Proposed VA Regs Would Create Transfer Penalties for Pension Applicants

The Department of Veterans Affairs (VA) is proposing regulations that would establish an asset limit, a look-back period and asset transfer penalties for claimants applying for VA needs-based benefits.  Currently, there is no prohibition on transferring assets prior to applying for needs-based benefits, such as Aid and Attendance. 

In its explanation of the new regulations in the January 23, 2015 Federal Register, the VA says the changes are a response to a 2012 Government Accountability Office (GAO) report, which it states recommended changes to “to maintain the integrity of VA’s needs-based benefit programs.” The VA also offers as a reason for the new rules to “reduce opportunities for attorneys and financial advisors to take advantage of pension claimants.”

The proposed rules would establish a 36-month look-back period and a penalty period of up to 10 years for those who dispose of assets to qualify for a VA pension. The penalty period would be calculated based on the total assets transferred during the look-back period to the extent they would have exceeded a new net worth limit that the rules also establish.  The proposed net worth limit would be equal to Medicaid’s maximum community spouse resource allowance (CSRA) prevailing at the time the final rule is published and would be indexed for inflation as the CSRA is.

The amount of a claimant’s net worth would be determined by adding the claimant’s annual income to his or her assets. The VA would not consider a claimant’s primary residence, including a residential lot area not to exceed two acres, as an asset.  But if the residence is sold, proceeds from the sale would be assets unless used to purchase another residence within the calendar year of the sale. Any penalty period would begin the first day of the month that follows the last asset transfer, and the divisor would be the applicable maximum annual pension rate in effect as of the date of the pension claim.

The proposed rule also defines and clarifies what the VA considers to be a deductible medical expense for all of its needs-based benefits, and proposes statutory changes pertaining to pension beneficiaries who receive Medicaid-covered nursing home care.

The proposed rules appear to be an effort to circumvent Congress, where legislation similar to that proposed in the new regulations has been languishing for the past two years.

The proposed rules are also quite harsh when compared to the five year look-back used for Medicaid.  Although there is no explanation for the need for a longer look-back period, the fact that there is no resource recovery available to the VA may explain the longer period.  Of course, it is also possible that the government is signalling a willingness to use more strenuous measures in determining eligibility for government benefits generally, which may later translate to a similarly longer look-back for Medicaid purposes.  

Of course, more stringent regulation of eligibility may also serve the interest in the federal government seeing states enforce, and if necessary, adopt filial responsibility laws.  For more information, see my previous articles here, here, here, and here.

To read the proposed rules in 80 Federal Register 3840-3864 (23 Jan 2015), click here.  Comments must be received on or before March 24, 2015.