Department of Health and Social Services, Division of Medicaid and Medical Assistance, is named as the remainder beneficiary after the community spouse or minor or disabled child as defined in 1917(c)(2)(A)(ii) and who is named in the first position; or
4. The annuity is an Individual Retirement Annuity (IRA) as described in Section 408(b) of the Internal Revenue Code of 1986; or
5. The annuity is part of a deemed IRA under a qualified employer plan as described in Section 408(q) of the Internal Revenue Code of 1986; or
6. The annuity was purchased with proceeds from:
a. An IRA account as described in Section 408(a), 408(c), 408(p), 408(k) or 408A of the Revenue Code of 1986.
Shares of stock represent ownership in a business corporation. Their value shifts with demand and may fluctuate widely. If the stock has co-owners, assume that each owner owns an equal share of the value of the stock and that the owner can sell them at current value. Broker fees do not reduce the value that stocks have as resources. Obtain a copy of the stock certificate or most recent statement of account from the firm that issued or is holding the stock.
The value of a stock as a resource is its current market value. The current market value of a stock is its closing price on any given day and can usually be found in a regular or financial newspaper. A closing price of 22 3/4 equals $22.75. The values of over-the-counter stocks are shown on a "bid" and "asked" basis. For example, "18, bid, 19 asked." Use the bid price as the current market value. The "par value" or "stated value" shown on some stock certificates is not the market value.
The stock of some corporations is held within close groups and traded very infrequently. The sale of such stock is often handled privately and is subject to restrictions. The evidence for this kind of stock can be a written statement from the firm's accountants giving their best estimate of the stock's value and the basis for the estimate, such as most recent sale, most recent offer from outsiders, current market value of assets less any debts on them, etc.
A stock option is the right to sell or buy stock at a specified price by a specified date. A stock option controls 100 shares of stock, but options are quoted on the price per share. Options come due and are quoted for each January, April, July and October. A closing price of 1/4 equals $25.00.
20330.6 Mutual Fund Shares
"Mutual Fund" is a term that encompasses a wide range of investments. It is a pool of assets (stocks, bonds, etc.) managed by an investment company. A mutual fund share represents ownership interest in this pool as opposed to a particular stock or bond. The documentation guidelines for stocks also apply to mutual funds. Many newspapers contain a separate table showing the values of funds not traded on an exchange.
20330.7 U.S. Savings Bonds
U.S. Savings Bonds are obligations of the Federal Government. They are not transferable and can only be sold back to the Federal Government. Normally, they cannot be redeemed for six months after the issue date specified on the face of the bond. For Series EE, and I Savings Bonds, the redemption period has been extended to 12 months. They are not resources during the retention period. They become resources (not income) as of the 7th or 13th month. A bond may not roll over or renew in order to prolong the minimum retention period. Actual redemption (converting to cash) of one bond is required before purchasing a new bond. However, the U.S. Treasury regulation authorizes the Commission of Public Debt to waive the regulatory provisions pertaining to U.S. Savings bonds including the redemption period in order to "relieve any person or persons of unnecessary hardship". A request for a refund because the person now requires Nursing Home care and so needs the funds used to purchase the bonds may constitute hardship. A written request to the Commissioner of Public Debt requesting a waiver to the redemption period is all that is required. The bondholder may simultaneously tender the bond(s) for redemption. If the Treasury receives the bond(s) and grants the waiver, it will issue the individual a check. At that point, the individual would have a countable resource in the amount of the check.
The individual in whose name a U.S. Savings Bond is registered owns it. The Social Security Number shown on a bond is not proof of ownership. The co-owners of a bond (bond titled AND/OR) own equal (50%) shares of the redemption value of the bond. The bond may show an owner followed by POD (proof of death) and another name. This is a survivorship type of bond. The name of the first individual owns 100% of the bond. The second individual will own 100% of the bond upon the death of the first individual.
Physical possession of a U.S. Savings Bond is a requirement for redeeming it. This is true for sole or joint ownership. If an individual alleges that he or she cannot submit a bond because a co-owner or other individual will not relinquish physical possession of the bond, obtain a signed statement from the co-owner or the other individual that he or she: has physical possession of the bond; will not allow the applicant to cash the bond; and if co-owner, will not cash the bond and give the applicant his or her share.
The Table of Redemption Values for U.S. Savings Bonds is used to determine the value of a bond. These are available from a local bank. The bank will need the series, denomination, date of purchase or issue date. After the mandatory 6-month retention period, the value of a series H or HH bond is its face value.
8 DE Reg. 1313 (3/1/05)
20330.8 Municipal, Corporate and Government Bonds
A bond is a written obligation to pay a sum of money at a specified future date.
A municipal bond is the obligation of a State or a locality (county, city, town, village, or special purpose authority such as a school district).
A corporate bond is the obligation of a private corporation. Corporations sell corporate bonds to raise capital. Corporate bonds are issued in two forms: registered, which pay interest to their registered owner; and bearer or coupon bonds, which pay interest to whomever holds the bond. Zero coupon bonds do not pay current interest. The accrued interest is paid at maturity.
A government bond, distinct from a U.S. Savings Bond, is a transferable obligation issued or backed by the Federal Government. They include Treasury bills, notes and bonds, and Federal agency securities, such as Federal Home Loan Mortgage Corporation (FREDDIE MAC) and Government National Mortgage Association (GINNIE MAC).
Bonds are negotiable and transferable. Their value as a resource is their current market value. The redemption value, which is available only at maturity, is immaterial. The documentation for these bonds is similar to stocks.
20330.9 Uniform Gifts to Minors Act
Delaware has adopted the Uniform Gifts to Minors Act (UGMA) which permits making gifts to minors that are free of tax burdens. The UGMA is sometimes called the Uniform Transfers to Minors Act (UTMA).
Under Delaware UGMA law:
• An individual may make an irrevocable gift of money or other property to a minor. If such a gift is made, then;
• The gift, plus any earnings it generates, is under the control of a custodian until the child reaches the age of majority established by State law;
• The custodian has discretion to provide to the minor or spend for the minor's support, maintenance, benefit or education as much of the assets as he/she deems equitable; and
• The child automatically receives control of the assets upon reaching the age of majority (his/her 18th birthday). At this time, the UGMA property becomes a countable asset for the purpose of program eligibility.
UGMA property including any additions or earnings is not income to the minor. However, any disbursements from the UGMA account to the minor will be considered income to the minor.
DSS will verify all allegations of existence of a UGMA gift by obtaining a copy of the document of ownership (e.g., deed, certificate of deposit, savings account, etc.) or other written document from the issuing source. If there is no document designating a UGMA gift, then the asset will be considered a countable resource.
8 DE Reg. 1712 (6/1/05)
10 DE Reg. 798 (11/01/06)(Prop.)