[Federal Register Volume 80, Number 15 (Friday, January 23, 2015)]
[Proposed Rules]
[Pages 3839-3864]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00297]



[[Page 3839]]

Vol. 80

Friday,

No. 15

January 23, 2015

Part IV





Department of Veterans Affairs





-----------------------------------------------------------------------





38 CFR Part 3





Net Worth, Asset Transfers, and Income Exclusions for Needs-Based 
Benefits; Proposed Rule

Federal Register / Vol. 80 , No. 15 / Friday, January 23, 2015 / 
Proposed Rules

[[Page 3840]]


-----------------------------------------------------------------------

DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 3

RIN 2900-AO73


Net Worth, Asset Transfers, and Income Exclusions for Needs-Based 
Benefits

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Department of Veterans Affairs (VA) proposes to amend its 
regulations governing entitlement to VA pension to maintain the 
integrity of the pension program and to implement recent statutory 
changes. The proposed regulations would establish new requirements 
pertaining to the evaluation of net worth and asset transfers for 
pension purposes and would identify those medical expenses that may be 
deducted from countable income for VA's needs-based benefit programs. 
The intended effect of these changes is to respond to recent 
recommendations made by the Government Accountability Office (GAO), to 
maintain the integrity of VA's needs-based benefit programs, and to 
clarify and address issues necessary for the consistent adjudication of 
pension and parents' dependency and indemnity compensation claims. We 
also propose to implement statutory changes pertaining to certain 
pension beneficiaries who receive Medicaid-covered nursing home care, 
as well as a statutory income exclusion for certain disabled veterans 
and a non-statutory income exclusion pertaining to annuities.

DATES: VA must receive comments on or before March 24, 2015.

ADDRESSES: Written comments may be submitted through http://www.regulations.gov; by mail or hand-delivery to: Director, Regulation 
Policy and Management (02REG), Department of Veterans Affairs, 810 
Vermont Ave. NW., Room 1068, Washington, DC 20420; or by fax to (202) 
273-9026. Comments should indicate that they are submitted in response 
to ``RIN 2900-AO73, Net Worth, Asset Transfers, and Income Exclusions 
for Needs-Based Benefits.'' Copies of comments received will be 
available for public inspection in the Office of Regulation Policy and 
Management, Room 1068, between the hours of 8:00 a.m. and 4:30 p.m., 
Monday through Friday (except holidays). Please call (202) 461-4902 for 
an appointment. (This is not a toll-free number.) In addition, during 
the comment period, comments may be viewed online through the Federal 
Docket Management System (FDMS) at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Martha Schimpf, Analyst, Pension and 
Fiduciary Service, Veterans Benefits Administration, Department of 
Veterans Affairs, 21P1, 810 Vermont Ave. NW., Washington, DC 20420, 
(202) 632-8863. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: The Department of Veterans Affairs (VA) 
administers a needs-based benefit, ``pension,'' for wartime veterans 
and for surviving spouses and children of wartime veterans. The current 
pension program was established by the Veterans' and Survivors' Pension 
Improvement Act of 1978, Public Law 95-588, 92 Stat. 2497, and became 
effective January 1, 1979. The statutory authority for pension is 38 
U.S.C. chapter 15, implemented at 38 CFR 3.271 through 3.277. As 
further explained later in this Notice of Proposed Rulemaking (NPRM), 
VA proposes to amend 38 CFR part 3 to preserve program integrity 
because we have received information that, under current regulations, 
claimants who are not actually in need may qualify for these needs-
based benefits. For clarity and consistency, some of the changes we 
propose would apply to other needs-based benefits as well. Although new 
pension claimants may qualify for pension only under the current 
program, VA still pays benefits under two prior pension programs. In 
addition, new claimants may qualify for parents' dependency and 
indemnity compensation (parents' DIC) under 38 U.S.C. 1315. Regulations 
pertaining to all of these older programs are found at current 38 CFR 
3.250 through 3.263.
    As a preliminary matter, we propose to refer to the current pension 
benefit as ``pension,'' rather than referring to ``improved pension.'' 
See 38 CFR 3.3(a)(3). When specificity is required in VA regulations to 
distinguish between veterans and survivors, we propose to refer to 
``veterans pension'' and ``survivors pension'' instead of ``disability 
pension'' and ``death pension.'' We have determined that the term 
``disability pension'' is a misnomer because a veteran who has attained 
age 65 does not need to be disabled to receive pension. See 38 U.S.C. 
1513. We also note that subchapter II of 38 U.S.C. chapter 15 is titled 
``Veterans' Pensions'' and subchapter III is titled ``Pensions to 
Surviving Spouses and Children.'' The proposed terms would be 
consistent with the titles used in the statutes.
    We would not amend current Sec.  3.3(a)(3) in this rulemaking or 
amend other references in part 3 to ``improved pension,'' ``disability 
pension,'' or ``death pension,'' but would implement the terminology 
changes over time. We also would not amend references to VA's prior 
pension programs, ``section 306'' and ``old law'' pension.

Executive Summary

1. Legal Authority and Need for Rulemaking

    Section 501 of title 38, United States Code, authorizes VA to 
prescribe regulations necessary for administration of its programs. In 
the context of VA's needs-based pension benefit, sections 1522 and 1543 
of title 38, United States Code, direct VA to deny, reduce, or 
discontinue the payment of pension when it is reasonable that a 
claimant consume some portion of his or her net worth for his or her 
maintenance. Because nothing in sections 1522 and 1543 define when ``it 
is reasonable'' for a claimant to consume some part of his or her net 
worth or provide criteria for determining when net worth is excessive, 
VA may interpret the law by filling these gaps.
    Similarly, section 1503(a)(8) of title 38, United States Code, 
authorizes VA to deduct from a pension claimant's countable income 
payments for unreimbursed medical expenses but does not define a 
medical expense for VA purposes. This rulemaking would fill that gap.
    This proposed rulemaking would amend regulations governing VA's 
needs-based pension programs to promote consistency in benefit 
decisions, reduce opportunities for attorneys and financial advisors to 
take advantage of pension claimants, and preserve the integrity of the 
pension program. The revised regulations would promote consistent 
decisions by establishing a bright-line net worth limit and re-defining 
net worth as the sum of assets and annual income. The revised 
regulations would also promote consistent decisions by defining in 
regulations those unreimbursed medical expenses that VA will deduct 
from a claimant's annual income for purposes of determining a 
claimant's annual pension payment.
    By establishing in regulations a look-back and penalty period for 
claimants who transfer assets before applying for pension to create the 
appearance of economic need where it does not exist, the revised rules 
would reduce opportunities for financial advisors to provide advice for 
the restructuring of assets that, in many cases, renders the claimant 
ineligible for other needs-based benefits. Establishing a look-back

[[Page 3841]]

and penalty period for pre-application transfers of assets would also 
preserve the integrity of the pension program by ensuring that VA only 
pays the benefit to those with genuine need.

2. Summary of Major Provisions

    Proposed Sec.  3.274 would establish a clear net worth limit. VA 
does not currently have a bona fide net worth limit. The proposed net 
worth limit is the dollar amount of the maximum community spouse 
resource allowance established for Medicaid purposes at the time the 
final rule is published. This amount is currently $119,220, which would 
be indexed for inflation by adjusting it at the same time and by the 
same percentage as cost-of-living increases provided to Social Security 
beneficiaries. The amount of a claimant's net worth would be determined 
by adding the claimant's annual income to his or her assets. VA would 
calculate the amount of a claimant's net worth when it receives an 
original or new pension claim; a request to establish a new dependent; 
or information that net worth has increased or decreased. Proposed 
Sec.  3.274 would provide that a claimant's net worth can decrease if 
the claimant's annual income decreases or if the claimant spends down 
assets on basic necessities such as food, clothing, shelter, or health 
care. Proposed Sec.  3.274 would include effective dates for benefit 
rate adjustments due to net worth.
    Proposed Sec.  3.275 would describe how VA calculates assets. It 
would provide that VA would not consider a claimant's primary 
residence, including a residential lot area not to exceed 2 acres, as 
an asset. Proposed Sec.  3.275 would also provide that if the residence 
is sold, proceeds from the sale are assets unless the proceeds are used 
to purchase another residence within the calendar year of the sale.
    Proposed Sec.  3.276 would provide new requirements pertaining to 
pre-application asset transfers and net worth evaluations to qualify 
for VA pension. The changes respond to recommendations that the 
Government Accountability Office (GAO) made in a May 2012 report, 
``Veterans Pension Benefits: Improvements Needed to Ensure Only 
Qualified Veterans and Survivors Receive Benefits.'' Section 3.276 
would establish a presumption, absent clear and convincing evidence 
showing otherwise, that asset transfers made during the look-back 
period were made to establish pension entitlement. The changes would 
establish a 36-month look-back period and establish a penalty period 
not to exceed 10 years for those who dispose of assets to qualify for 
pension. The penalty period would be calculated based on the total 
assets transferred during the look-back period to the extent they would 
have made net worth excessive. The penalty period would begin the first 
day of the month that follows the last asset transfer.
    Proposed Sec.  3.278 would define and clarify what VA considers to 
be a deductible medical expense for all of its needs-based benefits. 
The medical expense amendments will help to ensure that those who 
process VA needs-based claims process them fairly and consistently and 
that only needy claimants receive needs-based benefits. It would 
provide definitions for several terms, including activities of daily 
living (ADLs) and instrumental activities of daily living (IADLs), and 
provide that custodial care means regular assistance with two or more 
activities of ADLs or assistance because a person with a mental 
disorder is unsafe if left alone due to the mental disorder. It would 
provide that generally, payments to facilities such as independent 
living facilities are not medical expenses, nor are payments for 
assistance with IADLs. However, there would be exceptions for disabled 
individuals who require health care services or custodial care. The 
proposed rule would place a limit on the hourly payment rate that VA 
may deduct for in-home attendants.
    Proposed Sec.  3.279 would place in one central location all 
statutory exclusions from income and assets that apply to all VA needs-
based benefits.
    Proposed Sec.  3.503 would incorporate in regulations statutory 
changes regarding Medicaid-covered nursing home care and applicability 
to surviving child beneficiaries.

3. Assessment of Costs and Benefits

    VA's impact analysis can be found as a supporting document at 
http://www.regulations.gov, usually within 48 hours after the 
rulemaking document is published. Additionally, a copy of the 
rulemaking and its impact analysis are available on VA's Web site at 
http://www1.va.gov/orpm/, by following the link for ``VA Regulations 
Published.''
Background Information on Net Worth and Asset Transfers for Pension
    Under 38 U.S.C. 1522 and 1543, VA may not pay pension to a veteran 
or survivor when the corpus of the individual's estate is such that 
under all the circumstances, including consideration of the 
individual's income and that of the individual's spouse or dependent 
children, it is reasonable that the individual consume some part of the 
estate for his or her maintenance prior to receiving pension. However, 
Congress has not prescribed criteria for determining whether it would 
be reasonable to require an individual to consume his or her assets 
before receiving pension. VA implemented sections 1522 and 1543 in 
current 38 CFR 3.274 and 3.275. We have determined that the current 
implementing regulations also do not prescribe effective criteria for 
determining whether or not net worth bars pension entitlement.
    The Veterans Benefits Administration's (VBA) Adjudication 
Procedures Manual (manual), M21-1MR, which interprets VA regulations 
and establishes procedures for implementing regulations, instructs 
adjudicators to deny pension on excessive net worth grounds if ``a 
claimant's assets are sufficiently large that the claimant could live 
off these assets for a reasonable period of time.'' M21-1MR, Part V, 
Subpart iii, Chapter 1, Section J.67.g. The manual also provides that 
``[p]ension entitlement is based on need and that need does not exist 
if a claimant's estate is of such size that he/she could use it for 
living expenses.'' Id. at J.67.h. However, neither current regulations 
nor the manual defines ``reasonable period of time'' or establish 
definitive pension net worth limits. Accordingly, GAO concluded in its 
May 2012 report that VA adjudicators ``lack[ ] specific guidance on how 
to determine whether or not a claimant's financial resources are 
sufficient to meet their basic needs without the pension benefit.'' 
U.S. Government Accountability Office, GAO-12-540, Veterans' Pension 
Benefits: Improvements Needed to Ensure Only Qualified Veterans and 
Survivors Receive Benefits 14 (2012).
    The GAO report also identified over 200 organizations that market 
services, primarily financial planning services, to assist veterans and 
survivors with transferring assets in order to reduce net worth and 
qualify for VA pension. As GAO noted, ``[c]urrent federal law allows 
veterans to transfer significant assets'' before applying for pension 
and still qualify for pension, which is inconsistent with the purpose 
of the program.'' GAO-12-540, at 22. Currently, a pension claimant may 
lawfully transfer significant assets before applying for pension. 
Current Sec.  3.276(b) provides that a pension claimant's gift of 
property to a relative residing in the same household is not recognized 
as reducing the claimant's corpus of estate and a pension claimant's 
sale of property to such a relative is not recognized as reducing

[[Page 3842]]

the claimant's corpus of estate if the purchase price or other 
consideration for the sale is so low as to equate to a gift. However, 
there is currently no objective standard for determining whether the 
purchase price or other consideration for the sale is so low as to 
equate to a gift. Current Sec.  3.276 also provides that a pension 
claimant's gift of property to someone other than a relative living in 
the claimant's household will not be recognized as reducing the 
claimant's corpus of estate unless it is clear that the claimant has 
relinquished ``all rights of ownership, including the right of 
control'' over the property. However, current Sec.  3.276 does not 
prohibit a claimant from making a gift of property to an individual not 
living in the claimant's household immediately before applying for 
pension, so currently such a gift would reduce the claimant's corpus of 
estate. Also, the regulation does not define the terms ``ownership'' 
and ``control.''
    Sections 1522 and 1543 require VA to deny or discontinue pension 
when it is reasonable to require the individual to consume some portion 
of his or her net worth for personal maintenance. The legislative 
history of the current pension program reveals Congress' intent that 
``a needs-based system . . . apply only to those veterans who are, in 
fact, in need.'' H.R. Rep. No. 95-1225, at 33 (1978), reprinted in 1978 
U.S.C.C.A.N. 5583, 5614. We interpret the statutory requirement to 
consume excessive net worth prior to receiving needs-based pension as 
precluding pension entitlement based upon transferring assets that a 
claimant or beneficiary could use for his or her maintenance. Congress 
did not intend that a claimant who has sufficient assets for self-
support could preserve those assets for his or her heirs or transfer 
them as gifts and still qualify for pension at the expense of 
taxpayers. In our view, it would be an unreasonable interpretation of 
current law to conclude that Congress intended that veterans and 
survivors could use the pension program as an estate planning tool, 
under which they may preserve or gift assets and shift responsibility 
for their support to the Government. Accordingly, we propose to amend 
VA's net worth and asset transfer regulations to ensure program 
integrity and preserve the program for wartime veterans and their 
survivors who actually need Government support.
Proposed Net Worth and Asset Transfer Amendments
    Current 38 CFR 3.274, 3.275, and 3.276 use the terms ``net worth'' 
and ``corpus of the estate'' to describe the assets available to a 
claimant or beneficiary that could bar pension entitlement if 
sufficiently great. In particular, current Sec.  3.275(b) gives the 
same definition to both terms. We propose to use the term ``net worth'' 
in proposed Sec. Sec.  3.274, 3.275, and 3.276 because it is the more 
commonly understood term. In addition, as explained in more detail 
below, net worth would be defined as the sum of a claimant's or 
beneficiary's assets and annual income.
Section 3.274--Net Worth and VA Pension
    We propose to revise Sec.  3.274 to establish new policies 
pertaining to pension and net worth. As we explained above, sections 
1522 and 1543 require VA to deny or discontinue pension when, under all 
the circumstances, ``it is reasonable'' that the claimant or 
beneficiary use some portion of the applicable net worth for his or her 
maintenance. VA implemented this statutory requirement in current Sec.  
3.274, which essentially tracks the language of the statutes and 
prescribes denial or discontinuance of pension when it is reasonable 
that the individual consume ``some part'' of his or her net worth for 
personal maintenance. Current Sec.  3.274(a) pertains to denial or 
discontinuance of veterans' pension entitlement based on excessive net 
worth, and Sec.  3.274(c) pertains to denial or discontinuance of 
surviving spouses' pension entitlement based on excessive net worth. 
Current paragraphs (b) and (d) prescribe when VA must deny or 
discontinue increased pension paid to a veteran or surviving spouse, 
respectively, on account of a child. Current paragraph (e) pertains to 
denial or discontinuance of surviving children's pension entitlement 
based on excessive net worth.
    Unlike the regulatory framework governing other Federal needs-based 
programs, such as the Social Security Administration's Supplemental 
Security Income (SSI) program, see e.g., 20 CFR 416.1205, which 
prescribes a $2,000 limit on resources (i.e., assets) for unmarried 
individuals and a $3,000 limit for married individuals, VA's net worth 
regulations do not prescribe clear limits for pension entitlement. 
Rather, for determining whether some part of a claimant's net worth 
should be consumed for his or her maintenance, current Sec.  3.275(d) 
requires VA to consider the claimant's income with (1) the liquidity of 
the property, (2) the life expectancy of the claimant, (3) the number 
of dependent family members, and (4) the potential rate of depletion of 
available assets. Absent from current Sec. Sec.  3.274 and 3.275(d) are 
clear rules for evaluating these factors and determining whether a 
claimant's assets and income are sufficient to meet his or her needs 
without pension. As a result, GAO concluded that VA adjudicators had to 
use their own discretion, leading to inconsistent decisions for 
similarly situated claimants. See GAO-12-540, at 14-15.
    In addition to producing inconsistent decisions, current rules 
require development of additional information not solicited in the 
initial application for compensation and pension, VA Form 21-526, or 
the application for survivors' benefits, VA Form 21P-534. For example, 
to determine the potential rate of depletion of a claimant's net worth, 
VA must gather information about a claimant's living expenses and 
reconcile those expenses with the claimant's income over an unspecified 
period of time. This development necessarily adds time and complexity 
to the adjudication of these needs-based benefits, potentially creating 
greater financial hardship for claimants as they wait for VA to decide 
their claims.
    As stated above, the statutory authorities for net worth, 38 U.S.C. 
1522 and 1543, require VA to consider a veteran's, surviving spouse's, 
or child's annual income when determining whether excessive net worth 
bars pension entitlement. Current regulations governing VA's assessment 
of net worth, 38 CFR 3.275(d), require VA, in making net worth 
determinations, to consider ``the amount of the claimant's income,'' 
together with other considerations. In order to account for the 
statutory annual income component of net worth determinations, we 
propose a new net worth definition which VA would calculate by adding 
assets and annual income.
    Proposed Sec.  3.274(a) would establish a clear net worth limit for 
pension entitlement. Establishing a clear limit would promote 
uniformity and consistency in pension entitlement determinations 
consistent with the purpose of the pension program. Additionally, under 
a clear bright-line limit, it would no longer be necessary for claim 
adjudicators to complete lengthy, subjective net-worth determinations, 
which would free up limited resources for other claim-related 
activities, specifically timely delivery of benefits to individuals who 
immediately need Government support.
    The net worth limit for pension entitlement that we propose to use 
is the standard maximum community spouse resource allowance (CSRA) 
prescribed by Congress for Medicaid, another Federal needs-based 
benefit program, which we consider sufficiently

[[Page 3843]]

analogous to VA's pension program to use the Congressional resource 
limit on Medicaid entitlement in VA's program. For the Medicaid 
program, Congress has established a standard maximum resource amount 
that the ``community spouse'' of an institutionalized individual may be 
allowed to retain without the institutionalized spouse losing 
entitlement to Medicaid because of excessive resources. Congress 
established this standard maximum amount, referred to as the maximum 
CSRA, at $60,000 in 1989 and indexed that amount for inflation by 
increasing it by the same percentage as the percentage increase in the 
average consumer price index for all urban consumers. See 42 U.S.C. 
1396r-5(f) and (g). For calendar-year 2014, the maximum CSRA is 
$117,240. See http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Eligibility/Downloads/Spousal-Impoverishment-2014.pdf. As described in further detail below, we would use the dollar 
amount of the maximum CSRA that is in effect at the effective date of 
the final rule after publication in the Federal Register and have 
inserted a temporary placeholder in the proposed rule.
    Congress' intent in establishing the CSRA was to prevent the 
impoverishment of the non-institutionalized spouse of a Medicaid-
covered individual. VA's intent in proposing to adopt the maximum CSRA 
as the net worth limit for pension entitlement is similar in that we 
seek to prevent the impoverishment of wartime veterans and their 
dependents or survivors as a prerequisite for obtaining VA pension. We 
recognize that a veteran or a veteran's surviving spouse may have built 
up a modest amount of savings prior to applying for pension and that 
there might be a need to retain a reasonable portion of these assets to 
respond to unforeseen events, such as medical conditions requiring care 
in an assisted living facility or nursing home.
    The current cost of nursing home and assisted living care supports 
our proposal to adopt the maximum CSRA. A recent survey found that the 
average annual cost of a semi-private room in a nursing home was over 
$81,000, and the cost of a private room was over $90,000. MetLife 
Mature Market Institute, ``Market Survey of Long-Term Care Costs'' 4 
(2012). A 2010 survey also found that the average annual cost of a 
private room in a nursing home was over $90,000. Prudential Research 
Report, ``Long-Term Care Cost Study'' 15 (2010). One survey found that 
the average cost of a residence in an assisted living facility was 
$3,550 monthly or $42,600 annually. MetLife Mature Market Institute, 
``Market Survey of Long-Term Care Costs'' 4 (2012). The cost of such 
facilities would quickly deplete the savings permitted by our proposed 
use of the maximum CSRA even with the supplemental income provided by 
VA's pension program, which for 2014 is established at a maximum of 
$25,022 annually for a veteran with a spouse and $13,563 annually for a 
surviving spouse. Given the high cost of such care and the fact that 
many veterans or survivors may have to pay for the care, we have 
determined that it would be reasonable to establish the maximum CSRA as 
the net worth limit for pension entitlement. This limit would 
correspond roughly to the cost of residential care in a nursing home or 
assisted living facility for 1 to 2 years.
    Proposed Sec.  3.274(a) includes several placeholders that describe 
what the final rule would contain if implemented. The net worth limit 
would be the dollar amount of the current maximum CSRA as of the 
effective date of the final rule, to be increased by the same 
percentage as the increase in Social Security benefits whenever there 
is a cost-of-living increase in benefit amounts payable under the 
Social Security Act. VA would publish the current limit on its Web 
site. The proposed regulation text also does not include the Web site 
address because VA has not yet determined the address at which the net 
worth limit would be published. We have inserted ``location to be 
determined'' in the proposed regulation text as a placeholder and would 
provide the Web site address, current net worth limit, and effective 
date in the final rule.
    Under proposed Sec.  3.274(b), VA would deny or discontinue pension 
if a claimant's or beneficiary's net worth exceeds the net worth limit. 
It would not be necessary to retain the reasonableness language in the 
current regulation under this bright-line limit. We have determined 
that it would be reasonable and consistent with the purpose of the 
pension program to fairly and consistently assess net worth and to make 
pension entitlement determinations using standardized criteria. 
Proposed Sec.  3.274(b)(1) would define a claimant's or beneficiary's 
net worth as the sum of his or her assets and annual income. We propose 
this new definition because under VA's net worth statutes, 38 U.S.C. 
1522 and 1543, VA must consider a claimant's or child's annual income 
when determining if net worth bars pension entitlement. To account for 
this statutory requirement, net worth for VA pension purposes would 
include both an asset component and an income component. This would be 
reflected for veterans, surviving spouses, and surviving children in 
proposed Sec.  3.274(b)(1) and for dependent children in proposed Sec.  
3.274(d)(2).
    Proposed Sec.  3.274(b)(2) would provide that VA calculates a 
claimant's or beneficiary's assets under this section and Sec.  3.275; 
and paragraph (b)(3) would provide cross-references to make it clear 
that ``annual income'' for net worth purposes is the same ``annual 
income'' used for calculating a pension entitlement rate for a claimant 
or a beneficiary. Proposed paragraph (b)(4) gives an example of a net 
worth calculation.
    Proposed Sec.  3.274(c) generally restates provisions in current 
Sec.  3.274(a), (c), and (e) and explains whose assets VA includes as a 
claimant's or beneficiary's assets. A veteran's assets include the 
assets of the veteran as well as the assets of the veteran's spouse, if 
the veteran has a spouse. See 38 U.S.C. 1522(a). A surviving child's 
assets include those of his or her custodian unless the custodian is an 
institution. We also propose to refer to the provisions of current 38 
CFR 3.57(d) and clarify that, when a surviving child is in the joint 
custody of a natural or adoptive parent and a stepparent, the surviving 
child's assets also include the assets of the stepparent. This 
provision is consistent with 38 U.S.C. 1543(b), pertaining to a 
surviving child's net worth.
    Proposed Sec.  3.274(d) would clarify paragraphs (b) and (d) of 
current Sec.  3.274 prescribing how a child's net worth affects a 
veteran's or surviving spouse's pension entitlement. The current 
paragraphs restate statutory provisions in providing that ``increased 
pension'' payable to a veteran or a surviving spouse on account of a 
child is barred if it is reasonable that some part of the child's net 
worth be consumed for the child's maintenance. See 38 U.S.C. 1522(b) 
and 1543(a)(2). In this context, VA has interpreted the statutory 
phrase ``increased pension'' to refer to the statutory maximum pension 
rates rather than the pension entitlement rate. The pension entitlement 
rate is the pension amount that a claimant or beneficiary is entitled 
to receive after VA subtracts the claimant's or beneficiary's income 
from the statutory maximum rate. If a child has sufficient income, a 
veteran's or surviving spouse's entitlement rate can decrease rather 
than increase when the child is established as a dependent. Sections 
1522(b) and 1543(a)(2) refer to the increased pension payable under the 
applicable subsections of sections 1521 and 1542 respectively, which 
provide

[[Page 3844]]

the maximum pension rates. Sections 38 U.S.C. 1522(b) and 1543(a)(2) 
also explicitly provide that a child with excessive net worth ``shall 
not be considered as the veteran's [or surviving spouse's] child for 
[pension purposes]. Accordingly, proposed Sec.  3.274(d) states that VA 
would not consider a child to be a veteran's or surviving spouse's 
dependent for pension purposes when the child's net worth exceeds the 
net worth limit. This would be true even if removing the child as a 
dependent results in an increased pension entitlement rate for the 
veteran or surviving spouse.
    Proposed Sec.  3.274(d)(1) would clarify two issues pertaining to 
dependent children. Proposed paragraph (d)(1)(i) would provide that a 
``dependent child'' refers, for the purposes of this section, to a 
child for whom a veteran or a surviving spouse is entitled to an 
increased maximum annual pension rate. The maximum annual pension rates 
are the annual pension rates set forth in 38 U.S.C. 1521 for veterans 
and 38 U.S.C. 1541 for surviving spouses. These maximum rates are then 
reduced by countable annual income, divided by 12, and rounded down to 
the nearest whole number to calculate the monthly pension entitlement 
rate. The maximum annual pension rate is the annual amount to which an 
eligible claimant is entitled to receive if his or her annual income is 
zero.
    Technically, surviving spouses do not have dependent children for 
VA purposes. For VA purposes, any child must be a child of the veteran. 
A veteran's child who is not in the custody of a surviving spouse, as 
custody is defined at Sec.  3.57(d), is a surviving child who is 
eligible for pension in his or her own right. However, referring to a 
veteran's child in the custody of a surviving spouse as a ``dependent 
child'' makes the necessarily complex net worth regulations somewhat 
easier to understand. There is statutory and regulatory precedent for 
referring to a child in this manner. Under 38 U.S.C. 1506(1) and 38 CFR 
3.277(a), a ``dependent child'' is a child for whom a person is 
receiving or entitled to receive increased pension.
    Proposed Sec.  3.274(d)(1)(ii) would provide that a ``potential 
dependent child'' refers to a child who is excluded from a veteran's or 
surviving spouse's pension award solely or partly because the child's 
net worth exceeds the limit and provides that references to a 
``dependent child'' also include such potential dependent children.
    Similar to proposed paragraphs (b)(1) through (b)(3) for claimants 
and beneficiaries, paragraphs (d)(2) through (d)(4) of proposed Sec.  
3.274 set forth the meaning of net worth for dependent children, and 
describe how VA calculates a dependent child's assets and annual income 
to determine the amount of the child's net worth. The applicable net 
worth statutes, 38 U.S.C. 1522(b) and 1543(a)(2), provide that a 
dependent child's estate includes only the estate of the child, but VA 
must consider the income of the child, the veteran or surviving spouse, 
and other dependents when determining if the child's net worth is 
excessive. Therefore, Sec.  3.274(d)(2) would provide that a dependent 
child's assets include the child's assets only, and Sec.  3.274(d)(3) 
would provide that VA will calculate a dependent child's annual income 
under Sec.  3.275 and will include the annual income of the child as 
well as the annual income of the veteran or surviving spouse that would 
be included if VA were calculating a pension entitlement rate for the 
veteran or the surviving spouse. See 38 U.S.C. 1522(b) and 1543(a)(2).
    Nothing in current Sec.  3.274 or any other current regulation 
prescribes when VA must calculate net worth for purposes of determining 
initial, continued, or increased pension entitlement. Accordingly, in 
Sec.  3.274(e), we propose to prescribe that VA would calculate net 
worth when VA receives: (1) An original pension claim, (2) a new 
pension claim after a period of non-entitlement, (3) a request to 
establish a new dependent, or (4) information that a veteran's, 
surviving spouse's, or child's net worth has increased or decreased.
    Information about a claimant's net worth may come from the claimant 
him or herself or from VA matching programs with the Internal Revenue 
Service (IRS) or the Social Security Administration (SSA). Such 
matching programs are authorized under 38 U.S.C. 5317. VA would obtain 
information from the IRS and the SSA before paying pension and when re-
calculating net worth for pension under Sec.  3.274(e). We intend that 
proposed paragraph (e) would provide notice to VA adjudicators, 
claimants, and beneficiaries regarding the types of claims or benefit 
adjustments that require a net worth calculation. As explained above in 
the information pertaining to Sec.  3.274(b)(1), net worth would be 
defined as the sum of a claimant's assets and his or her annual income. 
Proposed paragraph (e) would also clarify that generally, VA calculates 
net worth only when the claimant meets other factors necessary for 
pension entitlement. Proposed Sec.  3.274(e) would clarify for readers 
that if, for example, a veteran is not entitled to pension because he 
or she lacks wartime service or because his or her annual income 
exceeds the maximum annual pension rate, VA will not calculate net 
worth. However, paragraph (e)(3) would provide an exception. If the 
evidence of record shows that net worth exceeds the net worth limit, VA 
may decide the pension claim before determining if the claimant meets 
other pension entitlement factors. In such a case, VA would notify the 
claimant of the entitlement factors not established. This prevents VA 
from developing a case when the evidence clearly shows that a claimant 
is not entitled to the benefit.
    Nothing in current Sec.  3.274 or any other VA regulation addresses 
the issue of whether claimants denied pension due to excessive net 
worth may lawfully decrease their net worth and qualify for pension. To 
remedy this omission, proposed Sec.  3.274(f) would discuss the three 
ways in which claimants could decrease their net worth to lawfully 
qualify for pension. Under proposed Sec.  3.274(f)(1), claimants could 
make certain expenditures that would decrease their assets and thereby 
establish entitlement, continue entitlement, or increase entitlement to 
pension. Proposed Sec.  3.274(f)(1) would limit authorized expenditures 
to expenditures for basic living expenses or for education or 
vocational rehabilitation. Such a limitation is consistent with the 
requirement in sections 1522 and 1543 that the individual consume some 
part of net worth for his or her maintenance when net worth is 
excessive. Given the purpose of the needs-based program established by 
Congress, we interpret ``maintenance'' to mean basic necessities such 
as food, clothing, shelter, or health care. Because education or 
vocational rehabilitation expenses can lead to decreased reliance on 
pension, we believe that such expenses should also be considered part 
of an individual's maintenance for this purpose.
    Proposed Sec.  3.274(f)(2) would simply cross-reference the 
regulations that apply to pension annual income calculations. By law, 
VA must consider annual income in determining net worth. A decrease in 
annual income is the second method by which net worth can decrease. In 
proposed Sec.  3.274(f)(3), we address how VA will treat payments, 
e.g., unreimbursed medical expenses, which can decrease either annual 
income or assets. VA would not consider the same payments to decrease 
both the annual income and the asset components of net worth. Proposed

[[Page 3845]]

Sec.  3.274(f)(3) provides that VA will first apply the payment amounts 
to decrease annual income. We believe this is fair and reasonable 
because it is the amount of the annual income that determines the 
pension entitlement rate. If there are remaining deductible amounts and 
net worth still exceeds the limit, VA will use those amounts to reduce 
the asset component of net worth. We would provide two examples of this 
provision.
    Paragraphs (g), (h), and (i) of proposed Sec.  3.274 are proposed 
net worth effective-date provisions. Proposed paragraph (g) is based on 
current Sec.  3.660(d) and would prescribe the effective date of 
entitlement or increased entitlement after VA has denied, reduced, or 
discontinued a pension award based on excessive net worth. Proposed 
paragraph (g)(1) would describe the scope of the rule. Consistent with 
current Sec.  3.660(d), proposed paragraph (g)(2) would prescribe the 
effective date of entitlement or increased entitlement as the day net 
worth ceases to exceed the limit as long as, before the pension claim 
has become finally adjudicated, the claimant or beneficiary submits a 
certified statement that net worth has decreased. ``Finally 
adjudicated'' is defined in 38 CFR 3.160(d), and for net worth 
decisions, means that the 1-year period for beginning the appeal 
process by filing a Notice of Disagreement (NOD) has expired or that 
the claim has been appealed and decided. If VA does not receive the 
certified statement within one year after VA's decision notice to the 
claimant of the denial, reduction, or discontinuance (and does not 
appeal), the effective date is the date VA receives a new pension 
claim. VA always has the right, under 38 CFR 3.277(a), to require that 
a claimant or beneficiary submit additional evidence to support 
entitlement or continuing entitlement as the situation warrants and 
proposed Sec.  3.274(g)(2) would so provide.
    Proposed Sec.  3.274(h) pertains to reduction or discontinuance of 
a beneficiary's pension entitlement based on excessive net worth. 
Proposed paragraph (h)(1) would restate the statutory end-of-year 
effective date for reducing or discontinuing a pension award because of 
excessive net worth. See 38 U.S.C. 5112(b)(4)(B). The first day of non-
payment or reduced rate would be the first day of the year that follows 
the net worth change. This is consistent with longstanding VA 
implementation of reduction and discontinuance effective dates. See 38 
CFR 3.500. Proposed paragraph (h)(2) would clarify that if net worth 
decreases to or below the limit before the effective date, VA will not 
reduce or discontinue the pension award on the basis of excessive net 
worth. Proposed Sec.  3.274(h)(2) would provide that VA must receive 
the beneficiary's certified statement that net worth has decreased and 
must receive it before VA has reduced or discontinued the pension 
award. (If VA does, in fact, reduce or discontinue the pension award, 
then proposed paragraph (g)(2) would apply and the claimant would be 
able to submit evidence of continuing entitlement for VA to 
retroactively resume the award.)
    Proposed Sec.  3.274(i) prescribes additional effective dates that 
pertain to changes in a dependent child's net worth. As discussed above 
in the information pertaining to Sec.  3.274(d), a child would not be 
considered a veteran's or surviving spouse's dependent child if the 
child's net worth exceeds the net worth limit. In addition, we 
discussed how a veteran's or surviving spouse's pension entitlement may 
increase or decrease when a child is established as a dependent based 
on the amount of annual income the child may have. Proposed Sec.  
3.274(i)(1) would refer readers to paragraphs (g) and (h) for the 
intuitive situation in which establishing a dependent child (because 
the child's net worth has decreased) results in an increased pension 
entitlement rate for the veteran or surviving spouse.
    Proposed Sec.  3.274(i)(2) would address the situation in which 
establishing a dependent child results in a decreased pension 
entitlement rate for the veteran or surviving spouse. Paragraph 
(i)(2)(i) would establish an end-of-year effective date for a decreased 
pension entitlement rate when an increase in a dependent child's net 
worth results in removing the child from the award when the child's net 
worth is excessive. This end-of-year effective date is the same 
regardless of whether establishing or not establishing the dependent 
child due to a net worth change results in a decreased pension 
entitlement rate for the veteran or surviving spouse. Under 38 U.S.C. 
5112(b), the ``effective date of a reduction or discontinuance of . . . 
pension . . . by reason of change in [net worth] shall be the last day 
of the calendar year in which the change occurred.'' Emphasis added.
    Proposed paragraph (i)(2)(ii) would establish the effective date 
for an increased entitlement rate based on removing the child as a 
dependent as the date VA receives a claim for an increased pension rate 
based on the dependent child's net worth increase. This is consistent 
with 38 CFR 3.660(c), effective March 24, 2015. See 79 FR 57697, 
September 25, 2014.
    The explanatory derivation table below regarding net worth 
effective dates is provided as an aid for those reading this NPRM.

                          Table 1--Net Worth (NW) Effective-Date Provisions Derivations
----------------------------------------------------------------------------------------------------------------
                                                                                                  Change from
      Proposed Sec.   3.274          Derived from          Situation        Effective date       current rule
----------------------------------------------------------------------------------------------------------------
3.274(g)........................  3.660(d)..........  NW has decreased    Entitlement from    No date change.
                                                       after VA denial,    date of NW         Addition of
                                                       reduction, or       increase if         certified
                                                       discontinuance.     information         statement
                                                                           received timely.    requirement.
3.274(h)........................  3.660(a)(2).......  NW has increased    End-of-the-year     No date change.
                                                       and reduction or    that NW increases. Addition of
                                                       discontinuance                          certified
                                                       necessary.                              statement
                                                                                               requirement when
                                                                                               NW decreases
                                                                                               before the
                                                                                               effective date.
3.274(i)(1).....................  New Cross-
                                   Reference.
3.274(i)(2)(1)..................  3.660(d)..........  Dependent child's   End-of-the-year     No date change.
                                                       NW has decreased    that NW decreases.
                                                       and adding the
                                                       child results in
                                                       a rate decrease
                                                       for the veteran
                                                       or surviving
                                                       spouse.

[[Page 3846]]

 
3.274(i)(2)(2)..................  3.660(c)..........  Dependent child's   Date of receipt of  No date change.
                                                       NW has increased    claim for          Claim required for
                                                       and removing the    increased rate      increased rate.
                                                       child results in    based on child's
                                                       a rate increase     NW increase.
                                                       for the veteran
                                                       or surviving
                                                       spouse.
----------------------------------------------------------------------------------------------------------------

    We would remove from Sec.  3.660(d), which pertains to net worth 
effective dates, the reference to Sec.  3.274, but the reference to 
Sec.  3.263 would remain intact. With the exception of removing or 
redesignating certain paragraphs as explained below in the discussion 
regarding conforming amendments, we propose no changes to Sec.  3.263, 
which applies to net worth decisions for section 306 pension and to 
parental dependency for veterans disability compensation purposes under 
38 U.S.C. 1115.
    Finally, we would update the authority citation at the end of Sec.  
3.274 to include the effective-date statutes, 38 U.S.C. 5110 and 5112, 
along with the net worth statutes, 38 U.S.C. 1522 and 1543.
Section 3.275--How VA Determines the Asset Amount for Pension Net Worth 
Determinations
    Although sections 1522 and 1541 require VA to deny or discontinue 
pension or increased pension when a veteran's, surviving spouse's, or 
child's net worth is excessive, nothing in these statutes prescribes 
how VA should calculate net worth. VA implemented the statutory net 
worth provisions in current 38 CFR 3.275 by establishing net worth 
evaluation criteria. We propose to amend Sec.  3.275 consistent with 
proposed Sec.  3.274.
    As noted in the above discussion of proposed Sec.  3.274, we 
propose to establish the maximum CSRA as the net worth limit for 
pension entitlement. Net worth over that limit would not meet the 
reasonableness standard prescribed by Congress in sections 1522 and 
1543. VA would determine the amount of the asset component of a 
claimant's net worth using objective criteria and compare the net worth 
to a published limit in order to determine whether a claimant's net 
worth permits an award or increased award of pension. This objective 
standard would promote fair and consistent decision-making and would 
allow VA to process claims more efficiently for individuals who 
immediately need supplemental income. Accordingly, the criteria in 
current Sec.  3.275(d) for subjectively evaluating net worth would not 
be applicable under the proposed rule. Proposed Sec.  3.275 would 
define the term ``assets'' instead of ``net worth'' or ``corpus of 
estate.'' As we described above in the information pertaining to Sec.  
3.274(b), net worth would consist of both an asset component and an 
annual income component to account for the statutory provision that VA 
must consider annual income in its net worth determinations. Because we 
are proposing a bright line net worth limit, net worth would be the sum 
of assets and income, and the term ``assets'' would be used in many 
locations where ``net worth'' is currently used because net worth does 
not currently have an income component per se. Proposed Sec.  3.275 
would also provide exclusions from assets as described in greater 
detail below. We would not include the net worth evaluation criteria 
from current paragraph (d) because net worth would no longer be 
evaluated using those criteria; rather, there would be a bright line 
net worth limit.
    Under current Sec.  3.275(e), VA excludes from the net worth (i.e., 
assets) of a child reasonable amounts for actual or prospective 
educational or vocational expenses until the child attains age 23. 
There is no statutory requirement for this exclusion and we believe 
that the monetary amount of the net worth limit we proposed in Sec.  
3.275(a) is sufficient to account for vocational or educational 
expenses until age 23. Public high school education in the United 
States is free. The United States Department of Education College 
Affordability and Transparency Center reports average net prices of 
college attendance for 2011-2012. Average net price is for full-time 
beginning undergraduate students who received grant or scholarship aid 
from federal, state or local governments, or the institution. The 
following college prices are reported per semester for 4-year colleges: 
Public (e.g., State): $11,582; Private not-for-profit: $20,247; and 
Private for profit: $21,742. Therefore, we believe that the maximum 
CSRA of $117,240 (2014) is also an appropriate limit for children, and 
proposed Sec.  3.275 does not include the language of Sec.  3.275(e).
    Proposed Sec.  3.275(a)(1) would define ``assets'' and restate most 
of current Sec.  3.275(a), (b), and (c), although we would use the term 
``assets.'' Proposed paragraph (a)(1) would also use the term ``fair 
market value'' rather than the term ``market value'' that current 
paragraph (a)(1) uses. We would include a cross-reference to proposed 
Sec.  3.276(a)(4), which would define ``fair market value.'' In 
proposed paragraph (a)(2), we propose to define ``claimant'' in order 
to simplify Sec. Sec.  3.275 and 3.276. Proposed paragraph (a)(2)(i) 
would provide that, with one exception, ``claimant'' would mean a 
pension beneficiary, a dependent spouse, or a dependent or potential 
dependent child as described in proposed Sec.  3.274(d), as well as a 
veteran, surviving spouse, or surviving child pension applicant for the 
purposes of Sec. Sec.  3.275 and 3.276. The exception, at proposed 
(a)(2)(ii), would define claimant as ``a pension beneficiary or 
applicant who is a veteran, a surviving spouse, or a surviving child.'' 
This definition would apply to paragraph (b)(1), which would regulate 
the manner in which VA treats the exclusion of a residence. This 
exception is necessary to make clear that VA does not exclude more than 
one residence per family unit. These definitions would simplify 
Sec. Sec.  3.275 and 3.276 because the proposed net worth and asset 
transfer provisions would apply to each of these individuals and one 
term would describe all affected individuals.
    Proposed paragraph (a)(3) would define ``residential lot area'' to 
state and clarify VA's policy with respect to lot size. Current Sec.  
3.275(b) provides that VA does not include a claimant's ``dwelling . . 
. including a reasonable lot area'' in determining the amount of the 
claimant's net worth. Proposed Sec.  3.275(a)(3) would define 
``residential lot area'' as the lot on which a residence sits that is 
similar in size to other residential lots in the vicinity of the 
residence, but not to exceed 2 acres (87,120 square feet), unless the 
additional acreage is not marketable. The additional property might not 
be marketable if, for example, the property is only slightly more than 
2 acres, the additional property is not accessible, or there are zoning 
limitations that prevent selling the additional property.

[[Page 3847]]

    The United States Census Bureau reports that in 2010, the average 
lot size for new single-family homes sold was 17,590 square feet. In 
metropolitan areas, it was 16,585 square feet and outside metropolitan 
areas, it was 27,363 square feet. We propose to establish a 2-acre 
residential lot area limit to avoid disadvantaging veterans and 
survivors who may have purchased a residence with an above-average lot 
size long before they developed a need for the support provided by the 
pension program. This limit would support our policy choice, under 
which we exclude a claimant's primary residence from assets, while at 
the same time placing a reasonable limit on excluded property for 
purposes of preserving the pension program for Veterans and survivors 
who have an actual need.
    Proposed paragraph (b) would prescribe exclusions from assets. In 
proposed paragraph (b)(1), we would incorporate other matters of 
longstanding VA policy with respect to a claimant's residence, as 
explained and justified below. Under current Sec.  3.275(b), VA 
excludes a claimant's ``dwelling'' from net worth. We propose to refer 
to a claimant's ``primary residence'' rather than to a ``dwelling'' to 
clarify that VA excludes only the value of the single residence, along 
with the residential lot area, where the claimant has established a 
permanent place of residence, not the value of other properties where 
the claimant may occasionally reside. The proposed rule clarifies that 
a claimant can have only one primary residence at any given time. The 
term ``primary residence'' is well understood because a primary 
residence is considered a legal residence for the purposes of income 
tax and acquiring a mortgage. We also propose to state that, if the 
residence is sold, VA would not include the proceeds from the property 
sale as an asset to the extent the claimant uses the proceeds to 
purchase another residence within the same calendar year. This 
provision would be consistent with the effective-date rule in 38 U.S.C. 
5112(b)(4)(B), which provides that a reduction or discontinuance of 
pension based upon a change in net worth is effective the last day of 
the calendar year in which the change occurred. However, to the extent 
the sale price exceeds the purchase price of the latter residence, the 
excess amount would be included as an asset.
    Consistent with proposed Sec.  3.275(a)(1), proposed Sec.  
3.275(b)(1)(i) would state that VA will not subtract from a claimant's 
assets the amount of any mortgages or encumbrances on a claimant's 
primary residence. Because VA would not include a claimant's primary 
residence as an asset and mortgages and encumbrances would be property-
specific, VA would not subtract mortgages or encumbrances on the 
primary residence from other assets.
    Current Sec.  3.275(b) does not address whether VA excludes a 
claimant's residence if the claimant is receiving care in a nursing 
home or other residential facility or receiving care in the home of a 
family member. The legislative history of Public Law 95-588, which 
created the current pension program, indicates that Congress was aware 
that VA does not include a beneficiary's residence as part of net worth 
and did not intend to change that policy. See 123 Cong. Rec. S19754, 
(daily ed. Dec. 15, 1977) (statement of Sen. Cranston). However, the 
legislative history does not address the point at which VA should 
discontinue the primary residence exclusion. Accordingly, at proposed 
paragraph (b)(1)(ii), we propose to state that VA would exclude a 
claimant's primary residence as an asset regardless of whether the 
claimant is residing in a nursing home, medical foster home, or an 
assisted living or similar residential facility that provides custodial 
care, or resides with a family member for custodial care. The terms 
``nursing home,'' ``medical foster home,'' ``assisted living, adult day 
care, or similar facility,'' and ``custodial care'' would be defined in 
proposed Sec.  3.278(b) with a cross reference in proposed Sec.  
3.275(b)(1)(ii) to that regulation. Because there is generally a 
possibility that an individual may return to his or her primary 
residence, and VA supports such a return, we propose to prescribe 
clearly that a claimant's primary residence is not an asset for VA 
pension purposes. Consistent with our current policy, we would also 
specify that any rental income from the primary residence would be 
countable annual income under Sec.  3.271(d) for pension entitlement 
purposes (and thus would be part of net worth under proposed Sec.  
3.274). This is consistent with the general rule in 38 U.S.C. 1503(a) 
that ``all payments of any kind or from any source . . . shall be 
included'' in determining annual income except as specifically 
excluded.
    Proposed paragraphs (b)(3) through (b)(6) would list four types of 
payments that are excluded from assets for VA's net worth calculations 
for pension. These four exclusions apply to current pension but do not 
apply to prior pension programs. Proposed paragraph (b)(3) would list 
payments under section 6 of the Radiation Exposure Compensation Act of 
1990 and is taken from current Sec.  3.275(h). Proposed paragraph 
(b)(4) would list payments made under section 103(c) of the Ricky Ray 
Hemophilia Relief Fund Act of 1998, which are excluded under 42 U.S.C. 
300c-22(note). Proposed paragraph (b)(5) would list payments made under 
the Energy Employees Occupational Illness Compensation Program, which 
are excluded under 42 U.S.C. 7385e(2). Proposed paragraph (b)(6) would 
list payments made to certain eligible Aleuts under 50 U.S.C. App. 
1989c-5. These payments are excluded under 50 U.S.C. App. 1989c-
5(d)(2).
    Below in this NPRM, we propose a new Sec.  3.279 that would list 
payments that are statutorily excluded in determining entitlement to 
all needs-based benefits that VA administers. The payments listed in 
paragraphs (f), (g), (i), and (j), of current Sec.  3.275 would be 
listed in proposed Sec.  3.279; therefore, they would not be included 
in proposed Sec.  3.275(b). Proposed Sec.  3.275(b)(7) cross-references 
proposed Sec.  3.279 and excludes from net worth other applicable 
payments listed there. The payments described in current Sec.  3.275(e) 
are already accounted for in setting the net worth limit (see 
discussion of the CSRA above). As explained and justified later in this 
NPRM, the exclusion described in paragraph (k) of current Sec.  3.275 
would not be included in these regulations.
Waived Income Provision Relocation and Revision
    We propose to move the provision of current 38 CFR 3.276(a), which 
pertains to waived income, to a new paragraph (i) in 38 CFR 3.271. We 
believe that Sec.  3.271 would be a more appropriate location for a 
provision that applies to income counting than would Sec.  3.276. 
Proposed Sec.  3.276 pertains to asset transfers and penalty periods 
with respect to net worth calculations. Section 1503(a) of title 38, 
United States Code, requires VA to consider as income ``all payments of 
any kind or from any source (including salary, retirement or annuity 
payments, or similar income, which has been waived . . .).'' This 
provision of section 1503(a) became effective July 1, 1960, when Public 
Law 86-211 established what we now term ``section 306'' pension. The 
previous pension program, which we now term ``old-law'' pension, was an 
``all-or-nothing'' benefit in which a small increase in income could 
result in the total loss of VA pension. Therefore, beneficiaries often 
wished to waive receipt of other income so as not to lose pension 
entitlement, and VA regulations pertaining to old-law pension permit 
this. See 38 CFR 3.262(h). However,

[[Page 3848]]

Public Law 86-211 required VA to count waived income for pension 
purposes, thus preventing beneficiaries from ``creat[ing] their own 
need so as to qualify for the benefit.'' See S. Rep. No. 86-666, at 4 
(1959), as reprinted in 1959 U.S.C.C.A.N. 2190, 2193. This provision 
was carried forward to the current pension program in section 1503(a), 
and VA implemented it in current 38 CFR 3.276(a), which we now propose 
to move to proposed 38 CFR 3.271(i). Proposed Sec.  3.271(i) 
essentially restates current Sec.  3.276(a) in that it also provides 
that VA would count waived income. We would also add a reference to 
proposed Sec.  3.279, which would list statutory exclusions from 
income. Additionally, longstanding VA policy provides a qualified 
exception to the general rule regarding waiver, such that if an 
individual withdraws a Social Security claim after a finding of 
entitlement to Social Security benefits, so as to maintain eligibility 
for an unreduced Social Security benefit on attainment of a certain 
age, this withdrawal is not considered to be a waiver. In this 
situation, the individual's withdrawal of the claim is more accurately 
and fairly characterized under section 1503(a) as a deferral of income 
rather than a waiver. Accordingly, we propose to clearly state this 
policy in proposed Sec.  3.271(i).
Section 3.276--Asset Transfers and Penalty Periods
    Sections 1522 and 1543 of 38 U.S.C. require VA to deny or 
discontinue pension when a claimant's or beneficiary's net worth, 
including consideration of annual income, is excessive. As stated in 
the above introductory information on net worth determinations and 
asset transfers, current Sec.  3.276(b), which pertains to asset 
transfers, is not effective in proscribing transfers of significant 
assets for the purpose of creating pension entitlement, which is 
inconsistent with a needs-based benefit program. We therefore propose 
significant changes to VA's asset transfer regulation consistent with 
our interpretation of Congress' intent. Significantly, we propose to 
establish a 36-month look-back period for claimants who transfer assets 
in order to reduce net worth and create pension entitlement. We also 
propose to establish penalty periods related to such transfers.
    Proposed Sec.  3.276(a) would define ``covered asset,'' ``covered 
asset amount,'' ``fair market value,'' ``transfer for less than fair 
market value,'' ``annuity,'' ``trust,'' ``uncompensated value,'' 
``look-back period'' and ``penalty period.'' These definitions would 
make this necessarily complex regulation easier to understand. We would 
also provide a cross-reference to the definition of ``claimant'' in 
proposed Sec.  3.275, which, as previously discussed, would mean 
claimants, beneficiaries, and dependent spouses, as well as dependent 
or potentially dependent children. We use the same terminology in this 
NPRM when describing proposed changes to Sec.  3.276.
    We would define ``covered asset'' to mean an asset that was part of 
net worth, was transferred for less than fair market value, and would 
have caused or partially caused net worth to exceed the limit had the 
claimant not transferred the asset. The ``covered asset amount'' would 
be the monetary amount by which net worth would have exceeded the limit 
on account of a covered asset if the uncompensated value of the covered 
asset had been included in the net worth calculation. We would include 
two examples of covered asset amounts. These definitions are important 
because the covered asset amount is the amount that VA proposes to use 
to calculate the penalty period as described below. A smaller covered 
asset amount results in a shorter penalty period. We propose to define 
``covered asset amount'' in this manner because, in our view, it would 
be inequitable to calculate a penalty period using the entire 
transferred amount when net worth would have exceeded the limit by only 
a small amount if the claimant had not transferred any assets at all.
    In proposed Sec.  3.276(a)(4), we propose to define ``fair market 
value'' as the price at which an asset would change hands between a 
willing buyer and willing seller who are under no compulsion to buy or 
sell and who have reasonable knowledge of relevant facts. VA uses the 
best available information to determine fair market value, such as 
inspections, appraisals, public records, and the market value of 
similar property if applicable. Using the best available information to 
determine a fair value is a restatement of current and longstanding 
policy.
    We then propose to define ``transfer for less than fair market 
value'' as selling, conveying, gifting, or exchanging an asset for an 
amount less than the fair market value of the asset. In addition, we 
would include as a transfer for less than fair market value any asset 
transfer to or purchase of any financial instrument or investment that 
reduces net worth and would not be in the claimant's financial interest 
were it not for the claimant's attempt to qualify for VA pension by 
transferring assets to or purchasing such instruments or investments. 
Two examples of such instruments or investments are annuities and 
trusts. We would define ``annuity'' to mean ``a financial instrument 
that provides income over a defined period of time for an initial 
payment of principal.'' This definition is derived from the GAO report. 
We would define ``trust'' to mean a legal arrangement by which an 
individual (the grantor) transfers property to an individual or an 
entity (the trustee), who manages the property according to the terms 
of the trust, whether for the grantor's own benefit or for the benefit 
of another individual. As previously stated, the GAO report identified 
numerous organizations that assist claimants with transferring assets 
to create pension entitlement. Therefore, we are including these asset 
transfers in the proposed definition of ``transfer for less than fair 
market value.'' We note that similar terms are used in 42 U.S.C. 
1382b(c), which pertains to Social Security Administration's SSI 
program. There are certain similarities between SSI and VA's pension 
program in that both are based on need. In light of VA's broad 
authority to implement appropriate net worth regulations and in the 
absence of specific statutory guidance, we have drawn some of the 
proposed language in this NPRM from 42 U.S.C. 1382b, which pertains to 
resources (i.e., net worth) for SSI.
    The ``uncompensated value'' of an asset would be defined as the 
difference between its fair market value and the amount of compensation 
an individual receives for the asset. (In this context, the word 
``compensation'' has its more general meaning rather than the technical 
meaning given in 38 U.S.C. 101(13).) In the case of an asset transfer 
to, or purchase of, a financial instrument or investment such as a 
trust or an annuity, the uncompensated value would mean the amount of 
money or the monetary value of other assets so transferred.
    Proposed Sec.  3.276(a)(7) would define ``look-back period'' to 
mean the 36-month period before the date on which VA receives either an 
original pension claim or a new pension claim after a period of non-
entitlement. As previously stated, VA proposes to establish a 3-year 
look-back period similar to that employed by the Social Security 
Administration in administering its SSI program. Although Medicaid uses 
a 5-year look-back period for most transfers of assets, as a policy 
matter, VA believes that a 3-year look-back period is sufficient to 
preserve the integrity of its pension program.
    ``Penalty period'' would be defined as a period of non-entitlement 
due to transfer of a covered asset.

[[Page 3849]]

    Proposed Sec.  3.276(b) would establish VA's policy with regard to 
pension entitlement and covered assets and would put claimants on 
notice that VA may require evidence to determine whether a prohibited 
asset transfer has occurred. This is consistent with current Sec.  
3.277(a), which provides that VA always has the right to request proof 
of entitlement to pension. We would reference Sec.  3.277(a) in Sec.  
3.276(b). See also 38 U.S.C. 1506(1).
    Proposed Sec.  3.276(c) would establish a presumption, rebuttable 
by clear and convincing evidence, that transferring an asset during the 
look-back period was for the purpose of reducing net worth to establish 
entitlement to pension. As a result, the asset would be considered a 
covered asset. The presumption could be rebutted if the claimant 
establishes that he or she transferred an asset as the result of fraud, 
misrepresentation, or unfair business practice related to the sale or 
marketing of financial products or services for purposes of 
establishing entitlement to VA pension. We propose that evidence 
substantiating the application of this exception may include a 
complaint contemporaneously filed with state, local, or Federal 
authorities reporting the incident. In such a case, VA would not 
consider the transferred asset to be a covered asset and would thus not 
calculate any penalty period, although this would mean that net worth 
would be excessive and the provisions of Sec.  3.274 regarding reducing 
net worth would apply.
    Proposed Sec.  3.276(d) would set forth an exception that applies 
to assets transferred to a trust for the benefit of a veteran's child 
whom VA rates or has rated as being permanently incapable of self-
support under the provision of 38 CFR 3.356. VA would not consider 
assets transferred to a trust established on behalf of such a child to 
be covered assets as long as there is no circumstance under which 
distributions from the trust can be used to benefit the veteran, 
veteran's spouse, or surviving spouse.
    VA considered providing for an exception consistent with the 
``undue hardship'' determination prescribed in the aforementioned SSI 
statute, 42 U.S.C. 1382b(c)(1)(C)(iv). However, the statutory resource 
limit in the SSI program is $3,000 for an individual with a spouse and 
$2,000 for an individual with no spouse. See 42 U.S.C. 1382(a)(3). 
Because these limits are significantly lower than the net worth limit 
that VA proposes to use, we do not believe that a hardship provision is 
warranted.
    In proposed Sec.  3.276(e), VA would establish a penalty period for 
covered assets transferred during the look-back period and the criteria 
for calculating such a penalty period. In providing the calculations 
for the length of the penalty period, we have again drawn on 42 U.S.C. 
1382b(c), pertaining to SSI. Subsection (c)(1)(A)(iv) of 42 U.S.C. 
1382b establishes a formula for calculating penalty periods for 
purposes of SSI. VA's formula would be similar. VA's formula would 
determine a penalty period in months by dividing the covered asset 
amount by the applicable maximum annual pension rate under 38 U.S.C. 
1521(d), 1541(d), or 1542 as of the date of the pension claim, rounded 
down to the nearest whole number. For veterans and surviving spouses, 
we would use the maximum annual pension rate at the aid and attendance 
level. (Surviving children are not entitled to aid and attendance.) We 
note that the higher the divisor, the shorter the penalty period. 
Although not all veterans and surviving spouses to whom the regulation 
would apply would qualify for pension at the aid and attendance level, 
we believe that most claimants who transfer covered assets would 
qualify at this level. Further, and again following the example of the 
SSI statute, we note that the divisor for calculating penalty periods 
for SSI is the maximum monthly SSI benefit payable. We would use the 
applicable maximum annual pension rate in effect as of the date of the 
pension claim and the rule would include the VA Web site at which the 
rates may be found.
    We propose to set a maximum penalty period of 10 years. We 
considered setting the maximum penalty period at 36 months, which would 
be consistent with the SSI statute; however, after further 
consideration, we determined that it would be inequitable for an 
individual who transfers, for example, $1,000,000 to have a penalty 
period of the same length as an individual who transfers $25,000.
    Under proposed Sec.  3.276(e)(2), the penalty period would begin on 
the date that would have been the payment date of an original or new 
pension award if the claimant had not transferred a covered asset and 
the claimant's net worth had been within the limit. Under proposed 
Sec.  3.276(e)(3), the claimant, if otherwise qualified, would then be 
entitled to pension benefits effective the last day of the last month 
of the penalty period, with a payment date as of the first day of the 
following month in accordance with 38 CFR 3.31.
    We would provide an example of penalty period calculations at 
proposed Sec.  3.276(e)(4).
    Proposed Sec.  3.276(e)(5) states that, with two exceptions, VA 
would not recalculate a penalty period under this section. VA would 
recalculate the penalty period if the original calculation is shown to 
be erroneous or if all of the covered assets were returned to the 
claimant before the date of claim or within 30 days after the date of 
claim. If, not later than 90 days after VA's decision notice pertaining 
to the penalty period, VA receives evidence showing that all covered 
assets have been returned to the claimant, VA would not assess a 
penalty period. Although VA would not assess a penalty period in such a 
situation, the claimant's net worth would be excessive, but would be 
available for the claimant to use for his or her needs consistent with 
Congressional intent. Once correctly calculated, the penalty period 
would be fixed, and return of covered assets after the 30-day period 
provided would not shorten the penalty period. Numerous penalty period 
recalculations would detract from the primary mission of paying pension 
benefits to those in need. Claimants always have the right to appeal 
any VA decision. See 38 CFR 20.201.
Section 3.277--Eligibility Reporting Requirements
    VA has discretionary authority, under 38 U.S.C. 1506, to require 
pension beneficiaries to complete annual Eligibility Verification 
Reports (EVR) to verify the amount of their income, net worth, and the 
status of their dependents. VA has implemented this authority at 38 CFR 
3.277(c)(2), which currently provides that VA ``shall'' require an EVR 
in particular situations. We now propose to remove the word ``shall'' 
and replace it with the word ``may,'' which reflects the statute and 
gives VA discretionary authority to require EVRs.
Section 3.278--Deductible Medical Expenses
    Section 1503(a)(8) authorizes VA, in determining annual income in 
the current pension program, to exclude from annual income amounts paid 
by a veteran, veteran's spouse, or surviving spouse, or by or on behalf 
of a veteran's child, for unreimbursed medical expenses to the extent 
they exceed 5 percent of the applicable maximum annual pension rate. In 
the parents' DIC program, section 1315(f)(3) authorizes VA to exclude 
from a claimant's annual income ``unusual medical expenses.'' See 38 
CFR 3.262(l) (defining unusual medical expenses and implementing the 
exclusion for parents' DIC and section 306 pension).

[[Page 3850]]

    There is currently no regulation that adequately defines ``medical 
expense'' for VA purposes. Current 38 CFR 3.262(l) and 3.272(g) are 
clear that a deductible medical expense must be unreimbursed and must 
be made on behalf of certain individuals, e.g., the veteran, veteran's 
spouse, veteran's surviving spouse, or other qualifying relatives. 
Except for the provision in 38 CFR 3.362(l) that unreimbursed health, 
accident, sickness, and hospitalization insurance premiums are included 
in medical expenses for purposes of section 306 pension and parents' 
DIC, VA regulations do not define what constitutes an unreimbursed 
medical expense for VA's needs-based benefit programs. In particular, 
no regulation reflects current VA policy pertaining to deductions 
available for institutional forms of care and in-home attendants.
    We therefore propose to add new Sec.  3.278 to improve clarity and 
consistency in determining what constitutes a medical expense that is 
deductible from a claimant's or beneficiary's income. We would use the 
term ``deductible'' because even though the statutes and the 
implementing regulations cited above speak in terms of medical expense 
``exclusions,'' VA treats deductions and exclusions differently. A 
deduction is an amount subtracted from income, whereas an exclusion is 
an amount not counted in the first instance. For our purposes, this 
technical difference is not important.
    Proposed Sec.  3.278 would implement sections 1315(f)(3) and 
1503(a)(8) by describing and defining the medical expenses that VA may 
deduct for purposes of three of VA's needs-based benefit programs. In 
proposed paragraph (a), we would define the scope of proposed Sec.  
3.278. Proposed paragraph (b) defines various terms. Proposed Sec.  
3.278(b)(1) would define ``health care provider.'' We propose to 
require that an individual be licensed by a state or country to provide 
health care in the state or country in which the individual provides 
the health care. We intend that individual states be responsible for 
such licensing. However, we recognize that some claimants, 
beneficiaries, and family members do not reside in any state and, 
therefore, we would require that the provider be licensed by a state 
``or country.'' We also propose to list examples of licensed health 
care providers. In paragraph (b)(1)(ii), we would include within the 
definition of ``health care provider'' a nursing assistant or home 
health aide who is supervised by a licensed health care provider.
    Paragraphs (b)(2) and (b)(3) of proposed Sec.  3.278 would define 
``activities of daily living'' (ADL) and ``instrumental activities of 
daily living'' (IADL). These terms are well-known and understood in the 
health care industry and are used in other Federal regulations, 
including VA regulations. For the purposes of determining deductible 
medical expenses for VA's needs-based benefits, ADLs would mean basic 
self-care activities and would consist of ``bathing or showering, 
dressing, eating, toileting, and transferring.'' We would also define 
``transferring'' to mean an individual's moving himself or herself, 
such as getting in and out of bed. These activities are essentially 
those described in current Sec.  3.352, and the inability to perform 
these activities is considered at least partly determinative of an 
individual's need for the regular aid and attendance of another 
individual for VA purposes. Proposed Sec.  3.278(b)(3) would define 
IADLs for VA medical expense deduction determinations as independent 
living activities, such as shopping, food preparation, housekeeping, 
laundering, managing finances, handling medications, using the 
telephone, and transportation for non-medical purposes. Proposed 
paragraph (e)(4) would provide that VA does not consider expenses for 
assistance with IADLs to be medical expenses except in certain 
circumstances because such personal care expenses are not intrinsically 
medical. Other Government agencies, such as the Internal Revenue 
Service and Social Security Administration, also do not consider such 
expenses to be medical expenses for their purposes except in limited 
circumstances. One item that is often included as an IADL is 
transportation. Our definition of IADL would include ``transportation 
for non-medical purposes'' because it is longstanding VA policy to 
consider transportation for medical purposes to be a deductible medical 
expense, and we would continue that policy.
    Although managing finances is an IADL for purposes of this section, 
we propose to clarify that managing finances does not include services 
rendered by a VA-appointed fiduciary. We also provide, in proposed 
paragraph (e)(5), that a fee paid to a VA-appointed fiduciary is not a 
deductible medical expense. Beneficiaries pay fees to VA-appointed 
fiduciaries out of their monthly VA benefits. Accordingly, we have 
determined that it would be inappropriate to permit a deduction from 
income for financial management services, and thus increase the amount 
of pension paid, when VA benefits are used to pay for the services.
    Proposed Sec.  3.278(b)(4) would define ``custodial care'' as 
regular assistance with two or more ADLs or regular supervision because 
an individual with a mental disorder is unsafe if left alone due to the 
mental disorder This definition is consistent with current VA policy.
    Proposed Sec.  3.278(b)(5) would define ``qualified relative.'' 
Under 38 U.S.C. 1503(a)(8) and 1315(f)(3), VA may deduct medical 
expenses paid by a veteran, a veteran's dependent spouse, a surviving 
spouse, or a surviving child (pension and section 306 pension) or by a 
veteran's parent (parents' DIC). The implementing regulations, 38 CFR 
3.262(l) and 3.272(g), limit whose medical expenses VA may deduct. In 
addition to the claimant's or beneficiary's medical expenses, the 
medical expenses of dependents and certain other family members are 
deductible. We would define ``qualified relative'' as a veteran's 
dependent spouse, a veteran's dependent or surviving child, and other 
relatives of the claimant who are members or constructive members of 
the claimant's household whose medical expenses are deductible under 
Sec. Sec.  3.262(l) or 3.272(g). A ``constructive member'' of a 
household is an individual who would be a member of the household if 
the individual were not in a nursing home, away at school, or a similar 
situation. Defining a ``qualified relative'' for the purposes of the 
medical expense deduction makes the regulation simpler. We would not 
include veterans or surviving spouses in the definition because 
veterans and surviving spouses are the only pension beneficiaries who 
can be rated or presumed to require the aid and attendance of another 
individual or to be housebound under 38 CFR 3.351. This distinction is 
significant as will be explained below in this NPRM. We would also not 
include claimants who are parents for parents' DIC purposes because 
they too can be rated or presumed to require the aid and attendance of 
another individual.
    Proposed Sec.  3.278(b)(6), the definition of ``nursing home,'' 
would cross-reference current Sec.  3.1(z)(1) or (2), which defines 
``nursing home'' for all of 38 CFR part 3, with provision made that if 
the facility is not located in a state, then the facility must be 
licensed in the country in which it is located.
    Consistent with current VA health care regulations, proposed 
paragraph (b)(7) would define ``medical foster home'' as a privately 
owned residence, recognized and approved by VA, that offers a non-
institutional alternative to nursing home care for veterans who are 
unable to live alone safely due to

[[Page 3851]]

chronic or terminal illness. See 38 CFR 17.73.
    Proposed paragraph (b)(8) would define ``assisted living, adult day 
care, or similar facility.'' We would use this rather lengthy term to 
avoid confusion that could result from the fact that not all facilities 
that meet our proposed definition use the same nomenclature. Some 
governmental institutions could also fall under our proposed 
definition. Our proposed definition for such a facility is that it must 
provide individuals with custodial care; however, the facility may 
contract with a third-party provider to provide such care. We would 
further provide that residential facilities must be staffed with 
custodial care providers 24 hours per day. To be included in our 
definition, a facility must be licensed if such facilities are required 
to be licensed in the state or country in which the facility is 
located.
    Proposed paragraph (c) would prescribe VA's general medical expense 
policy and list examples of expenses that VA considers medical expenses 
for its needs-based benefits. In general, medical expenses for VA 
purposes are payments for items or services that are medically 
necessary or that improve a disabled individual's ability to function. 
This reflects longstanding VA policy with respect to medical expenses.
    Proposed Sec.  3.278(c) would specify that the term ``medical 
expenses'' includes, but is not limited to, payments specified in 
paragraphs (c)(1) through (c)(7). Paragraphs (c)(1) through (c)(7) list 
payments made to a health care provider; payments for medications, 
medical supplies, medical equipment, and medical food, vitamins, and 
supplements; payments for adaptive equipment; transportation expenses 
for medical purposes; health insurance premiums; smoking cessation 
products; and payments for institutional forms of care and in-home care 
as provided in paragraph (d). We propose to include in paragraph (c) 
detailed provisions relating to the broad categories of medical 
expenses. These clarifications provide further guidance regarding the 
medical expenses that may be deducted from income.
    Under current policy, medical expenses include payments for care 
provided by a health care provider, but not for cosmetic procedures 
that only improve or enhance appearance, although these may be 
deductible if the purpose of such procedure is to improve a congenital 
or accidental deformity or is related to treatment for a diagnosed 
medical condition. Proposed Sec. Sec.  3.278(c)(1) and (e)(2) would 
continue this policy.
    We propose to prescribe in Sec.  3.278(c)(4) that VA limits the 
deductible expense per mile for travel by private vehicle to the 
current Privately Owned Vehicle (POV) mileage reimbursement rate 
specified by the United States General Services Administration (GSA). 
The current amount can be obtained from www.gsa.gov, and we would also 
post the current amount on VA's Web site at a location to be 
determined. We have inserted ``location to be determined'' in the 
proposed regulation text as a placeholder and would provide the Web 
site address in the final rule. We would also clarify that the 
difference between transportation expenses calculated under this 
criterion and the amount of other VA or non-VA transportation 
reimbursements are deductible medical expenses. This policy is similar 
to considering a co-payment to a health care provider as a deductible 
medical expense even though insurance pays the remainder. We would 
provide an example of this longstanding policy in the proposed rule.
    In proposed Sec.  3.278(c)(5), we would clarify that medical 
expenses include Medicare Parts B and D premiums as well as long-term 
care insurance premiums.
    Proposed Sec.  3.278(d) would prescribe VA's medical expense policy 
for payments for institutional and in-home care services. In accordance 
with longstanding VA policy, proposed paragraph (d)(1) would provide 
that payments to hospitals, nursing homes, medical foster homes, and 
inpatient treatment centers, including the cost of meals and lodging 
charged by such facilities, are deductible medical expenses.
    In paragraph (d)(2), we propose to clarify VA's policy with respect 
to in-home attendants. We also propose a limit to the hourly in-home 
care rate that VA would deduct. We propose this limit to minimize 
instances of fraudulent or excessive in-home care charges. We also 
would require that payments, to qualify as medical expenses for VA, 
must be commensurate with the number of hours that the provider attends 
to the disabled individual. The proposed limit is reasonable and 
derived from a reputable industry source. The limit that we propose is 
the average hourly rate for home health aides, which is published 
annually by the MetLife Mature Market Institute in its ``Market Survey 
of Long-Term Care Costs'' (MetLife Survey). We considered using for 
this purpose the mean hourly wage for home health aides published by 
the United States Department of Labor (DoL) Bureau of Labor Statistics. 
(See http://www.bls.gov/oes/current/oes311011.htm.) However, the 2012 
Met Life Survey shows that the 2012 national average private-pay hourly 
rate for home health aides to be $21.00 per hour, which was unchanged 
from 2011. The lowest average hourly rate was $3.00 per hour and the 
highest was $32.00 per hour. The May 2013 DoL mean hourly wage for home 
health wage was $10.60 per hour. We have determined that using the 
higher hourly rate as a limit better supports our policy decision to 
ensure that wartime veterans and their families receive the highest 
level of care possible while simultaneously being mindful of the 
interests of taxpayers. We would use the most current applicable 
MetLife report and would publish the limit on a VA Web site at a 
location to be determined. We have inserted ``location to be 
determined'' in the proposed regulation text as a placeholder and would 
provide the Web site address in the final rule.
    We would next state the general rule that an in-home attendant must 
be a health care provider for the expense to qualify as a medical 
expense and that only payments for assistance with ADLs or health care 
services are medical expenses. However, if a veteran or a surviving 
spouse (or parent for parents' DIC) meets the criteria for regular aid 
and attendance or is housebound, the attendant does not need to be a 
health care provider. In addition, VA would consider payments for 
assistance with IADLs (as defined by VA) to be medical expenses, as 
long as the attendant's primary responsibility is to provide the 
veteran, surviving spouse, or parent with health care services or 
custodial care. In accordance with current VA policy, this provision 
would also apply to a qualified relative if a physician or physician 
assistant states in writing that, due to physical or mental disability, 
the relative requires the health care services or custodial care that 
the in-home attendant provides.
    Similarly, proposed paragraph (d)(3) would address facilities that 
are assisted living, adult day care, and similar facilities, and would 
provide the general rule that only payments for health care services 
and assistance with ADLs provided by a health care provider are medical 
expenses. However, if a veteran or surviving spouse (or parent for 
parents' DIC) meets the criteria for regular aid and attendance or is 
housebound, the care does not need to be provided by a health care 
provider. In addition, if the primary reason for the veteran or 
surviving spouse to be in the facility is to receive health care 
services or custodial care that the facility

[[Page 3852]]

provides, then VA would deduct all fees paid to the facility, including 
meals and lodging. This provision would also apply to a qualified 
relative if a physician or physician assistant states in writing that, 
due to the relative's physical or mental disability, the relative 
requires the health care services or custodial care that the facility 
provides.
    Proposed paragraph (e) would list examples of items and services 
that are not medical expenses for purposes of VA needs-based benefits. 
We would clarify that generally, payments for items or services that 
benefit or maintain general health, such as vacations and dance 
classes, are not medical expenses, nor are fees paid to a VA-appointed 
fiduciary, as explained above. Proposed paragraph (e)(2) would provide 
that cosmetic procedures are not medical expenses except in the 
instances described in proposed paragraph (c)(1). We would also clarify 
that except as specifically provided, medical expenses do not include 
assistance with IADLs (i.e., shopping, food preparation, housekeeping, 
laundering, managing finances, handling medications, using the 
telephone, and transportation for non-medical purposes), nor do they 
include payments for meals and lodging, except in limited situations 
involving custodial care. Here, we would explicitly state that this 
category applies to facilities such as independent living facilities 
that do not provide individuals with health care services or custodial 
care.
    VA's intent in promulgating these rules is to ensure that 
deductions from countable income reflect Congress' intent that amounts 
be deducted for ``medical expenses'' only, and not for other services 
such as meals and lodging or excessive administrative services not 
directly related to the provision of medical care. We would provide 
cross references to Sec. Sec.  3.262(l) and 3.272(g); amend Sec. Sec.  
3.262(l) and 3.272(g) to cross reference the new medical expense 
regulation; and make corresponding amendments to Sec.  3.261.
Section 3.279--Statutory Exclusions From Income or Assets (Net Worth or 
Corpus of the Estate)
    As stated above in this NPRM in the information pertaining to Sec.  
3.275, we propose a new Sec.  3.279 regarding statutory exclusions from 
income or assets, which would list 27 exclusions applicable to all VA-
administered needs-based benefits. We note that we propose no change to 
net worth terminology for VA's older benefit programs in this 
rulemaking; therefore, we would continue to use the previous terms in 
addition to the term ``assets,'' which would apply to current-law 
pension. We would use the terms ``Corpus of estate'' in the applicable 
heading in paragraphs (b) through (e) along with ``assets,'' in order 
to ensure consistency with current 38 CFR 3.261(c). We here use the 
term ``assets'' to describe the changes and additions.
    Many of these exclusions are already contained in current VA 
regulations. We have determined that it would be useful for regulation 
users to have all of the statutory exclusions listed in one regulation. 
Exclusions that are not applicable to every VA-administered needs-based 
benefit would be contained only in the regulations pertaining to the 
benefit. This NPRM describes statutory exclusions that are either not 
currently contained in 38 CFR part 3 or are only partly contained in 
current part 3.
    Proposed paragraph (a) would describe the scope of the section as 
described above.
    Proposed Sec.  3.279(b)(1) would exclude from income relocation 
payments made under the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended. 42 U.S.C. 4601. Payments 
made under the Act are excluded from income by 42 U.S.C. 4636.
    Proposed Sec.  3.279(b)(4) would exclude from income and assets 
payments made to individuals because of their status under Public Law 
103-286, as victims of Nazi persecution.
    Proposed Sec.  3.279(b)(7) would exclude from income and assets 
payments under the National Flood Insurance Act of 1968. See 42 U.S.C. 
4031.
    Proposed Sec.  3.279(c)(1) would exclude from income and assets 
funds paid under the Indian Tribal Judgment Funds Use or Distribution 
Act, 25 U.S.C. 1401, while such funds are held in trust. The first 
$2,000 per year of income received by individual Native Americans in 
satisfaction of a judgment of the United States Court of Federal Claims 
is excluded from income. The law originally pertained to judgments of 
the Indian Claims Commission as well as judgments of the United States 
Court of Federal Claims. However, the Government discontinued the 
Indian Claims Commission on September 30, 1978, so we would not refer 
to the Commission in proposed Sec.  3.279(c)(1). We also propose to 
include a clarification which complies with a precedent opinion of VA's 
Office of the General Counsel, VAOPGCPREC 1-94, 59 FR 27307, May 26, 
1994, which held that the $2,000 exclusion for per-capita payments 
applies to the sum of all payments received in an annual reporting 
period.
    Proposed Sec.  3.279(c)(2) would exclude from income the first 
$2,000 per year received by individual Indians that is derived from an 
individual Native American's interest in trust or restricted lands. It 
would also exclude from assets all interest of individual Native 
Americans in trust or restricted lands. See 42 U.S.C. 1408. Current 
regulations only address the income component.
    Proposed Sec.  3.279(c)(3) would address exclusions under the Per 
Capita Distributions Act, codified at 25 U.S.C. 117a-117c. Under 
section 117b(a), distributions of funds are subject to the provisions 
of 25 U.S.C. 1407. The exclusions under Sec.  3.279(c)(3) would mirror 
the exclusions under Sec.  3.279(c)(1).
    Proposed Sec.  3.279(c)(4) would exclude from income and assets 
income derived from certain submarginal land of the United States that 
is held in trust for certain Native American tribes in accordance with 
25 U.S.C. 459e.
    Proposed Sec.  3.279(c)(5) would exclude from income and assets up 
to $2,000 per year of per capita distributions under the Old Age 
Assistance Claims Settlement Act, 25 U.S.C. 2301.
    Proposed Sec.  3.279(c)(6) would exclude from income and assets any 
income or asset received under the Alaska Native Claims Settlement Act, 
43 U.S.C. 1626. Current Sec. Sec.  3.262(x) and 3.272(t) exclude the 
following payments from income consideration: cash (including cash 
dividends on stock received from a Native American Corporation) to the 
extent that it does not, in the aggregate, exceed $2,000 per individual 
per year; stock (including stock issued or distributed by a Native 
American Corporation as a dividend or distribution on stock); a 
partnership interest; land or an interest in land (including land or an 
interest in land received from a Native American Corporation as a 
dividend or distribution on stock); and an interest in a settlement 
trust. The Alaska Native Claims Settlement Act, 43 U.S.C. 1626, 
provides that the income or asset received from Native Corporation 
shall not ``be considered or taken into account as an asset or 
resource'' for any Federal program. 43 U.S.C. 1626(c). Therefore, to 
extend the exclusion to assets, proposed Sec.  3.279(c)(6) would 
exclude from assets the income and assets described above. We would 
also extend the exclusion to certain bonds that are statutorily 
excluded but are not specifically mentioned in current Sec.  3.262(x) 
or 3.272(t).
    Proposed Sec.  3.279(c)(7) would exclude from income and assets 
payments received under the Maine Indian Claims Settlement Act of 1980, 
25 U.S.C. 1721.

[[Page 3853]]

    Proposed Sec.  3.279(c)(8) would exclude payments received by 
Native Americans under the settlement in Cobell v. Salazar, Civil 
Action No. 96-1285 (TFH) (D.D.C.). Section 101(f)(2) of Public Law 111-
291, December 8, 2010, provides that amounts from this settlement 
received by an individual Indian as a lump sum or a periodic payment 
are not to be treated as income or resources (i.e., net worth for VA 
purposes) during the 1-year period beginning on the date of receipt. 
Accordingly, because VA counts lump-sum payments as income for a 1-year 
period, proposed Sec.  3.279(c)(8) would exclude such payments from 
income and would exclude them from assets for 1 year.
    Proposed Sec.  3.279(d)(1) would exclude from income allowances, 
earnings, and payments to individuals participating in programs under 
the Workforce Investment Act of 1998, 29 U.S.C. 2931, which provides 
that allowances, earnings, and payments to individuals participating in 
programs under the Act shall not be considered as income for the 
purposes of determining eligibility for, and the amount of, income 
transfer and in-kind aid furnished under any Federal or Federally-
assisted needs-based program. There would be no net worth exclusion.
    Proposed Sec.  3.279(d)(2) would exclude from income allowances, 
earnings, and payments to AmeriCorps participants pursuant to 42 U.S.C. 
12637. There would be no asset exclusion.
    Current Sec. Sec.  3.262(q) and 3.272(k) list payments from various 
Federal volunteer programs that are excluded from income. Through a 
series of legislative changes, these programs are now administered by 
the Corporation for National and Community Service. See Public Law 103-
82. Section 5044(f) of title 42, United States Code, provides that 
payments made under the act which created the Corporation for National 
and Community Service, with certain exceptions, do not reduce the level 
of or eliminate eligibility for assistance that volunteers may be 
receiving under other government programs. We propose to account for 
this change in the law by providing, in proposed Sec.  3.279(d)(3), 
that payments received from any of the volunteer programs administered 
by the Corporation for National and Community Service would be excluded 
from income and assets unless the payments are equal to or greater than 
the minimum wage. We propose to provide that the minimum wage for this 
purpose is that under the Fair Labor Standards Act of 1938, 29 U.S.C. 
201, or that under the law of the state where the volunteers are 
serving, whichever is greater.
    Proposed Sec.  3.279(e)(1) would exclude from income and assets the 
value of the allotment provided to an eligible household under the Food 
Stamp Program. Proposed Sec.  3.279(e)(2) would exclude from income and 
assets the value of free or reduced-price food under the Child 
Nutrition Act of 1966, 42 U.S.C. 1771.
    Proposed Sec.  3.279(e)(3) would exclude from income the value of 
any child care provided or arranged (or any amount received as payment 
for such care or reimbursement for costs incurred for such care) under 
the Child Care and Development Block Grant Act of 1990, 42 U.S.C. 9858.
    Proposed Sec.  3.279(e)(4) would exclude from income the value of 
services, but not wages, provided to a resident of an eligible housing 
project under a congregate services program under the Cranston-Gonzalez 
National Affordable Housing Act. 42 U.S.C. 8011.
    Proposed Sec.  3.279(e)(5) would exclude from income and assets the 
amount of any home energy assistance payments or allowances provided 
directly to, or indirectly for the benefit of, an eligible household 
under the Low-Income Home Energy Assistance Act of 1981, 42 U.S.C. 
8621.
    Proposed Sec.  3.279(e)(6) would exclude from income payments, 
other than wages or salaries, received from programs funded under the 
Older Americans Act of 1965, 42 U.S.C. 3001. In accordance with 42 
U.S.C. 3020a(b), such payments may not be treated as income for the 
purpose of any other program or provision of Federal or state law.
    Proposed Sec.  3.279(e)(7) would exclude from income and assets the 
amount of student financial assistance received under Title IV of the 
Higher Education Act of 1965, including Federal work-study programs, 
Bureau of Indian Affairs student assistance programs, or vocational 
training under the Carl D. Perkins Vocational and Technical Education 
Act of 1998, as amended, 20 U.S.C. chapter 44.
    Proposed Sec.  3.279(e)(8) would exclude from income annuities 
received under subchapter 1 of the Retired Serviceman's Family 
Protection Plan. 10 U.S.C. 1441. We note that this exclusion is 
currently listed at Sec.  3.261(a)(14) for prior law pension, but is 
not listed as an income exclusion from current pension at Sec.  3.262. 
Inasmuch as 10 U.S.C. 1441 was amended after January 1, 1979, we 
believe this statutory exclusion meets the requirement for inclusion in 
Sec.  3.279, i.e., it applies to all needs-based benefits that VA 
administers.
    As an aid to those who read this supplementary information, we are 
providing the following derivation table for proposed Sec.  3.279. It 
lists only new income exclusions (i.e., income exclusions not currently 
found in 38 CFR part 3) and exclusions derived from current Sec.  
3.272. It does not list exclusions derived from Sec. Sec.  3.261 or 
3.262. If an exclusion is derived from Sec. Sec.  3.261 or 3.262 but 
not listed in current Sec.  3.272, the derivation table below lists the 
proposed Sec.  3.279 exclusion as ``new.''

                Table 2--Proposed Sec.   3.279 Derivation
------------------------------------------------------------------------
                                             Derived from current Sec.
          Proposed Sec.   3.279                  3.272 (or ``New'')
------------------------------------------------------------------------
3.279(b)(1)..............................  New.
3.279(b)(2)..............................  3.272(v).
3.279(b)(3)..............................  3.272(p).
3.279(b)(4)..............................  New.
3.279(b)(5)..............................  3.272(o).
3.279(b)(6)..............................  3.272(u).
3.279(b)(7)..............................  New.
3.279(c)(1)..............................  New.
3.279(c)(2)..............................  3.272(r).
3.279(c)(3) through (c)(5)...............  New.
3.279(c)(6)..............................  3.272(t).
3.279(c)(7) through (d)(2)...............  New.
3.279(d)(3)..............................  3.272(k).
3.279(e)(1) through (e)(8)...............  New.
3.279(e)(9)..............................  3.272(w).
------------------------------------------------------------------------

Conforming Amendments, Corrections, and Other Exclusions
    Because the statutory exclusions pertaining to all VA-administered 
needs-based benefits would be listed in proposed Sec.  3.279, for 
purposes of notice, we propose not to include such statutory exclusions 
in other regulations. We previously listed paragraphs we would not 
include in proposed Sec.  3.275, which pertains to net worth for 
current pension. Section 3.263 pertains to net worth for section 306 
pension and dependency of parents for VA service-connected compensation 
purposes. (Net worth is not a factor for parents' DIC or old-law 
pension.) We would remove paragraphs (e), (f), (g), and (h) from Sec.  
3.263 because these paragraphs list net worth exclusions that would be 
listed at new Sec.  3.279, in paragraphs (b)(5), (b)(3), (b)(6), 
(b)(2), and (e)(9), respectively.
    We would amend Sec.  3.270, which describes the applicability of 
certain regulations that pertain to needs-based benefits, to remove 
from paragraph (a) ``Sections 3.250 to 3.270.'' and add in its place 
``Sections 3.250 to 3.270 and sections 3.278 and 3.279.'' Currently, 
Sec. Sec.  3.250 to 3.270 apply only to (1) the

[[Page 3854]]

prior pension programs, (2) parents' DIC, and (3) parental dependency. 
Current Sec. Sec.  3.271 to 3.277 apply only to current pension. 
Because proposed new Sec.  3.278 would apply to all VA-administered 
needs-based benefits for which medical expenses may be deducted and 
proposed new Sec.  3.279 would apply to all VA-administered needs-based 
benefits, it is necessary to amend Sec.  3.270 to include the proposed 
new regulations.
    For reasons described below in the information pertaining to 
conforming amendments and additions to Sec.  3.272, we would remove 
paragraph (i) from Sec.  3.263.
Conforming Amendments and Corrections to Sections 3.261 and 3.262
    Sections 3.261 and 3.262 set forth income exclusions for section 
306 pension, old-law pension, parental dependency for compensation 
under Sec.  3.250, and parents' DIC. We would remove paragraphs (s), 
(u), (v), (x), (y), and (z) from current Sec.  3.262 because these 
paragraphs list income exclusions that would be listed at new Sec.  
3.279, in paragraphs (b)(5), (b)(3), (c)(2), (c)(6), (b)(6), (b)(2), 
and (e)(9), respectively. We would redesignate paragraphs (t) and (w) 
of current Sec.  3.262 as proposed paragraphs (s) and (t) of proposed 
Sec.  3.262. We also propose a correction to current Sec.  3.262(w), 
which we propose to redesignate as Sec.  3.262(t). Current Sec.  
3.262(w) provides that income received under Section 6 of the Radiation 
Exposure Compensation Act, Public Law 101-426, is excluded for purposes 
of parents' DIC under the authority of 42 U.S.C. 2210 note. This is 
accurate; however, the exclusion also applies to parental dependency 
for compensation purposes. The note at 42 U.S.C. 2210 provides that 
``amounts paid to an individual under [Section 6 of the Radiation 
Exposure Compensation Act] . . . shall not be included as income or 
resources for purposes of determining eligibility to receive benefits 
described in section 3803(c)(2)(C) of title 31, United States Code or 
the amount of such benefits.'' 42 U.S.C. 2210 note. The list of 
benefits at section 3803(c)(2)(C) does not include section 306 pension 
or old-law pension but does include parental dependency for 
compensation purposes in addition to parents' DIC. Accordingly, the 
exclusion at proposed Sec.  3.262(t) would apply to parental dependency 
for compensation purposes as well as to parents' DIC.
    Additionally, we would add to proposed Sec.  3.262 a new paragraph 
(u), which would refer to other payments excluded from income in 
proposed Sec.  3.279.
    We would remove current entries (35) through (37) and (39) through 
(41) from current Sec.  3.261(a). We propose a correction to current 
entry (38) of Sec.  3.261(a), which we would redesignate as entry (35). 
This entry currently references Sec.  3.262(w), which would be 
redesignated as Sec.  3.262(t) as described above. Further, current 
entry (38) of Sec.  3.261(a) is erroneous because it shows that income 
received under Section 6 of the Radiation Exposure Compensation Act is 
excluded for purposes of old-law pension and section 306 pension when 
this is not the case as explained above. Proposed entry (35) would 
provide the correct information.
    Additionally, we would add to proposed Sec.  3.261(a) a new entry 
(36), which would refer to other payments excluded from income in 
proposed new Sec.  3.279.
    For reasons described below in the information pertaining to 
conforming amendments and additions to Sec.  3.272, we would remove 
paragraph (a)(41) from Sec.  3.261 and paragraph (aa) from Sec.  3.262; 
and paragraph (i) from Sec.  3.263.
Conforming Amendments and Additions to Section 3.272
    Section Sec.  3.272 sets forth income exclusions for current 
pension. We propose to add to current Sec.  3.272(g) a reference to 
proposed Sec.  3.278 that would define medical expenses. We also 
propose to remove from current Sec.  3.272, regarding exclusions from 
income, paragraphs (k), (o), (p), (r), (t), (u), (v), and (w), because 
these paragraphs contain statutory income exclusions that would be 
listed in proposed Sec.  3.279. We also propose to redesignate current 
paragraphs (q), (s), and (x) as (o), (p), and (q), respectively. We 
would add new paragraphs (k), (r), and (s). We would also amend the 
authority citation in paragraph (q), as proposed to be redesignated, 
due to a law change. Section 604 of Public Law 111-275 amended 38 
U.S.C. 1503 to add a new paragraph (a)(11), which we describe below, 
and redesignated former paragraph (a)(11) as (a)(12).
    We propose to remove paragraph (w) because it describes a statutory 
income and asset exclusion of payments received under the Medicare 
transitional assistance program and any savings associated with the 
Medicare prescription drug discount card. This program was discontinued 
on December 31, 2005. See 42 U.S.C. 1395w-141(a)(ii)(C). The program 
was replaced with the Medicare coverage gap discount program under the 
authority of 42 U.S.C. 1395w-114a. The statutory authority for the new 
program does not include language pertaining to eligibility to other 
Federal benefits; therefore, we propose to remove this exclusion.
    We also propose to add a new income exclusion at Sec.  3.272(k) 
that would clarify VA's policy pertaining to income from certain 
annuities. We would provide that VA would exclude payments from an 
annuity and count, on an annual basis, only the interest component of 
the payments if a claimant or beneficiary, or someone acting on his or 
her behalf, transfers an asset to the annuity principal and either (1) 
VA has already considered the fair market value of the transferred 
asset as an asset, or (2) the funds used to purchase the annuity were 
proceeds from the sale of the claimant's or beneficiary's primary 
residence that was previously excluded as an asset from VA's net worth 
calculation and such funds are not sufficient to cause net worth to 
exceed the limit under proposed Sec.  3.274(a).
    Generally, VA counts income from Individual Retirement Accounts and 
similar investments, even though such income represents a partial 
return on principal. In addition, a claimant or beneficiary may 
transfer assets from one form to another form, e.g., selling real 
estate at fair market value and placing the proceeds into a savings 
account or certificate of deposit. Such a transfer of assets has no 
impact on net worth for VA pension as long as VA has included the fair 
market value as an asset and net worth remains within the net worth 
limit. However, sometimes a claimant or beneficiary, or someone acting 
on his or her behalf, will sell an asset or his or her residence and 
purchase an annuity with the proceeds. We emphasize that these are 
situations in which the proceeds would not cause net worth to bar 
pension entitlement. If a claimant sells his or her primary residence 
that was previously excluded as an asset and uses the proceeds to 
purchase an annuity, VA views such a transfer in a similar manner as if 
the claimant had placed the proceeds from the sale in a bank account. 
If the proceeds were placed in a bank account, then the bank account 
itself would be an asset. However, incremental withdrawals from the 
bank account would not count as income. Accordingly, fairness would 
dictate that the same proceeds, if placed into an annuity principal 
rather than a bank account, should not result in countable income that 
reduces pension entitlement, although the annuity principal itself 
could adversely affect pension entitlement if the value of the

[[Page 3855]]

annuity principal caused net worth to exceed the net worth limit.
    In proposed Sec.  3.272(r), we would incorporate a new statutory 
income exclusion. Section 604 of the Veterans' Benefits Act of 2010, 
Public Law 111-275, amended 38 U.S.C. 1503(a) to provide a new income 
exclusion beginning in calendar year 2012. The statute now excludes 
from a veteran's countable income ``payment of a monetary amount of up 
to $5,000 to a veteran from a state or municipality that is paid as a 
veterans' benefit due to injury or disease.'' We propose to implement 
this change in law by excluding all such payments from the claimant's 
or beneficiary's income, not to exceed a total of $5,000 in a 12-month 
annualization period (an annualization period is generally a calendar 
year). In proposed Sec.  3.272(s), we would add a reference to other 
payments excluded from income listed in Sec.  3.279.
    As an aid to those who read this supplementary information, we are 
providing the following proposed distribution and derivation tables for 
current and proposed Sec.  3.272.

               Table 3--Current Sec.   3.272 Distribution
------------------------------------------------------------------------
                                            Distributed to or no change
           Current Sec.   3.272                     in location
------------------------------------------------------------------------
3.272(a) through (j).....................  No change.
3.272(k).................................  3.279(d)(3).
3.272(l) through (n).....................  No change.
3.272(o).................................  3.279(b)(5).
3.272(p).................................  3.279(b)(3).
3.272(q).................................  3.272(o).
3.272(r).................................  3.279(c)(2).
3.272(s).................................  3.272(p).
3.272(t).................................  3.279(c)(6).
3.272(u).................................  3.279(b)(6).
3.272(v).................................  3.279(b)(2).
3.272(w).................................  Removed.
3.272(x).................................  3.272(q).
------------------------------------------------------------------------


                Table 4--Proposed Sec.   3.272 Derivation
------------------------------------------------------------------------
                                            Derived from, no change, or
          Proposed Sec.   3.272                       ``new''
------------------------------------------------------------------------
3.272(a) through (f).....................  No change.
3.272(g), last sentence..................  New.
3.272(h) through (j).....................  No change.
3.272(k).................................  New.
3.272(l) through (n).....................  No change.
3.272(o).................................  3.272(q).
3.272(p).................................  3.272(s).
3.272(q).................................  3.272(x).
3.272(r).................................  New.
3.272(s).................................  New.
------------------------------------------------------------------------

Statutory Change to Medicaid Nursing Home Provision

    We propose to amend current 38 CFR 3.551(i) to reference the 
authorizing statute, 38 U.S.C. 5503(d)(7) rather than to specify the 
statutory sunset date. Section 203 of Public Law 112-260, enacted 
January 10, 2013, amended 38 U.S.C. 5503(d)(7) to extend to November 
30, 2016, the sunset date for reductions of pension to $90 for certain 
beneficiaries receiving Medicaid-approved care in a nursing home. 
Previously, the Veterans Benefits Act of 2010, Public Law 111-275, had 
extended this sunset date to May 31, 2015, and Public Law 112-56 had 
extended it to September 30, 2016. To avoid multiple future regulatory 
changes, proposed paragraph (i) would provide the sunset date as the 
date given in 38 U.S.C. 5503(d)(7).
    We would also add ``surviving child'' where appropriate to state 
that the Medicare reduction pertains to a surviving child claiming or 
receiving pension in his or her own right. This change would make the 
rule consistent with the statutory amendments made by section 606 of 
the Veterans Benefits Act of 2010. We would make clarifying changes to 
the title and content of current Sec.  3.551(i) to reflect the above 
noted changes. Finally, we would amend 38 CFR 3.503 to add paragraph 
(c), which would be an effective-date provision pertaining to Medicaid-
covered nursing home care for surviving children. Proposed paragraph 
(c) would mirror Sec. Sec.  3.501(i)(6) and 3.502(f), which apply to 
veterans and surviving spouses, respectively. We would amend the 
authority citation to include 38 U.S.C. 5503(d).

Paperwork Reduction Act

    This proposed rule includes a collection of information under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) that requires 
approval by the Office of Management and Budget (OMB). Accordingly, 
under 44 U.S.C. 3507(d), VA has submitted an information collection 
request to OMB for review. OMB assigns a control number for each 
collection of information it approves. VA may not conduct or sponsor, 
and a person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number. Proposed 38 
CFR 3.276 and 3.278 contain a collection of information under the 
Paperwork Reduction Act of 1995. If OMB does not approve the collection 
of information as requested, VA will immediately remove the provisions 
containing a collection of information or take such other action as is 
directed by OMB.
    Comments on the collections of information contained in this 
proposed rule should be submitted to the Office of Management and 
Budget, Attention: Desk Officer for the Department of Veterans Affairs, 
Office of Information and Regulatory Affairs, Washington, DC 20503, 
with copies sent by mail or hand delivery to the Director, Office of 
Regulation Policy and Management (02REG), Department of Veterans 
Affairs, 810 Vermont Ave. NW., Room 1068, Washington, DC 20420; fax to 
(202) 273-9026 (this is not a toll-free number); or email comments 
through www.Regulations.gov. Comments should indicate that they are 
submitted in response to ``RIN 2900-AO73.''
    VA considers comments by the public on proposed collections of 
information in--
     Evaluating whether the proposed collections of information 
are necessary for the proper performance of the functions of VA, 
including whether the information will have practical utility;
     Evaluating the accuracy of VA's estimate of the burden of 
the proposed collections of information, including the validity of the 
methodology and assumptions used;
     Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
     Minimizing the burden of the collections of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    The collections of information contained in 38 CFR 3.276 and 3.278 
are described immediately following this paragraph, under their 
respective titles.
    Title: Asset Transfers and Penalty Periods.
    Summary of collection of information: Under proposed 38 CFR 3.276, 
claimants would be required to report to VA whether they have 
transferred assets within the 3 years prior to claiming pension or 
anytime thereafter and if so, information about those assets. This 
would also require amendments to the following existing application 
forms:
     VA Form 21-526, Veterans Application for Compensation and/
or Pension, OMB Control Number 2900-0001.
     VA Form 21P-527, Income, Net Worth, and Employment 
Statement, OMB Control Number 2900-0002.
     VA Forms 21P-534, Application for Dependency and Indemnity

[[Page 3856]]

Compensation, Death Pension and Accrued Benefits by a Surviving Spouse 
or Child (Including Death Compensation if Applicable), and 21P-534EZ, 
Application for DIC, Death Pension, and/or Accrued Benefits, OMB 
Control Number 2900-0004.
     VA Forms 21P-527EZ, Application for Pension, OMB Control 
No. 2900-0002.
    Description of the need for information and proposed use of 
information: The information is needed to ensure that only qualified 
claimants receive VA needs-based benefits.
    Description of likely respondents: Claimants for VA pension or 
survivor benefits.
    Estimated frequency of responses: Once per claim.
    Estimated number of respondents per year and respondent burden:

----------------------------------------------------------------------------------------------------------------
                                                           Estimated
                                                           number of                                 Estimated
                                                          pension and                              total annual
              VA form No.                 OMB control      survivor       Estimated respondent     reporting and
                                              No.           benefit              burden            recordkeeping
                                                          respondents                             burden (hours)
                                                           per year
----------------------------------------------------------------------------------------------------------------
21-526................................       2900-0001          25,000  1 hour..................          25,000
21P-527...............................       2900-0002          25,000  1 hour..................          25,000
21P-534...............................       2900-0004          25,000  1 hour, 15 minutes......          31,250
21P-534EZ.............................       2900-0004          75,000  50 minutes..............          62,500
21-527EZ..............................       2900-0002          75,000  50 minutes..............          62,500
----------------------------------------------------------------------------------------------------------------

    Title: Deductible Medical Expenses.
    Summary of collection of information: Under proposed 38 CFR 3.278, 
claimants would be required to submit information pertaining to their 
medical expenses. Certain claimants would also be required to submit 
evidence that they need custodial care or assistance with activities of 
daily living. This would also require amendments to the following 
existing forms:
     The application forms described above in the information 
pertaining to asset transfers and penalty periods.
     VA Form 21P-8416, OMB Control Number 2900-0161.
    Description of the need for information and proposed use of 
information: The information is needed to ensure that only qualified 
claimants receive VA needs-based benefits.
    Description of likely respondents: Claimants for VA pension 
benefits.
    Estimated number of respondents per year: 60,000 pension claimants.
    Estimated frequency of responses: Annual.
    Estimated respondent burden: 30,000 hours (30 minutes per form x 
60,000 respondents annually).
Regulatory Flexibility Act
    The Secretary certifies that this proposed rule would not have a 
significant economic impact on a substantial number of small entities 
as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-
612. This proposed rule would directly affect only individuals and 
would not directly affect small entities. Therefore, pursuant to 5 
U.S.C. 605(b), this rulemaking is exempt from the initial and final 
regulatory flexibility analysis requirements of sections 603 and 604.

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, when 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, and other advantages; distributive impacts; 
and equity). Executive Order 13563 (Improving Regulation and Regulatory 
Review) emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
Executive Order 12866 (Regulatory Planning and Review) defines a 
``significant regulatory action'' requiring review by the OMB, unless 
OMB waives such review, as ``any regulatory action that is likely to 
result in a rule that may: (1) Have an annual effect on the economy of 
$100 million or more or adversely affect in a material way the economy, 
a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or State, local, or tribal 
governments or communities; (2) Create a serious inconsistency or 
otherwise interfere with an action taken or planned by another agency; 
(3) Materially alter the budgetary impact of entitlements, grants, user 
fees, or loan programs or the rights and obligations of recipients 
thereof; or (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.''
    The economic, interagency, budgetary, legal, and policy 
implications of this regulatory action have been examined, and it has 
been determined to be a significant regulatory action under Executive 
Order 12866 because it will have an annual effect on the economy of 
$100 million or more, and it is likely to result in a rule that may 
raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in this Executive 
Order. VA's impact analysis can be found as a supporting document at 
http://www.regulations.gov, usually within 48 hours after the 
rulemaking document is published. Additionally, a copy of the 
rulemaking and its impact analysis are available on VA's Web site at 
http://www1.va.gov/orpm/, by following the link for ``VA Regulations 
Published.''

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. This proposed rule would have no such 
effect on State, local, and tribal governments, or on the private 
sector.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers and titles for 
the programs affected by this proposed rule are 64.104, Pension for 
Non-Service-Connected Disability for Veterans, and 64.105, Pension to 
Veterans Surviving Spouses, and Children.

Signing Authority

    The Secretary of Veterans Affairs, or designee, approved this 
document and authorized the undersigned to sign and

[[Page 3857]]

submit the document to the Office of the Federal Register for 
publication electronically as an official document of the Department of 
Veterans Affairs. Robert A. McDonald, Secretary, Department of Veterans 
Affairs, approved this document on August 6, 2014, for publication.

List of Subjects in 38 CFR Part 3

    Administrative practice and procedure, Claims, Disability benefits, 
Pensions, Veterans.

    Dated: January 7, 2015.
William F. Russo,
Acting Director, Office of Regulation Policy & Management, Office of 
the General Counsel, U.S. Department of Veterans Affairs.

    For reasons set out in the preamble, VA proposes to amend 38 CFR 
part 3 as follows:

PART 3--ADJUDICATION

Subpart A--Pension, Compensation, and Dependency and Indemnity 
Compensation

0
1. The authority citation for part 3, subpart A continues to read as 
follows:

    Authority: 38 U.S.C. 501(a), unless otherwise noted.
0
2. Amend the table in Sec.  3.261(a) as follows:
0
a. Remove entries (35) through (37) and (39) through (42).
0
b. Redesignate entry (38) as entry (35).
0
c. Revise newly designated entry (35).
0
d. Add entry (36).
    The revision and addition read as follows:


Sec.  3.261  Character of income; exclusions and estates.

* * * * *
    (a) Income.

----------------------------------------------------------------------------------------------------------------
                                                                                      Pension;
                                                 Dependency and   Pension; old-     section 306
                                  Dependency       indemnity      law (veterans,     (veterans,
            Income                (parents)       compensation      surviving        surviving         See--
                                                   (parents)       spouses and      spouses and
                                                                    children)        children)
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
(35) Income received under     Excluded.......  Excluded.......  Included.......  Included.......  Sec.
 Section 6 of the Radiation                                                                         3.262(t).
 Exposure Compensation Act
 (Pub. L. 101-426).
(36) Other payments excluded   Excluded.......  Excluded.......  Excluded.......  Excluded.......  Sec.
 from income listed in Sec.                                                                         3.262(u).
 3.279.
----------------------------------------------------------------------------------------------------------------

* * * * *
0
3. Amend Sec.  3.262 as follows:
0
a. Add a sentence to the end of paragraph (l) introductory text.
0
b. Remove paragraphs (s), (u), (v), (x), (y), (z), and (aa).
0
c. Redesignate paragraphs (t) and (w) as paragraphs (s) and (t), 
respectively.
0
d. Revise newly designated paragraph (t).
0
e. Add a new paragraph (u).
    The additions and revision read as follows:


Sec.  3.262  Evaluation of income.

* * * * *
    (l) * * * For the definition of what constitutes a medical expense, 
see


Sec.  3.278  Deductible medical expenses.

* * * * *
    (t) Radiation Exposure Compensation Act. For the purposes of 
parents' dependency and indemnity compensation and dependency of 
parents under Sec.  3.250, there shall be excluded from income 
computation payments under Section 6 of the Radiation Exposure 
Compensation Act of 1990.
    (u) Other payments. Other payments excluded from income listed in 
Sec.  3.279.


Sec.  3.263  [Amended]

0
4. Amend Sec.  3.263 by removing paragraphs (e), (f), (g), (h), and 
(i).


Sec.  3.270  [Amended]

0
5. Amend Sec.  3.270 as follows:
0
a. Revise the heading in paragraph (a) by removing ``Sections 3.250 to 
3.270'' and adding in its place ``Sections 3.250 through 3.270 and 
sections 3.278 through 3.279''.
0
b. Revise the note to paragraph (a) by removing ``Sec. Sec.  3.250 to 
3.270'' and adding in its place ``Sec. Sec.  3.250 through 3.270 and 
Sec. Sec.  3.278 through 3.279''.
0
c. Revise the heading in paragraph (b) by removing ``Sections 3.271 to 
3.300'' and adding in its place ``Sections 3.271 through 3.300''.
0
6. Amend Sec.  3.271 by adding paragraph (i) to read as follows:


Sec.  3.271  Computation of income.

* * * * *
    (i) Waiver of receipt of income. Potential income that is not 
excludable under Sec. Sec.  3.272 or 3.279 but is waived by an 
individual is included as countable income of the individual. However, 
if an individual withdraws a claim for Social Security benefits, after 
a finding of entitlement to those benefits, in order to maintain 
eligibility for unreduced Social Security benefits upon reaching a 
particular age, VA will not regard this potential income as having been 
waived and will therefore not count it.

(Authority: 38 U.S.C. 1503(a))


0
7. Amend Sec.  3.272 as follows:
0
a. Add a sentence to the end of paragraph (g) introductory text.
0
b. Remove paragraphs (k), (o), (p), (r), (t), (u), (v), and (w).
0
c. Redesignate paragraphs (q), (s), and (x) as paragraphs (o), (p), and 
(q), respectively.
0
d. Add new paragraphs (k), (r), and (s).
0
e. Revise the authority citation in newly designated paragraph (q).
    The additions and revision read as follows:


Sec.  3.272  Exclusions from income.

* * * * *
    (g) Medical expenses. * * * For the definition of what constitutes 
a medical expense, see Sec.  3.278, Deductible medical expenses.
* * * * *
    (k) Income from certain annuity payments. VA will exclude annuity 
payments and count, on an annual basis, only the interest components of 
payments if a claimant or beneficiary (or someone acting on his or her 
behalf) transfers an asset to an annuity principal and either of the 
following statements is true:
    (1) VA has already considered the fair market value of the 
transferred asset as the claimant's or beneficiary's asset for VA 
purposes.
    (2) The funds used to purchase the annuity were proceeds from the 
sale of the claimant's or beneficiary's primary residence that was 
previously excluded as an asset under Sec.  3.275(b)(1), and such funds 
are not sufficient to cause net worth to exceed the net worth limit 
under Sec.  3.274(a).
* * * * *

[[Page 3858]]

    (q) * * *

(Authority: 38 U.S.C. 1503(a)(12))


    (r) Veterans' benefits from states and municipalities. VA will 
exclude from income payments from a state or municipality to a veteran 
of a monetary benefit that is paid as a veterans' benefit due to injury 
or disease. VA will exclude up to $5,000 of such benefit in any 
annualization period.

(Authority: 38 U.S.C. 1503(a)(11))


    (s) Other payments. Other payments excluded from income listed in 
Sec.  3.279.
0
8. Revise Sec.  3.274 to read as follows:


Sec.  3.274  Net worth and VA pension.

    (a) Net worth limit. For purposes of entitlement to VA pension, the 
net worth limit effective [insert effective date of the final rule 
after publication in the Federal Register] is [insert the dollar amount 
of the maximum community spouse resource allowance for Medicaid 
purposes on the effective date of the final rule]. This limit will be 
increased by the same percentage as the Social Security increase 
whenever there is a cost-of-living increase in benefit amounts payable 
under section 215(i) of title II of the Social Security Act (42 U.S.C. 
415(i)). VA will publish the current limit on its Web site at [location 
to be determined].
    (b) When a claimant's or beneficiary's net worth exceeds the limit. 
Except as provided in paragraph (h)(2) of this section, VA will deny or 
discontinue pension if a claimant's or beneficiary's net worth exceeds 
the net worth limit in paragraph (a) of this section.
    (1) Net worth means the sum of a claimant's or beneficiary's assets 
and annual income.
    (2) Asset calculation. VA will calculate a claimant's or 
beneficiary's assets under this section and Sec.  3.275.
    (3) Annual income calculation. VA will calculate a claimant's or 
beneficiary's annual income under Sec.  3.271, and will include the 
annual income of dependents as required by law. See Sec. Sec.  
3.23(d)(4), 3.23(d)(5), and 3.24 for more information on annual income 
included when VA calculates a claimant's or beneficiary's pension 
entitlement rate. In calculating annual income for this purpose, VA 
will subtract all applicable deductible expenses, to include 
appropriate prospective medical expenses under Sec.  3.272(g).
    (4) Example of net worth calculation. A surviving spouse has 
claimed pension. The applicable maximum annual pension rate is $8,485 
and the net worth limit is $117,240. The surviving spouse's annual 
income is $7,000 and her assets total $116,000. Therefore, adding the 
spouse's annual income to her assets produces net worth of $123,000. 
This amount exceeds the net worth limit.
    (c) Assets of other individuals included as claimant's or 
beneficiary's assets. (1) Claimant or beneficiary is a veteran. A 
veteran's assets include the assets of the veteran as well as the 
assets of his or her spouse, if the veteran has a spouse.
    (2) Claimant or beneficiary is a surviving spouse. A surviving 
spouse's assets include only the assets of the surviving spouse.
    (3) Claimant or beneficiary is a surviving child. (i) If a 
surviving child has no custodian or is in the custody of an 
institution, the child's assets include only the assets of the child.
    (ii) If a surviving child has a custodian other than an 
institution, the child's assets include the assets of the child as well 
as the assets of the custodian. If the child is in the joint custody of 
his or her natural or adoptive parent and a stepparent, the child's 
assets also include the assets of the stepparent. See Sec.  3.57(d) for 
more information on child custody for pension purposes.
    (d) How a child's net worth affects a veteran's or surviving 
spouse's pension entitlement. VA will not consider a child to be a 
veteran's or surviving spouse's dependent child for pension purposes if 
the child's net worth exceeds the net worth limit in paragraph (a) of 
this section.
    (1) Dependent child and potential dependent child. For the purposes 
of this section--
    (i) ``Dependent child'' refers to a child for whom a veteran or a 
surviving spouse is entitled to an increased maximum annual pension 
rate.
    (ii) ``Potential dependent child'' refers to a child who is 
excluded from a veteran's or surviving spouse's pension award solely or 
partly because of this paragraph (d). References in this section to 
``dependent child'' include a potential dependent child.
    (2) Dependent child net worth. A dependent child's net worth is the 
sum of his or her annual income and the value of his or her assets.
    (3) Dependent child asset calculation. VA will calculate the value 
of a dependent child's assets under this section and Sec.  3.275. A 
dependent child's assets include the child's assets only.
    (4) Dependent child annual income calculation. VA will calculate a 
dependent child's annual income under Sec.  3.271, and will include the 
annual income of the child as well as the annual income of the veteran 
or surviving spouse that would be included if VA were calculating a 
pension entitlement rate for the veteran or surviving spouse.
    (e) When VA calculates net worth. Except as provided in paragraph 
(e)(3) of this section, VA calculates net worth only when:
    (1) VA has received--
    (i) an original pension claim;
    (ii) a new pension claim after a period of non-entitlement;
    (iii) a request to establish a new dependent; or
    (iv) information that a veteran's, surviving spouse's, or child's 
net worth has increased or decreased; and
    (2) The claimant or beneficiary meets the other factors necessary 
for pension entitlement as provided in Sec.  3.3(a)(3) and (b)(4).
    (3) When VA may calculate net worth. If the evidence shows that net 
worth exceeds the net worth limit, VA may decide the pension claim 
before determining if the claimant meets other entitlement factors. VA 
will notify the claimant of the entitlement factors that have not been 
established.
    (f) How net worth decreases. Net worth may decrease in three ways: 
assets can decrease, annual income can decrease, or both assets and 
annual income can decrease.
    (1) How assets decrease. A veteran, surviving spouse, or child, or 
someone acting on their behalf, may decrease assets by spending them on 
the types of expenses provided in paragraph (f)(1)(i) and (ii) of this 
section. The expenses must be those of the veteran, surviving spouse, 
or child, or a relative of the veteran, surviving spouse, or child. The 
relative must be a member or constructive member of the veteran's, 
surviving spouse's, or child's household.
    (i) Basic living expenses such as food, clothing, shelter, or 
health care; or
    (ii) Education or vocational rehabilitation.
    (2) How annual income decreases. See Sec. Sec.  3.271 through 
3.273.
    (3) How VA treats payment amounts that can decrease either annual 
income or assets. When expenses can be considered as either deductible 
expenses for purposes of calculating annual income under Sec.  3.272 or 
basic living expenses for purposes of decreasing assets under paragraph 
(f)(1) of this section, VA will first apply the amounts paid to 
decrease annual income, using remaining amounts paid to decrease assets 
if necessary. VA will not deduct the same expenses from both annual 
income and assets.
    (4) Example 1. The net worth limit is $114,000 and the maximum 
annual

[[Page 3859]]

pension rate (MAPR) is $12,000. A claimant has assets of $113,000 and 
annual income of $8,000. Adding annual income to assets produces a net 
worth of $121,000, which exceeds the net worth limit. The claimant pays 
unreimbursed medical expenses of $9,000. Unreimbursed medical expenses 
are deductible from annual income under Sec.  3.272(g) to the extent 
that they exceed 5 percent of the applicable MAPR. They may also be 
deducted from assets under paragraph (h)(1) of this section because 
they are basic living expenses. VA applies the expenditures to annual 
income first, which decreases annual income to zero. The claimant's net 
worth is now $113,000; therefore, it is not necessary to apply the 
expenses to assets.
    (5) Example 2. The net worth limit is $114,000 and the MAPR is 
$12,000. A claimant has assets of $113,000 and annual income of $9,500. 
Adding annual income to assets produces a net worth of $122,500, which 
exceeds the net worth limit. The claimant pays unreimbursed medical 
expenses of $9,000. Unreimbursed medical expenses are deductible from 
annual income under Sec.  3.272(g) to the extent that they exceed 5 
percent of the applicable MAPR. In this case, medical expenses that 
exceed $600 are deductible from income. Medical expenses may also be 
deducted from assets under paragraph (f)(1) of this section. VA applies 
the expenditures to annual income first, which decreases annual income 
to $1,100. This decreases net worth to $114,100, which is still over 
the limit. VA will then deduct the remaining $600 in medical expenses 
from assets, bringing net worth to $113,500.
    (g) Effective dates of pension entitlement or increased entitlement 
after a denial, reduction, or discontinuance based on excessive net 
worth. (1) Scope of paragraph. This paragraph (g) applies when VA has:
    (i) Discontinued pension or denied pension entitlement for a 
veteran, surviving spouse, or surviving child based on the veteran's, 
surviving spouse's, or surviving child's excessive net worth; or
    (ii) Reduced pension or denied increased pension entitlement for a 
veteran or surviving spouse based on a dependent child's excessive net 
worth.
    (2) Effective date of entitlement or increased entitlement. The 
effective date of entitlement or increased entitlement is the day net 
worth ceases to exceed the limit. For this effective date to apply, the 
claimant or beneficiary must submit a certified statement that net 
worth has decreased and VA must receive the certified statement before 
the pension claim has become finally adjudicated under Sec.  3.160. 
This means that VA must receive the certified statement within 1 year 
after its decision notice to the claimant concerning the denial, 
reduction, or discontinuance unless the claimant appeals VA's decision. 
Otherwise, the effective date is the date VA receives a new pension 
claim. In accordance with Sec.  3.277(a), VA may require the claimant 
or beneficiary to submit additional evidence as the individual 
circumstances may require.
    (h) Reduction or discontinuance of beneficiary's pension 
entitlement based on excessive net worth. (1) Effective date of 
reduction or discontinuance. When an increase in a beneficiary's or 
dependent child's net worth results in a pension reduction or 
discontinuance because net worth exceeds the limit, the effective date 
of reduction or discontinuance is the last day of the calendar year in 
which net worth exceeds the limit.
    (2) Net worth decreases before the effective date. If net worth 
decreases to the limit or below the limit before the effective date 
provided in paragraph (h)(1) of this section, VA will not reduce or 
discontinue the pension award on the basis of excessive net worth.
    (i) Additional effective-date provisions for dependent children. 
(1) Establishing a dependent child on veteran's or surviving spouse's 
pension award results in increased pension entitlement. When 
establishing a dependent child on a veteran's or surviving spouse's 
pension award results in increased pension entitlement for the veteran 
or surviving spouse, VA will apply the effective-date provisions in 
paragraphs (g) and (h) of this section.
    (2) Establishing a dependent child on veteran's or surviving 
spouse's pension award results in decreased pension entitlement. (i) 
When a dependent child's non-excessive net worth results in decreased 
pension entitlement for the veteran or surviving spouse, the effective 
date of the decreased pension entitlement rate (i.e., VA action to add 
the child to the award) is the end of the year that the child's net 
worth decreases.
    (ii) When a dependent child's excessive net worth results in 
increased pension entitlement for the veteran or surviving spouse, the 
effective date of the increased pension entitlement rate (i.e., VA 
action to remove the child from the award) is the date that VA receives 
a claim for an increased rate based on the child's net worth increase.

(Authority: 38 U.S.C. 1522, 1543, 5110, 5112)

0
9. Revise Sec.  3.275 to read as follows:


Sec.  3.275  How VA determines the asset amount for pension net worth 
determinations.

    (a) Definitions pertaining to assets. (1) The term assets means the 
fair market value of all property that an individual owns, including 
all real and personal property, unless excluded under paragraph (b) of 
this section, less the amount of mortgages or other encumbrances 
specific to the mortgaged or encumbered property. VA will consider the 
terms of the recorded deed or other evidence of title to be proof of 
ownership of a particular asset. See also Sec.  3.276(a)(4), which 
defines ``fair market value.''
    (2) Claimant. (i) Except as provided in paragraph (a)(2)(ii) of 
this section, for the purposes of this section and Sec.  3.276, 
claimant means a pension beneficiary, a dependent spouse, or a 
dependent or potential dependent child as described in Sec.  3.274(d), 
as well as a veteran, surviving spouse, or surviving child pension 
applicant.
    (ii) For the purpose of paragraph (b)(1) of this section, claimant 
means a pension beneficiary or applicant who is a veteran, a surviving 
spouse, or a surviving child.
    (3) Residential lot area. For purposes of this section, residential 
lot area means the lot on which a residence sits that is similar in 
size to other residential lots in the vicinity of the residence, but 
not to exceed 2 acres (87,120 square feet), unless the additional 
acreage is not marketable.
    (b) Exclusions from assets. Assets do not include the following:
    (1) The value of a claimant's primary residence (single-family 
unit), including the residential lot area, in which the claimant has an 
ownership interest. VA recognizes one primary residence per claimant. 
If the residence is sold, any proceeds from the sale is an asset except 
to the extent the proceeds are used to purchase another residence 
within the same calendar year as the year in which the sale occurred.
    (i) Personal mortgage not deductible. VA will not subtract from a 
claimant's assets the amount of any mortgages or encumbrances on a 
claimant's primary residence.
    (ii) Claimant not residing in primary residence. Although rental 
income counts as annual income as provided in Sec.  3.271(d), VA will 
not include a claimant's primary residence as an asset even if the 
claimant resides in any of the following as defined in Sec.  3.278(b):
    (A) A nursing home or medical foster home;
    (B) An assisted living or similar residential facility that 
provides custodial care; or

[[Page 3860]]

    (C) The home of a family member for custodial care.
    (2) Value of personal effects suitable to and consistent with a 
reasonable mode of life, such as appliances and family transportation 
vehicles.
    (3) Radiation Exposure Compensation Act payments. Payments made 
under section 6 of the Radiation Exposure Compensation Act of 1990.

(Authority: 42 U.S.C. 2210 (note))

    (4) Ricky Ray Hemophilia Relief Fund payments. Payments made under 
section 103(c) and excluded under section 103(h)(2) of the Ricky Ray 
Hemophilia Relief Fund Act of 1998.

(Authority: 42 U.S.C. 300c-22 (note))

    (5) Energy Employees Occupational Illness Compensation Program 
payments. Payments made under the Energy Employees Occupational Illness 
Compensation Program.

(Authority: 42 U.S.C. 7385e(2))

    (6) Payments to Aleuts. Payments made to certain Aleuts under 50 
U.S.C. App. 1989c-5.

(Authority: 50 U.S.C. App. 1989c-5(d)(2))

    (7) Other payments. Other payments excluded from net worth listed 
in Sec.  3.279, which lists statutory exclusions from income and net 
worth for all VA needs-based benefits.

(Authority: 38 U.S.C. 1522, 1543)

0
10. Revise Sec.  3.276 to read as follows:


Sec.  3.276  Asset transfers and penalty periods.

    (a) Asset transfer definitions. For purposes of this section--
    (1) Claimant has the same meaning as defined in Sec.  
3.275(a)(2)(i).
    (2) Covered asset means an asset that--
    (i) Was part of a claimant's net worth,
    (ii) Was transferred for less than fair market value, and
    (iii) If not transferred, would have caused or partially caused the 
claimant's net worth to exceed the net worth limit under Sec.  
3.274(a).
    (3) Covered asset amount means the monetary amount by which a 
claimant's net worth would have exceeded the limit due to the covered 
asset alone if the uncompensated value of the covered asset had been 
included in net worth.
    (i) Example 1. The net worth limit under Sec.  3.274(a) is 
$115,920. A claimant's assets total $113,000 and his annual income is 
zero. However, the claimant transferred $30,000 by giving it to a 
friend. If the claimant had not transferred the $30,000, his net worth 
would have been $143,000, which exceeds the net worth limit. The 
claimant's covered asset amount is $27,080, because this is the amount 
by which the claimant's net worth would have exceeded the limit due to 
the covered asset.
    (ii) Example 2. The net worth limit under Sec.  3.274(a) is 
$115,920. A claimant's annual income is zero and her total assets are 
$117,000, which exceeds the net worth limit. In addition, the claimant 
transferred $30,000 by giving $20,000 to her married son and giving 
$10,000 to a friend. The claimant's covered asset amount is $30,000 
because this is the amount by which the claimant's net worth would have 
exceeded the limit due to the covered assets alone.
    (4) Fair market value means the price at which an asset would 
change hands between a willing buyer and a willing seller, neither 
being under any compulsion to buy or to sell and both having reasonable 
knowledge of relevant facts. VA will use the best available information 
to determine fair market value, such as inspections, appraisals, public 
records, and the market value of similar property if applicable.
    (5) Transfer for less than fair market value means--
    (i) Selling, conveying, gifting, or exchanging an asset for an 
amount less than the fair market value of the asset, or
    (ii) An asset transfer to, or purchase of, any financial instrument 
or investment that reduces net worth and would not be in the claimant's 
financial interest but for the claimant's attempt to qualify for VA 
pension by transferring the asset to, or purchasing, the instrument or 
investment. Examples of such instruments or investments include--
    (A) Annuities. Annuity means a financial instrument that provides 
income over a defined period of time for an initial payment of 
principal.
    (B) Trusts. Trust means a legal arrangement by which an individual 
(the grantor) transfers property to an individual or an entity (the 
trustee), who manages the property according to the terms of the trust, 
whether for the grantor's own benefit or for the benefit of another 
individual.
    (6) Uncompensated value means the difference between the fair 
market value of an asset and the amount of compensation an individual 
receives for it. In the case of a trust, annuity, or other financial 
instrument or investment described in paragraph (a)(5)(ii) of this 
section, uncompensated value means the amount of money or the monetary 
value of any other type of asset transferred to such a trust, annuity, 
or other financial instrument or investment.
    (7) Look-back period means the 36-month period immediately 
preceding the date on which VA receives either an original pension 
claim or a new pension claim after a period of non-entitlement.
    (8) Penalty period means a period of non-entitlement, calculated 
under paragraph (e) of this section, due to transfer of a covered 
asset.
    (b) General statement of policy pertaining to pension and covered 
assets. VA pension is a needs-based benefit and is not intended to 
preserve the estates of individuals who have the means to support 
themselves. Accordingly, a claimant may not create pension entitlement 
by transferring covered assets. VA will review the terms and conditions 
of asset transfers made during the 36-month look-back period to 
determine whether the transfer constituted transfer of a covered asset. 
In accordance with Sec.  3.277(b), for any asset transfer, VA may 
require a claimant to provide evidence such as a Federal income tax 
return transcript, the terms of a gift, trust, or annuity, or the terms 
of a recorded deed or other evidence of title.
    (c) Presumption and exception pertaining to covered assets. In the 
absence of clear and convincing evidence showing otherwise, VA presumes 
that an asset transfer made during the look-back period was for the 
purpose of decreasing net worth to establish pension entitlement and 
will consider such an asset to be a covered asset. However, VA will not 
consider such an asset to be a covered asset if the claimant 
establishes through clear and convincing evidence that he or she 
transferred the asset as the result of fraud, misrepresentation, or 
unfair business practice related to the sale or marketing of financial 
products or services for purposes of establishing entitlement to VA 
pension. Evidence substantiating the application of this exception may 
include a complaint contemporaneously filed with state, local, or 
Federal authorities reporting the incident.
    (d) Exception for transfers to certain trusts. VA will not consider 
as a covered asset an asset that a veteran, a veteran's spouse, or a 
veteran's surviving spouse transfers to a trust established on behalf 
of a child of the veteran if:
    (1) VA rates or has rated the child incapable of self-support under 
Sec.  3.356; and
    (2) There is no circumstance under which distributions from the 
trust can be used to benefit the veteran, the veteran's spouse, or the 
veteran's surviving spouse.

[[Page 3861]]

    (e) Penalty periods and calculations. When a claimant transfers a 
covered asset during the look-back period, VA will assess a penalty 
period not to exceed 10 years. VA will calculate the length of the 
penalty period by dividing the total covered asset amount by the 
monthly penalty rate described in paragraph (e)(1) of this section and 
rounding the quotient down to the nearest whole number. The result is 
the number of months for which VA will not pay pension.
    (1) Monthly penalty rate. The monthly penalty rate is the 
applicable maximum annual pension rate (MAPR) under 38 U.S.C. 1521(d), 
1542(d), or 1543 described in this paragraph (e)(1) that is in effect 
as of the date of the pension claim, divided by 12, and rounded down to 
the nearest whole dollar. The MAPRs are located on VA's Web site at 
http://www.benefits.va.gov/pension/.
    (i) If the claimant is a veteran or a surviving spouse, the annual 
rate is the MAPR at the aid and attendance level for a veteran or a 
surviving spouse with the applicable number of dependents.
    (ii) If the claimant is a child, the annual rate is the child alone 
MAPR.
    (2) Beginning date of penalty period. When a claimant transfers a 
covered asset or assets during the look-back period, the penalty period 
begins on the first day of the month that follows the date of the 
transfer. If there was more than one transfer, the penalty period will 
begin on the first day of the month that follows the date of the last 
transfer.
    (3) Entitlement upon ending of penalty period. VA will consider 
that the claimant, if otherwise qualified, is entitled to benefits 
effective the last day of the last month of the penalty period, with a 
payment date as of the first day of the following month in accordance 
with Sec.  3.31.
    (4) Example of penalty period calculation: VA receives a pension 
claim in November 2014 The claimant's net worth is equal to the net 
worth limit. However, the claimant transferred covered assets totaling 
$10,000 on August 20, 2014, and September 23, 2014. Therefore, the 
total covered asset amount is $10,000, and the penalty period begins on 
October 1, 2014. The claimant is a surviving spouse with no dependents, 
so the applicable MAPR is $13,563, and the monthly penalty rate is 
$1,130. The penalty period is $10,000/$1,130 per month = 8 months. The 
eighth month of the penalty period is May 2015. The surviving spouse 
may be entitled to pension effective May 31, 2015, with a payment date 
of June 1, 2015, if other entitlement requirements are met.
    (5) Penalty period recalculations. VA will not recalculate a 
penalty period under this section unless--
    (i) The original calculation is shown to be erroneous; or
    (ii) VA receives evidence showing that all covered assets were 
returned to the claimant before the date of claim or within 30 days 
after the date of claim. If all covered assets were returned to the 
claimant, VA will not assess a penalty period. For this exception to 
apply, VA must receive the evidence not later than 60 days after the 
date of VA's notice to the claimant of VA's decision concerning the 
penalty period. Once covered assets are returned, a claimant may reduce 
net worth under the provisions of Sec.  3.274(f).

(Authority: 38 U.S.C. 1522, 1543, 1506(1))


(The Office of Management and Budget has approved the information 
collection requirement in this section under control numbers 2900-
0001, 2900-0002, 2900-0004, and 2900-0002.)

Sec.  3.277  [Amended]

0
11. Amend Sec.  3.277(c)(2) by removing ``shall'' and adding in its 
place ``may''.
0
12. Add Sec.  3.278 to read as follows:


Sec.  3.278  Deductible medical expenses.

    (a) Scope. This section identifies medical expenses that VA may 
deduct from countable income for purposes of three of its needs-based 
programs: Pension, section 306 pension, and parents' dependency and 
indemnity compensation (DIC). Payments for such medical expenses must 
be unreimbursed to be deductible from income.
    (b) Definitions. For the purposes of this section--
    (1) Health care provider means:
    (i) An individual licensed by a state or country to provide health 
care in the state or country in which the individual provides the 
health care. The term includes, but is not limited to, a physician, 
physician assistant, psychologist, chiropractor, registered nurse, 
licensed vocational nurse, licensed practical nurse, and physical or 
occupational therapist; and
    (ii) A nursing assistant or home health aide who is supervised by a 
licensed health care provider as defined in paragraph (b)(1)(i) of this 
section.
    (2) Activities of daily living (ADL) mean basic self-care 
activities and consist of bathing or showering, dressing, eating, 
toileting, and transferring. Transferring means an individual's moving 
himself or herself from one position to another, such as getting in and 
out of bed.
    (3) Instrumental activities of daily living (IADL) mean independent 
living activities, such as shopping, food preparation, housekeeping, 
laundering, managing finances, handling medications, using the 
telephone, and transportation for non-medical purposes. Managing 
finances does not include services rendered by a VA-appointed 
fiduciary.
    (4) Custodial care means regular:
    (i) Assistance with two or more ADLs, or
    (ii) Supervision because an individual with a mental disorder is 
unsafe if left alone due to the mental disorder.
    (5) Qualified relative means a veteran's dependent spouse, a 
veteran's dependent or surviving child, and other relatives of the 
claimant who are members or constructive members of the claimant's 
household whose medical expenses are deductible under Sec. Sec.  
3.262(l) or 3.272(g). A ``constructive member'' of a household is an 
individual who would be a member of the household if the individual 
were not in a nursing home, away at school, or a similar situation. 
Qualified relatives do not include claimants who are veterans, 
surviving spouses, or parents.
    (6) Nursing home means a facility defined in Sec.  3.1(z)(1) or 
(2). If the facility is not located in a state, the facility must be 
licensed in the country in which it is located.
    (7) Medical foster home means a privately owned residence, 
recognized and approved by VA under 38 CFR 17.73(d), that offers a non-
institutional alternative to nursing home care for veterans who are 
unable to live alone safely due to chronic or terminal illness.
    (8) Assisted living, adult day care, or similar facility means a 
facility that provides individuals with custodial care. The facility 
may contract with a third-party provider for this purpose. A facility 
that is residential must be staffed 24 hours per day with custodial 
care providers. To be included in this definition, a facility must be 
licensed if such facilities are required to be licensed in the state or 
country in which the facility is located.
    (c) Medical expenses for VA purposes. Generally, medical expenses 
for VA needs-based benefit purposes are payments for items or services 
that are medically necessary or that improve a disabled individual's 
functioning. Medical expenses may include, but are not limited to, the 
payments specified in paragraphs (c)(1) through (7) of this section.
    (1) Care by a health care provider. Payments to a health care 
provider for services performed within the scope of the provider's 
professional capacity are medical expenses. Cosmetic procedures that a 
health care provider performs to

[[Page 3862]]

improve a congenital or accidental deformity or related to treatment 
for a diagnosed medical condition are medical expenses.
    (2) Medications, medical supplies, medical equipment, and medical 
food, vitamins, and supplements. Payments for prescription and non-
prescription medication procured lawfully under Federal law, as well as 
payments for medical supplies or medical equipment are medical 
expenses. Medically necessary food, vitamins, and supplements as 
prescribed or directed by a health care provider authorized to write 
prescriptions are medical expenses.
    (3) Adaptive equipment. Payments for adaptive devices or service 
animals, including veterinary care, used to assist a person with an 
ongoing disability are medical expenses. Medical expenses do not 
include non-prescription food, boarding, grooming, or other routine 
expenses of owning an animal.
    (4) Transportation expenses. Payments for transportation for 
medical purposes, such as the cost of transportation to and from a 
health care provider's office by taxi, bus, or other form of public 
transportation are medical expenses. The cost of transportation for 
medical purposes by privately owned vehicle (POV), including mileage, 
parking, and tolls, is a medical expense. For transportation in a POV, 
VA limits the deductible mileage rate to the current POV mileage 
reimbursement rate specified by the United States General Services 
Administration (GSA). The current amount can be obtained from 
www.gsa.gov or on VA's Web site at [location to be determined]. Amounts 
by which transportation expenses set forth in this paragraph (c)(4) 
exceed the amounts of other VA or non-VA reimbursements for the expense 
are medical expenses.
    (i) Example. In February 2013, a veteran drives 60 miles round trip 
to a VA medical center and back. The veteran is reimbursed $24.90 from 
the Veterans Health Administration. The POV mileage reimbursement rate 
specified by GSA is $0.565 per mile, so the transportation expense is 
$0.565/mile * 60 miles = $33.90. For VA needs-based benefits purposes, 
the unreimbursed amount, here, the difference between $33.90 and $24.90 
is a medical expense.
    (ii) [Reserved]
    (5) Health insurance premiums. Payments for health, medical, 
hospitalization, and long-term care insurance premiums are medical 
expenses. Premiums for Medicare Parts B and D and for long-term care 
insurance are medical expenses.
    (6) Smoking cessation products. Payments for items and services 
specifically related to smoking cessation are medical expenses.
    (7) Institutional forms of care and in-home care. As provided in 
paragraph (d) of this section.
    (d) Institutional forms of care and in-home care. (1) Hospitals, 
nursing homes, medical foster homes, and inpatient treatment centers. 
Payments to hospitals, nursing homes, medical foster homes, and 
inpatient treatment centers (including inpatient treatment centers for 
drug or alcohol addiction), including the cost of meals and lodging 
charged by such facilities are medical expenses.
    (2) In-home care. Payments for services provided by an in-home 
attendant are medical expenses. Payments must be commensurate with the 
number of hours that the provider attends to the disabled person, and 
the attendant's hourly rate may not exceed the average hourly rate for 
home health aides published annually by the MetLife Mature Market 
Institute in its Market Survey of Long-Term Care Costs. VA will publish 
the in-home care hourly rate limit on its Web site at [location to be 
determined].
    (i) Except as provided in paragraphs (d)(2)(ii) and (iii) of this 
section, the attendant must be a health care provider, and only 
payments for assistance with ADLs or health care services are medical 
expenses.
    (ii) If a veteran or surviving spouse (or parent, for parents' DIC 
purposes) meets the criteria in Sec.  3.351 for needing regular aid and 
attendance or being housebound, then--
    (A) The attendant does not need to be a health care provider, and
    (B) Payments for assistance with IADLs are medical expenses only if 
the primary responsibility of the attendant is to provide health care 
services or custodial care. Otherwise, only payments for assistance 
with health care or custodial care are medical expenses.
    (iii) Paragraph (d)(2)(ii) of this section also applies to a 
qualified relative if a physician or physician assistant states in 
writing that, due to physical or mental disability, the qualified 
relative requires the health care services or custodial care that the 
in-home attendant provides.
    (3) Assisted living, adult day care, and similar facilities. 
Certain payments to assisted living, adult day care, and similar 
facilities are medical expenses. Except as provided in paragraphs 
(d)(3)(i) and (ii) of this section, only payments for health care 
services or assistance with ADLs provided by a health care provider are 
medical expenses.
    (i) If a veteran or surviving spouse (or parent for parents' DIC 
purposes) meets the criteria in Sec.  3.351 for needing regular aid and 
attendance or being housebound, then--
    (A) The care does not need to be provided by a health care 
provider, and
    (B) Medical expenses include all payments to the facility, to 
include meals and lodging, if the primary reason for the veteran or 
surviving spouse to be in the facility is to receive health care 
services or custodial care that the facility provides. Otherwise, only 
payments for assistance with health care or custodial care are medical 
expenses.
    (ii) Paragraph (d)(3)(i) of this section also applies to a 
qualified relative if a physician or physician assistant states in 
writing that, due to mental or physical disability, the qualified 
relative requires the health care services or custodial care that the 
facility provides.
    (e) Non-medical expenses for VA purposes. Payments for items and 
services listed in paragraphs (e)(1) through (5) of this section are 
not medical expenses for VA needs-based benefit purposes. The list is 
not all-inclusive.
    (1) Maintenance of general health. Payments for items or services 
that benefit or maintain general health, such as vacations and dance 
classes, are not medical expenses.
    (2) Cosmetic procedures. Except as provided in paragraph (c)(1) of 
this section, cosmetic procedures are not medical expenses.
    (3) Meals and lodging. Except as provided in paragraph (d) of this 
section, payments for meals and lodging are not medical expenses. This 
category includes payments to facilities such as independent living 
facilities that do not provide health care services or custodial care.
    (4) Assistance with IADLs. Except as provided in paragraph (d) of 
this section, payments for assistance with IADLs are not medical 
expenses.
    (5) VA fiduciary fees. Fees for VA-appointed fiduciary services are 
not medical expenses.
    CROSS REFERENCES: For the rules governing how medical expenses are 
deducted, see Sec.  3.272(g) (regarding pension) and Sec.  3.262(l) 
(regarding section 306 pension and parents' DIC).

(Authority: 38 U.S.C. 501(a), 1315(f)(3), 1503(a)(8), 1506(1))


(The Office of Management and Budget has approved the information 
collection requirement in this section under control numbers 2900-
0001, 2900-0002, 2900-0004, 2900-0161, and 2900-0002.)


[[Page 3863]]


0
13. Add Sec.  3.279 to read as follows:


Sec.  3.279  Statutory exclusions from income or assets (net worth or 
corpus of the estate).

    (a) Scope of section. This section sets forth payments that Federal 
statutes exclude from income for the purpose of determining entitlement 
to any VA-administered benefit that is based on financial need. Some of 
the exclusions also apply to assets (pension), aka, net worth or the 
corpus of the estate (section 306 pension and parents as dependents for 
compensation).

----------------------------------------------------------------------------------------------------------------
                                                                 Assets (corpus of the
          Program or payment                    Income                  estate)                 Authority
----------------------------------------------------------------------------------------------------------------
(b) COMPENSATION OR RESTITUTION
 PAYMENTS
(1) Relocation payments. Payments to   Excluded...............  Included...............  42 U.S.C. 4636.
 individuals displaced as a direct
 result of programs or projects
 undertaken by a Federal agency or
 with Federal financial assistance
 under the Uniform Relocation
 Assistance and Real Property
 Acquisition Policies Act of 1970, as
 amended.
(2) Crime victim compensation.         Excluded...............  Excluded...............  42 U.S.C. 10602(c).
 Amounts received as compensation
 under the Victims of Crime Act of
 1984 unless the total amount of
 assistance received from all
 federally funded programs is
 sufficient to fully compensate the
 claimant for losses suffered as a
 result of the crime.
(3) Restitution to individuals of      Excluded...............  Excluded...............  50 U.S.C. App. 1989b-
 Japanese ancestry. Payments made as                                                      4(f).
 restitution under Public Law 100-383
 to an individual of Japanese
 ancestry who was interned,
 evacuated, or relocated during the
 period of December 7, 1941, through
 June 30, 1946, pursuant to any law,
 Executive Order, Presidential
 proclamation, directive, or other
 official action respecting these
 individuals.
(4) Victims of Nazi persecution.       Excluded...............  Excluded...............  42 U.S.C. 1437a note.
 Payments made to individuals because
 of their status as victims of Nazi
 persecution.
(5) Agent Orange settlement payments.  Excluded...............  Excluded...............  Sec. 1, Public Law 101-
 Payments made from the Agent Orange                                                      201.
 Settlement Fund or any other fund
 established pursuant to the
 settlement in the In Re Agent Orange
 product liability litigation, M.D.L.
 No. 381 (E.D.N.Y.).
(6) Chapter 18 benefits. Allowances    Excluded...............  Excluded...............  38 U.S.C. 1833(c).
 paid under 38 U.S.C. chapter 18 to a
 veteran's child with a birth defect.
(7) Flood mitigation activities.       Excluded...............  Excluded...............  42 U.S.C. 4031.
 Assistance provided under the
 National Flood Insurance Act of
 1968, as amended.
(c) PAYMENTS TO NATIVE AMERICANS
(1) Indian Tribal Judgment Fund        Excluded...............  Excluded...............  25 U.S.C. 1407.
 distributions. All Indian Tribal
 Judgment Fund distributions excluded
 from income and net worth while such
 funds are held in trust. First
 $2,000 per year of income received
 by individual Indians under the
 Indian Tribal Judgment Funds Use or
 Distribution Act in satisfaction of
 a judgment of the United States
 Court of Federal Claims excluded
 from income.
(2) Interests of individual Indians    Excluded...............  Excluded...............  25 U.S.C. 1408.
 in trust or restricted lands.
 Interests of individual Indians in
 trust or restricted lands excluded
 from net worth. First $2,000 per
 year of income received by
 individual Indians that is derived
 from interests in trust or
 restricted lands excluded from
 income.
(3) Per Capita Distributions Act.      Excluded...............  Excluded...............  25 U.S.C. 117b,
 First $2,000 per year of per capita                                                     25 U.S.C. 1407.
 distributions to members of a tribe
 from funds held in trust by the
 Secretary of the Interior for an
 Indian tribe. All funds excluded
 from income and net worth while
 funds are held in trust.
(4) Submarginal land. Income derived   Excluded...............  Excluded...............  25 U.S.C. 459e.
 from certain submarginal land of the
 United States that is held in trust
 for certain Indian tribes.
(5) Old Age Assistance Claims          Excluded...............  Excluded...............  25 U.S.C. 2307.
 Settlement Act. Up to $2,000 per
 year of per capita distributions
 under the Old Age Assistance Claims
 Settlement Act.
(6) Alaska Native Claims Settlement    Excluded...............  Excluded...............  43 U.S.C. 1626(c).
 Act. Any of the following, if
 received from a Native Corporation,
 under the Alaska Native Claims
 Settlement Act:
(i) Cash, including cash dividends on
 stocks and bonds, up to a maximum of
 $2,000 per year;.
(ii) Stock, including stock issued as
 a dividend or distribution;.
(iii) Bonds that are subject to the
 protection under 43 U.S.C. 1606(h)
 until voluntarily and expressly sold
 or pledged by the shareholder after
 the date of distribution;.
(iv) A partnership interest;.........
(v) Land or an interest in land,
 including land received as a
 dividend or distribution on stock;.
(vi) An interest in a settlement
 trust..
(7) Maine Indian Claims Settlement     Excluded...............  Excluded...............  25 U.S.C. 1728.
 Act. Payments received under the
 Maine Indian Claims Settlement Act
 of 1980.
(8) Cobell Settlement. Payments        Excluded for one year..  Excluded for one year..  Sec. 101, Public Law
 received under Cobell v. Salazar,                                                        111-291.
 Civil Action No. 96-1285 (TFH)
 (D.D.C.).
(d) WORK-RELATED PAYMENTS
(1) Workforce investment. Allowances,  Excluded...............  Included...............  29 U.S.C. 2931(a)(2).
 earnings, and payments to
 individuals participating in
 programs under the Workforce
 Investment Act of 1998 (29 U.S.C.
 chapter 30).
(2) AmeriCorps participants.           Excluded...............  Included...............  42 U.S.C. 12637(d).
 Allowances, earnings, and payments
 to AmeriCorps participants under the
 National and Community Service Act
 of 1990.

[[Page 3864]]

 
(3) Volunteer work. Compensation or    Excluded...............  Excluded...............  42 U.S.C. 5044(f).
 reimbursement to volunteers involved
 in programs administered by the
 Corporation for National and
 Community Service, unless the
 payments are equal to or greater
 than the minimum wage. The minimum
 wage is either that under the Fair
 Labor Standards Act of 1938 (29
 U.S.C. 201 et seq.) or that under
 the law of the state where the
 volunteers are serving, whichever is
 greater.
(e) MISCELLANEOUS PAYMENTS
(1) Food stamps. Value of the          Excluded...............  Excluded...............  7 U.S.C. 2017(b).
 allotment provided to an eligible
 household under the Food Stamp
 Program.
(2) Food for children. Value of free   Excluded...............  Excluded...............  42 U.S.C. 1780(b).
 or reduced-price for food under the
 Child Nutrition Act of 1966.
(3) Child care. Value of any child     Excluded...............  Included...............  42 U.S.C. 9858q.
 care provided or arranged (or any
 amount received as payment for such
 care or reimbursement for costs
 incurred for such care) under the
 Child Care and Development Block
 Grant Act of 1990.
(4) Services for housing recipients.   Excluded...............  Included...............  42 U.S.C. 8011(j)(2).
 Value of services, but not wages,
 provided to a resident of an
 eligible housing project under a
 congregate services program under
 the Cranston-Gonzalez National
 Affordable Housing Act.
(5) Home energy assistance. The        Excluded...............  Excluded...............  42 U.S.C. 8624(f).
 amount of any home energy assistance
 payments or allowances provided
 directly to, or indirectly for the
 benefit of, an eligible household
 under the Low-Income Home Energy
 Assistance Act of 1981.
(6) Programs for older Americans.      Excluded...............  Included...............  42 U.S.C. 3020a(b).
 Payments, other than wages or
 salaries, received from programs
 funded under the Older Americans Act
 of 1965, 42 U.S.C. 3001.
(7) Student financial aid. Amounts of  Excluded...............  Excluded...............  20 U.S.C. 1087uu,
 student financial assistance                                                             2414(a).
 received under Title IV of the
 Higher Education Act of 1965,
 including Federal work-study
 programs, Bureau of Indian Affairs
 student assistance programs, or
 vocational training under the Carl
 D. Perkins Vocational and Technical
 Education Act of 1998.
(8) Retired Serviceman's Family        Excluded...............  Included...............  10 U.S.C. 1441.
 Protection Plan annuities. Annuities
 received under subchapter 1 of the
 Retired Serviceman's Family
 Protection Plan.
----------------------------------------------------------------------------------------------------------------


(Authority: 38 U.S.C. 501(a))


0
14. Amend Sec.  3.503 by adding paragraph (c) to read as follows:


Sec.  3.503  Children.

* * * * *
    (c) Medicaid-covered nursing home care (Sec.  3.551(i)). (1) Last 
day of the calendar month in which Medicaid payments begin, last day of 
the month following 60 days after issuance of a prereduction notice 
required under Sec.  3.103(b)(2), or the earliest date on which payment 
may be reduced without creating an overpayment, whichever date is 
later; or
    (2) If the child or the child's custodian willfully conceals 
information necessary to make the reduction, the last day of the month 
in which that willful concealment occurred.

(Authority: 38 U.S.C. 501, 1832, 5112(b), 5503(d))


0
15. Amend Sec.  3.551 by revising paragraph (i) to read as follows:


Sec.  3.551  Reduction because of hospitalization.

* * * * *
    (i) Certain beneficiaries receiving Medicaid-covered nursing home 
care. This paragraph (i) applies to a veteran without a spouse or 
child, to a surviving spouse without a child, and to a surviving child. 
Effective November 5, 1990, and terminating on the date provided in 38 
U.S.C. 5503(d)(7), if such a beneficiary is receiving Medicaid-covered 
nursing home care, no pension or survivors pension in excess of $90 per 
month will be paid to or for the beneficiary for any period after the 
month in which the Medicaid payments begin. A beneficiary is not liable 
for any pension paid in excess of the $90 per month by reason of the 
Secretary's inability or failure to reduce payments, unless that 
inability or failure is the result of willful concealment by the 
beneficiary of information necessary to make that reduction.
* * * * *


Sec.  3.660  [Amended]

0
16. Amend Sec.  3.660(d) by removing ``Sec. Sec.  3.263 or 3.274'' and 
adding in its place ``Sec.  3.263''.

[FR Doc. 2015-00297 Filed 1-22-15; 8:45 am]
BILLING CODE 8320-01-P