(a) Except as provided in subsection (c) of this section, the Commissioner of Social Services shall not impose a penalty period pursuant to subsection (a) of section 17b-261 or subsection (a) of section 17b-261a if such imposition would create an undue hardship.

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(b) For purposes of this section, “undue hardship” exists when (1) the life or health of the applicant would be endangered by the deprivation of medical care, or the applicant would be deprived of food, clothing, shelter or other necessities of life, (2) the applicant is otherwise eligible for medical assistance under section 17b-261 but for the imposition of the penalty period, (3) if the applicant is receiving long-term care services at the time of the imposition of a penalty period, the provider of long-term care services has notified the applicant that such provider intends to discharge or discontinue providing long-term care services to the applicant due to nonpayment, (4) if the applicant is not receiving long-term care services at the time of the imposition of a penalty period, a provider of long-term care services has refused to provide long-term care services to the applicant due to the imposition of a penalty period, and (5) no other person or organization is willing and able to provide long-term care services to the applicant.

(c) The commissioner shall impose a penalty period pursuant to subsection (a) of section 17b-261 or subsection (a) of section 17b-261a if (1) the applicant made a transfer or assignment of assets to deliberately impoverish such applicant in order to obtain or maintain eligibility for medical assistance, or (2) the transfer or assignment of assets was made by the applicant’s legal representative or the joint owner of the assets. The commissioner may waive the imposition of a penalty period pursuant to this subsection if (A) the applicant suffers from dementia or other cognitive impairment and cannot explain the transfer or assignment of assets, (B) the applicant suffered from dementia or other cognitive impairment at the time the transfer or assignment of assets was made, (C) the applicant was exploited into making the transfer or assignment of assets due to dementia or other cognitive impairment, or (D) the applicant’s legal representative or the record owner of a jointly held asset made the transfer or assignment of assets without the authorization of the applicant.