CHAPTER EIGHT — ALTERNATIVES TO LTCI

There are a plethora of reasons as to why an individual may not be interested in Long Term Care Insurance.  For instance, Consumer Reports¹⁸¹   suggests that if you put away $160,000, you do not need to buy a long-term care policy.  The rationale is that if you put aside that much money, you will have enough to pay for roughly four years in a nursing home at an average cost of $40,000 per year.  You will have sufficient resources to pay for a lengthy nursing home stay, as long as the return on your investment keeps up with the expected increases in the cost of long-term care.  Even if you do save your premiums and invest them well, the nest-egg accumulation may not be nearly enough to cover the cost of long-term care, which is another way to prepare for the eventuality of long-term care—invest the premium yourself that would otherwise be paid to the insurer.  The fallacy of that is, of course, that while a person will scrape enough together to make an insurance premium payment, few will have the discipline to put the same amount away and leave it alone to grow.

There are many alternatives around for the financing of long-term care other than insurance and unfortunately many people simply cannot or will not afford the premiums, so they choose to retain the exposure themselves—usually because they have no idea as to the cost of long-term care. Regardless, there are many alternatives available for those who may need long-term care, some acceptable and some unacceptable but necessary, but alternatives may reduce the cost of long-term care, regardless of insurance (or not).

This chapter will be devoted to one such possible answer—Medi-Cal—(California’s Medicaid) as Medicaid and Medi-Cal are the primary sources of financing for long-term care.  Medicare and other sources will be covered in the following chapter.

MEDI-CAL

The largest payor of long-term care benefits is Medicaid —Medi-Cal in California—which pays for nearly all nursing home care costs.  This system is part of the welfare system and is funded by taxpayers with the cost split between state and federal governments.  It is described as a needs-based program designed to provide health care to persons who cannot afford health care, regardless of age.  Medicaid is now the largest insurer of long‑term care for all Americans, covering nearly 60% of nursing home residents and over 48% of nursing home costs in 2003.  On the other hand, Medicaid pays only a little more than 21% of home health care costs in the U.S. and 16% of Medicare payments are for nursing home care nationally.

Medi-Cal will pay for long-term care, but only after individuals have paid out most of their savings and income.  To qualify, people are required to deplete their assets to be at or below the state’s poverty level.  Medi-Cal also imposes many restrictions on the type of care, and the choice of facilities and locales.

There are other requirements in addition to the income requirements, such as (a) needing long term care from a nursing home or at home, (b) filing for Medicare benefits and private insurance before filing for Medi-Cal (in case either would reimburse some of the cost), (c) personal resources must have been exhausted, and (d) they must file for Medi-Cal benefits.

The growth in Medicaid spending has been explosive and Congress has instituted various means in an attempt to control this growth.  Historically, from 1988 to 1993, Medicaid spending nationally grew from $26 billion to nearly $140 billion, from 1995 to 2002 it was projected to grow by $150.8 billion—an average growth rate of 10.1%.  The federal government has not required states to attempt to recover some of the money spent on Medicaid beneficiaries.  In addition, Medicaid is increasing its efforts to retrieve costs when a beneficiary dies, such as by putting liens on residences and other assets that were owned by the beneficiary. 

Medicaid has been under scrutiny in those states with a large senior population and state governments have been attempting to deal with the problem of funding long-term care for its needy.  Medicaid has been limiting the growth by reducing the amount of reimbursement for long-term care facilities and providers.

While nursing homes, in particular, are dissatisfied with the current Medicaid program, particularly in the reimbursements, some industry publications have reported that nursing homes often resist taking Medicaid patients and those that they do take, receive substandard care.  Some facilities had Medicaid wings and they would move residents who convert from private pay to Medicaid, even try to evict them if the Medicaid portion is full.  However, states responded by passing legislation that stops any discrimination against Medicaid patients including any attempt to move them to other sections, or to evict them.  It is expected that this will type of legislation will be adopted by most states, at least those with a large number of senior citizens.¹⁸⁶

    “17,000 nursing homes around the U.S. treat 1.6 million under the Medicaid banner.  The average U.S. cost of care is $41,000 per year... Sixty-three percent of those going into a nursing home exhaust their assets within 13 weeks; 90% exhaust their savings in 16 weeks.  But nursing homes don’t usually like Medicaid patients and have tried to evict such patients since it does not provide the same daily rate as the private patients.”¹⁸⁷   

Medi-Cal Spending For Long Term Care

    Medi-Cal’s largest budget item is the cost of nursing home care for the elderly, and Medi-Cal is the largest item in the state’s budget.  By number, children are the largest group served by Medi-Cal, but the expenses of the care of the elderly exceed in cost.  One of the largest items in our state budget is Medi-Cal and one of the largest expenditures in the Medi-Cal budget is the cost of nursing home care for the elderly.

    A newspaper reported in 1998, nationally, “…elderly beneficiaries represented 11 percent of total Medicaid persons served—yet they ac­counted for 31 percent of total Medicaid expenditures.  The fastest growing Medicaid eligibility group is the elderly… The most significant trend in Medicaid services is the growth in long term care expenditures….During 1996, more than 1.8 million Americans were in nursing homes at a cost of $87 billion, of which Medicaid paid about $4.9 billion...By 2005, Medicaid expenses for nursing homes are pro­jected to climb to $79.1 billion.”¹⁸⁸

Medicaid Expenditures By Type Of Service

   Medicaid is the primary source of LTC Insurance for the elderly and people with disabilities, including middle-income individuals who spend down their financial resources.  Medicaid covers skilled nursing facility care, intermediate care facilities for the mentally retarded and developmentally dis­abled, and home and community based services.

 

 

This chart indicates that the largest expenditure of Medicaid is Institutional long-term care (32%), which is about four times that for Home and Community Care (8%) and Prescription Drugs (9%).  Doctors and other medical professionals receive only 5%, other Acute Care of 5%, Health insurance is 20%.

Out-of-pocket spending for Long-Term Care has actually gone decreased spending by Medicaid has nearly doubled in recent years as more and more people are turning to Medicaid to finance their long-term care expenses.  Medicaid as the primary insurer for long-term care has grown from about one-fourth (1968) of total nursing home care expenditures to a total (state and federal combined) Medicaid expenditures of $44.1 billion in 1998, which at that time, accounted for nearly half of all spending for nursing home care.¹⁸⁹

The sheer size of what Medicaid pays to nursing facilities indicates two things:  the high cost of long-term care services and other services, and the limited coverage under both Medicare and private insurance.  Medicaid spending is driven by the expenditures of nursing facilities, and yet (interestingly), in 1998, only 4 percent (1.6 million) of all persons served by Medicaid received nursing facility services, further proving that is it not the number of people served, but the cost of long-term care per person.

Medicaid Expenditures By Type Of Service

Medicaid is the primary source of LTC Insurance for not just the elderly, but also people with disabilities, including middle-income individuals who spend down their financial resources. Medicaid covers skilled nursing facility care, intermediate care facilities for the mentally retarded and developmentally dis­abled, and home and community based services, which is further proven when out-of-pocket spending for Long-Term Care has actually gone down while spending by Medicaid has nearly doubled in recent years.

When Medicaid started through the late 1980s, Medicaid spending grew at a rate comparable to the total amount spent for healthcare nationally.  Since that time, Medicaid spending has nearly tripled and by 1998, the total Medicaid program spending reached $175.1 billion.  On a percentage basis, the average real growth rate increased by nearly 10% (mostly in the early 1990s).  Medicaid spending has grown over the past 30 years, as in 1966 Medicaid was 2.9% of the total national health expenditures, but by 1998, it had risen to 14.8%—nearly a five-times increase.  Compare that to the total national health care expenditures of the public sector increasing from 30.2% in 1966, to 45.4% in 1998.

Medicaid is a welfare program, and was never intended to be the primary payer of long-term care for people with moderate income.

Medi-Cal spending for long-term care has risen drastically in recent years also, and between 1990 and 1997, Medi-Cal’s long-term care costs increased approximately 1 billion dollars, an increase of 70% in 7 years.  Residents of nursing homes comprised only 1.3% of the total Medi-Cal participants, but that represented 16% of the total costs.  By 1996, over $3 billion was spent by Medi-Cal for long-term care alone.

Further Medicaid Statistics in Financing Long Term Care

Other studies show that in 1987, there were 23.1 million LTC Medicaid recipients which increased to 36.1 million ten years later.  In 1987 the total cost was $47.7 billion, to $152.9 billion in 1997 a 36% increase from 1987 to 1997.  Cost increases exceeded, and continue to exceed, the consumer price index.

The Medicaid beneficiary category that encompasses seniors, accounts for 29% of the recipients in 1996, but generated 73% of the payments to the facilities and providers.

As of 1994, Medicaid paid about 45% of nursing home and home health care with even greater percentages being paid when stays exceed 4 months.

The principal factor contributing to these cost increases is the increase in the number of very old and disabled individuals who require extensive acute and/or long-term care¹⁹⁰

In 1995, 35.2 million people received Medicaid benefits, of which only 11% were elderly.  In the same year, $152.4 billion was expended for Medicaid benefits and 26.3% were for the elderly, 35.4% of these were for LTC services.  For 1995, Medicaid paid half of all nursing home costs and 14% of home health costs in the U.S.¹⁹¹

Persons Served Through Medicaid by Age

 

Although Seniors represent only 11 % of Medicaid recipients, they consume over 30% of the Medicaid budget.¹⁹²

During 1996, Medicaid paid about $4.9 billion for nursing homes, by the end of this year Medicaid expense for nursing homes is projected to climb to $79.1 billion.

Currently Medicaid represents approximately 20% of every state budget and it is the fastest growing segment of state budgets nationwide.   In 1997 over 33 million persons received health care benefits from the various state Medicaid programs.  In 1995, the primary source of payment for over 55% of nursing home residents was Medic­aid.¹⁹³

THE INNER-WORKINGS OF MEDI-CAL

Simply put, the federal government provides all the states with rather-broad guidelines.  California has established it own eligibility standards; determines the type, amount, duration and scope of services, determines the rate of payment for the services, and then administers its own program.

Medi-Cal covers services that are generally recognized as standard medical services required in the treatment or prevention of diseases, disability, infirmity or impairment.  As of the first of 2003, Medi-Cal pays for health care services that fall within the definition of “medically necessary.”  A listing of the services covered include, but not restricted to, certain prescriptions, physician visits, adult day health service, specified dental care, ambulance services, certain home health, X-ray and laboratory costs, orthopedic devices, eyeglasses, hearing aids, specified medical equipment, etc.

All of the services that are so covered, or their share of the cost of nursing home care, will be covered by Medi-Cal, provided that the individual meets the income and asset requirements.  Certain designated services, home health care, du­rable medical equipment and some prescription drugs require prior authorization.  Nursing home care is covered if there is prior authorization from the physician/health care provider.  Patients are admitted by the order of a physician, provided the stay is “medically necessary.”

 Medicaid does not cover assisted living or continuing care retirement communities except for skilled nursing units within the centers.  Medi-Cal will pay only for care at nursing homes and Intermediate Care Facilities for the Mentally Retarded.  It may cover limited home and community-based services. To be eligible for Medicaid reimbursement, nursing home care must be provided in a Medicaid-approved facility.

Medi-Cal Basic Benefits

Medicaid requires the states to provide certain basic medical assistance services to eligible recipients includ­ing:

1. Inpatient and outpatient hospital care,
2. Health screening,
3. Diagnosis and treatment to children ,
4. Family planning,
5. Physician services,
6. Nursing facility services to individuals over age 21.

Medi-Cal Elective Benefits

    States may also elect to cover any of over 30 specified optional services including:

1. Prescription drugs
2. Clinic services
3. Personal care services and
4. Services provided in intermediate care facilities for the mentally retarded
5. Podiatrists services
6. Optometrists services
7. Chiropractors services
8. Psychologists services
9. Medical social worker services
10. Nurse anesthetists services
11. Private duty nursing
12. Clinic services
13. Dental services
14. Physical therapy
15. Occupational therapy
16. Speech, hearing and language disorders
17. Prescribed drugs
18. Dentures
19. Prosthetic devices
20. Eyeglasses
21. Diagnostic services
22. Screening services
23. Preventive services
24. Rehabilitative services
25. Intermediate Care Facilities / Mentally-Retarded services (ICF/MR)
26. Inpatient psychiatric services for under age 21
27. Christian Science Nurses
28. Christian Science Sanatoriums
29. Nursing facility (NF) Services for under age 21
30. Emergency hospital services

LTC Services Available Under Medi-Cal

1. Nursing Home (skilled, intermediate or custodial),
2. No assisted living or RCF benefits, and
3. Limited home care benefits.

 

A Medi-Cal beneficiary has little, if any, choice as to where they can receive nursing home care, and even the type of care they receive.  If a person is presently in a Residential Care Facility and they have to go on Medi-Cal, they may have to move to a nursing home as Residential Care Facilities are not included in the services provided by Medi-Cal.

If the patient waits until their coverage has expired and then transfers to the nursing facility, they may have to pay to enter the nursing home of their choice as a private pay resident, and then they could transfer to Medi-Cal after some time has elapsed.  They may be able to remain in the Residential Care Facility.  If they wait until coverage has run out, and then transfer to the nursing facility, they might need to spend some of their own money to enter the facility of their choice as a private pay resident, and then transfer to Medi-Cal after a period of time.  They may also be able to remain in the RCF facility by using their “Share of Cost” to pay for their RCF care.

Waivers for Home & Community Care

Under Medicaid rule, states may request waivers to pay for home and community-based services that would otherwise not be covered, for Medicaid-eligible persons who might otherwise be institutionalized.  States have only a few limitations on the services that may be covered under the waivers as long as they are cost effective.  Except for respite care, states are not allowed to provide room and board care for the recipients.

Most of Medi-Cal’s resources are used for long-term care, but Medi-Cal is making efforts to shift some of the care to the home and community-based settings.  Medicaid’s home and community-based services waiver program (i.e., 1915(c) waivers) allows states to develop and implement other alternatives to institutionalizing Medicaid recipients.  States are permitted to design a waiver program and to select the mix of services offered, which could include certain non-medical, social and sup­portive services so as to more efficiently meet the needs of those that they want to serve in the home or community.  States have taken advantage of the waiver programs in order to provide services to a wide range of recipients, including but not limited to the elderly, those with physical and developmental disabilities, chronic mental illness, mental retardation and AIDS patients.

Medicaid does not require the recipient to show a need for skilled care in order to qualify for their benefits (as opposed to Medicare’s home health care benefits).

Medi-Cal’s Personal Care Services

In California (and 30 other states) the Personal Care Services Program (PCSP) provides services that help individuals with basic activities of daily living much as those services found in custodial care.

Medi-Cal covers a large area of personal in-home services through the Personal Care Services Program, which uses Medi-Cal benefits to provide choreworker and personal care services at home for those who require such assistance and are eligible for Medi-Cal.  Personal care, for these purposes, is defined as assistance with bodily hygiene, personal safety and activi­ties of daily living—expanding the ADL definition of LTCI policies.  The PSCP is an optional Medicaid benefit provided to individuals who are not inpatients or residents of a hospital, nursing facility or intermediate care facility.  To be so qualified, personal care services must be:

1. Authorized by a physician in accordance with a plan of treatment
2. Provided by a qualified individual who is not a member of the individual’s family and
3. Furnished in a home or other location which is not a nursing facility

Services may include a range of human assistance provided to persons with disabilities and chronic conditions of all ages that enables them to accomplish tasks that they would nor­mally do for themselves if they did not have a disability.    It may be in the form of hands-on assistance or cueing so that the person may perform ADLs or IADLs.

Skilled services, which may only be performed by a health professional, are not considered personal care services.¹⁹⁴

In-Home Supportive Services

The In-Home Supportive Services (IHSS) program is administered by the county Departments of So­cial Services under guidelines established by the state and it provides assistance to eligible aged, blind and disabled persons who are unable to remain in their homes safely without assistance.  Most people are eligible for IHSS when they meet eligibility criteria for the Supplemental Security Income/ State Supplementary Program (SSI/SSP) for the aged, blind, and disabled.

IHSS services available are of the domestic variety, such as heavy cleaning, meal preparation and clean up, laundry services, and reasonable shopping.  There are certain requirements to qualify—basically they must be a California resident, a citizen of the U.S. (or qualified alien), living in their personal residence (hospitals, LTC facilities or licensed community facilities do not qualify as “home”).  They must own personal property with a worth not in excess of $2,000 for an individual or $3,000 for a couple.  Depending on the amount of their income, they may be required to pay for a portion of their IHSS benefits (share of cost).

The applicant will be interviewed by a county social worker in order to determine eligibility and need for IHSS.  The social worker will determine the type of services needed based on the individual’s ability to perform certain tasks, and the amount of time that the county will authorize for such services.

If the individual is approved for IHSS, they must hire a person or persons to perform the authorized services, but if the county has contract IHSS providers, the recipient may choose to have these services provided by that contractor.  The hourly rate set by the state is the minimum wage.

Multipurpose Senior Services Program (MSSP)

The Multipurpose Senior Services Program (MSSP) is a care and case management program that helps people to live independently.  It links older Medi-Cal eligible individuals when they need place­ment in a nursing home, with various health and social services in their community.  For more informa­tion on the MSSP program, call 1-800-510-2020.

PACE

    The Balanced Budget Act of 1997 included a state option known as Programs of All-inclusive Care for the Elderly (PACE).  PACE provides an alternative to institutional care for persons age 55 or over that need a nursing facility level of care.

The PACE team offers and manages all health, medical, and social services and mobilizes other services as needed to provide preventative, rehabilitative, curative, and supportive care to help the individual maintain independence, personal dignity and quality of life.  Care is provided in day health center, homes, hospitals and nursing homes, and functions within the Medicare program.

Regardless of source of payment, PACE providers receive payment only through the PACE agree­ment and must make available all items and services covered under both Titles XVIII and XIX, without amount, duration, or scope limitations and without application of any deductibles, co-payments, or other cost sharing.  The individuals enrolled in PACE receive benefits solely through the PACE pro­gram.

Long-Term Care Services Not Covered by Medi-Cal

Basically, Medi-Cal does not pay for full-time at-home care, a private room or a private nurse in a nursing home, or care of any kind in a Residential Care Facility (Assisted Living Facility).

Medicaid Approved Facilities

Once a person is admitted to a nursing home that is approved by Medicaid and the person is qualified for Medicaid so that the nursing home bills will be paid by Medicaid, the nursing home—by law—cannot transfer them to another facility or discriminate against them in any manner.  The news media reporting of individuals being transferred to a “Medicaid Wing” or being transferred to another facility once them become a Medicaid patient, is not the situation at the present time (as long as the facility if Medicaid or Medi-Cal approved).  Also, they cannot be transferred to a “Medicaid bed” as all beds in a Medicaid-approved facility are “Medicaid beds.”

If a person is entering a nursing home and can pay for the charges out-of-pocket, even if Medicare is paying, it may still be a wise move to pick a facility that is Medi-Cal certified—which are the majority of the nursing homes (unless, of course, they can pay privately for an indefinite period of time).

Very few people can pay indefinitely for charges by a California nursing home, which average $4,500 to $6,000 per month.  Consider that a person with $100,000 in liquid assets can spend that down in less than two years in a nursing home.  If they have chosen a private-pay only facility, they can be subject to eviction if they become a Medi-Cal beneficiary, but a Medi-Cal facility cannot evict a person because of change from private pay to or Medicare to Medi-Cal.  Even though some nursing homes have “duration of stay” requirements —which requires a private-payor to pay for a set period of time—are illegal, California nursing homes may, legally, review potential residents’ finances prior to admis­sion.  Medi-Cal pays less than the private pay rate, so if a person can pay (or have a LTCI policy that can pay) the private pay rate, they will have more choices when shopping for a nursing home.

In respect to a person who is receiving home health care, if they run out of home health care benefits, Medi-Cal and other state programs will provide part-time homecare.  This allows the patient to decide whether they want to move into a facility or continue to stay at home, and they can supplement the payment for care with their own funds.  This leads to the recommendation that if the person decides to move to a care facility, they should do this before their benefits are exhausted so that they will have more choice and control over where they will go and remain after their coverage expires.

Facilities not Approved by Medicaid/Medi-Cal

If the care facility is not approved by Medicaid and/or it does not accept payments from Medicaid and a patient is so advised when they are admitted, if the individuals later applies for assistance from Medicaid, they may be required to move to another facility.

So, what does this mean to a Medi-Cal recipient?  It means that a person needing care cannot get into a private pay facility that does not accept Medi-Cal.  Since Medi-Cal/Medicaid does not pay as much as private pay or insurance pays for at-home care, then a Medi-Cal recipient would have to go to a nursing home.  In the same vein, since Medi-Cal does not pay as much as private pay patients do for nursing home care, waiting lists can be quite long, and in addition the nearest available Medi-Cal approved facility could be a considerable distance from their residence or their family. 

It is a fact of life, nursing homes that receive most of their income from Medi-Cal (or Medicaid elsewhere) simply are not as “nice” as private pay facilities as they do not have the funds to upgrade the services and furnishings, or to provide adequate and well-trained staffs.

Simply put, a Medi-Cal recipient does not have as many choices as a private pay patient.¹⁹⁵

Quality of Care

Even if, as stated above, Medicare/Medi-Cal facilities do not have the income to provide adequate staffing and the quality of care of a private pay facility, this does not mean that the recipient must accept care that is substandard.  Practically speaking, Medi-Cal and Medicaid facilities are regulated tightly and are examined at regular intervals, which may not be the case with private pay facilities, so substandard care will not be tolerated at an approved facility.  Silverware and table settings will be more expensive and formal at the private pay facility, but for many of the residents, that is not of principal concern.

However, all nursing homes must be licensed by the state and are subject to inspection, and the residents of all nursing homes should be well served.  Medicare maintains information on nursing homes inspections: www.medicare.gov

Department of Health Services 1997-98 Medi-Cal Budget

The Medi-Cal program mirrors the experience of Medicaid in other states, as the Medi-Cal program has become the single largest payer for long-term and other services in California when people cannot afford to pay.  The increase in Medicaid/Medi-Cal utilization by those considered as middle-income was primarily caused by the increasing cost of long-term care, to the point that many with moderate, or greater, means, use Medi-Cal as their first choice for funding long-term care expenses. 

For these persons to qualify for Medi-Cal they must first reduce their assets and income to the poverty level as required by Medi-Cal—referred to as “spending down.”  This asset reduction must be by personal usage, and not by making gifts to others in order to qualify.  The consumer contemplating qualifying for Medi-Cal by reduction of assets must understand that they are being reduced to a state of poverty from which there is no return, and there can be severe consequences if property is improperly or inappropriately transferred just to qualify.

Nursing Home Residents Bill of Rights

Just because a person enters a nursing home does not mean that they give up all of their rights that are guaranteed by the US Constitution.  The Omnibus Budget Reconciliation Act of 1987 (OBRA) sets forth certain rights that are guaranteed to all residents of nursing homes.  These rights include the right to state concerns about the facility, the right to receive visitors, to form resident councils, and to informed consent, privacy and freedom of choice.

California has enacted laws that guarantee the rights of nursing home patients, as follows:

1. The facility must employ an adequate number of qualified personnel to carry out all of the functions of the facility.
2. Each patient must show evidence of good personal hygiene, be given care to prevent bedsores, and measures must be used to prevent and reduce incontinence for each patient.
3. The facility must provide an activity program staffed and equipped to meet the needs and interests of each patient and to encourage self-care and resumption of normal activities.  Patients must be encouraged to participate in activities suited to their individual needs.
4. The facility must be clean, sanitary and in good repair at all times.
5. A nurse’s call system must be maintained in operating order in all nursing units and provide visible and audible signal communication between nursing personnel and patients.  Extension cores to each patient’s bed must be readily accessible to patients at all times.
6. The facility’s interest in other facilities related to nursing care must be disclosed in writing and the patient allowed to choose the other facility or services it provides unless the patient provides health care services to the patient in exchange for a prepaid capitation payment or premium.

    Willful or repeated violations of these rights may subject a facility and its personnel to civil or criminal proceeding.¹⁹⁶  

 

Liability Insurance for LTC Facilities

The California Insurance Code requires that insurance companies who write liability for long-term care facilities, may cancel, non-renew or withdraw liability insurance coverage for Nursing Facilities or Residential Care Facilities without 45-60 day notice.  All insurance companies writing liability insurance for these facilities, must provide the state with information regarding all claims and lawsuits filed against the facility.¹⁹⁷

ELIGIBILITY FOR MEDI-CAL

Those who are recipients of Social Security insurance and other “categorically-related recipients” are automatically eligible.  Others may be eligible if their income would make then ineligible for public benefits, as they may qualify as “medically needy” if their income and resources are within the Medi-Cal limits, (current resource limit is $2,000 for a single individual).  This includes:

1. Low-income persons who are 65 or over, blind or disabled may qualify as Aged and Disabled
2. Federal Poverty Level Program
3. Low-income persons with dependent children
4. Children under 21
5. Pregnant women
6. Medically indigent adults in skilled nursing or intermediate care

Each County Department of Social Services is responsible for determining eligibility for Medi-Cal, based upon the applicant and each family member’s incomes (total income), property (real and personal) and all assets—checking, savings or CD accounts, and other investments.

Excluded from being considered as assets is the residence, personal items, limited amount of jewelry and one vehicle, with different eligibility rules for single and married couples.

The applicant for Medi-Cal must be medically indigent—possessing less than a prescribed amount of assets and income, which is indexed for inflation.  Since the nursing home will be providing all of their needs, the Medi-Cal rules for nursing home patients are specific and strict.

An applicant for Medicaid subjects their financial transactions for the past 30 months to scrutiny(this may be 36-60 months in various states).

Medi-Cal considers property held individually or jointly by both spouses.  If a bank or investment account is an asset, the entire contents of a joint account is considered as available to Medicaid applicants unless it can be clearly shown that funds belong to an exempt account-holder.  Eligibility requirements differ depending upon whether the individual needs long-term care services and whether he is single or married.

LTC services are considered as not needed if the person is single and has property assets in excess of $2,000 and monthly income in excess of $600.  Funds in excess of these amounts will be paid to Medicaid in payment for long-term care services.  If the individual is married, then the couple must not have assets or property above $3,000 and income above $934 and amounts above these minimums will be paid for long-term care.

If the spouse is in a facility, or single individual, $2,000 in property or assets, $35 a month for personal needs for the spouse not in the facility, and $92,760 in property and assets are exempt.  If the only income is from the institutionalized spouse, then $2,319 a month is exempt.  If the spouse not in the facility has income, they may keep their own income. (These figures are indexed and may change.)

Medi-Cal Spousal Impoverishment

Medicaid’s “spend-down” requirements at one time were so severe that a spouse who remained at home was impoverished before his spouse could receive Medicaid benefits.  The laws have been gradually changed to where an at-home spouse could maintain specified amounts of assets and income.   California Law allows the community spouse to retain $92,760 (indexed-figure is for 2004) in non-exempt resources available to the couple at the time of application.

Separate property will be counted in the total resources and subjected to the $92,760 limit.  However, only non-exempt resources are counted in the spouses’ combined, countable resources at the time of application for Medi-Cal.  For instance, IRA’s in the community spouse’s name, household goods, personal effects, a car, the house, jewelry, etc. are all totally excluded, regardless of value.  As an aside, there have been instances where the spouse purchases an expensive car, Mercedes-Benz for example, prior to applying for Medicare or prior to institutionalization as there is no maximum value placed on the auto and these cars hold their value quite well.

Resources acquired after the spouse is institutionalized and before he/she goes on Medi-Cal are not protected and will be counted at the time of application.  However, once the spouse is eligible for Medi-Cal, any resources acquired by the community spouse are protected and will not affect the institution­alized spouse’s eligibility.  Resources held prior to the spouse’s institutionalization might be transferred under certain conditions.

Spending Down: An important feature is the fact that expenditures by spouses do not have to be made proportionately, i.e., most valuable first.  A spouse can spend down resources on anything, whether or not it is for his or her own benefit.  For example, mort­gage notes on property held in the names of both spouses could be paid in full by the institutionalized spouse without a period of ineligibility for transferring assets for less than fair market value.

Income: Medi-Cal regulations allow the community spouse to retain a monthly maintenance needs allow­ance (MMNA) of $2,319 (indexed-as of 2004) which is then adjusted annually by a cost of living increase.  Known as the “name on the instrument” rule, the community spouse may retain any income received in his/ her name alone.  The MMNA is the “floor,” of the lowest amount that may be retained and if the community spouse’s monthly income is less than the MMNA, he/she may then (a) receive an allocation from the institutionalized spouse’s income; (b file for a fair hearing to increase the CSRA to generate additional income; and/or (c) obtain a court order to obtain additional income-generating re­sources.  With present interest rates so low, with a low income it is quite simple for a community spouse to retain assets above the CSRA.  If the community spouse’s income in his/her name (alone) exceeds the CSRA, then the community spouse may keep it all—however they will not be entitled to a share of the institutionalized spouse’s income.

Rules of ownership:  If income is payable in the name of just one spouse, it is considered to belong to that person; if income is paid jointly to both spouses, the income is considered to belong in equal shares to each of them.  If income paid to a spouse and someone else, then it is assigned proportionately to the spouse.  If there is no written document establishing ownership of the income or income source, it is considered to belong equally to both spouses.  If income is derived from a trust then the terms of the trust document determines assignment of income.

 

Medi-Cal for Single Individuals

While most illustrations of “spending down” involve married couples, in actuality fewer than 10% of those receiving Medicaid nursing home benefits are married, therefore the rules for single individuals should be more pertinent. 

Single people cannot take advantage of the joint ownership of property as they will only be able to retain the $2,000 in assets and $35 per month in income.  All other income and assets will have to be spent for their care and Medi-Cal will pay any amounts to make up the difference up to the allowable Medi-Cal charges.

Medi-Cal Application

The application to Medi-Cal should be submitted several months prior to the need for services, if possible, as it does take time to process the application.  Immediate care will be taken into consideration.  The eligibility social worker determines the eligibility by reviewing the income and assets of the applicant and each member of the family. 

Limitations of Property and Assets

To qualify for Medi-Cal the recipient must demonstrate that he has limited resources available. Since January 1, 1989 the property limit for one person has been set at $2,000.

Medi-Cal classifies property as “exempt”—which does not affect eligibility—and “non-exempt” —which does affect eligibility.  The time limit of “spending down” assets or property is that property must be spent down for adequate consideration before one calendar month passes, or if the property was owned at time of application, before the end of the application month.

“Income” for Medicaid purposes, includes about everything, including Social Security pension payments, that is paid on a continuing basis or paid on a one time basis, and is subject to Share of Cost.

“Assets” are financial assets such as bank accounts, securities, and real estate other than the home. Anything received in a particular month and is not spent in that month, becomes an asset.

Exempt property includes one car, principle residence, household furnishing, one wedding ring, $1500 of Cash Value Life Insurance, and Irrevocable burial or funeral trust.

Under current law, $2,000 of assets is exempt property in determining a single person’s eligibility for Medi-Cal, plus the applicant’s residence, one car and a limited number of other assets.

To further define exempt property, the following rules apply:

1. The principal residence is excluded, which may be a mobile home, house­boat, or an entire multi-unit dwelling as long as any portion serves as the principal residence of the applicant.  The property remains exempt if a person in a nursing home (or the person’s representative) expresses an intent to return home on the current Medi-Cal Application and Statement of Facts; or if an “exempt” individual resides in the home, such as a spouse, or a minor, blind or disabled child.  When the home is exempt, it may be transferred without penalty and without affecting the Medi-Cal eligibility.
2. Other Real Property (real estate) can be exempt if the net market value of the property is $6,000 or less and the beneficiary is “utilizing” the property, i.e., receiving yearly income of at least 6% of the net market value.  Property used as a business can also be exempt if it meets the standards under the program.
3. Household goods and personal effects are fully exempt.
4. Jewelry for a single person, wedding, engagement rings and heirlooms are totally exempt and other items of jewelry with a total net market value of $100 or less are exempt; for spouses, when one spouse is in a nursing home, there is no limit on exempt jewelry for determining institutionalized spouse’s eligibility.
5. One car is generally exempt if used for the benefit of the applicant/beneficiary or if needed for medical reasons.
6. Whole Life Insurance policies with a total face value of $1,500 or less. If the total face value of the policy or policies exceeds $1,500, then the cash surrender value of the policies is counted toward the $2,000 cash reserve. If the cash surrender value exceeds the $2,000 cash reserve, the applicant will not be eligible unless, he reduces the value of the policy.  Term Life insurance is exempt.
7. Burial plots and prepaid burial plans of any amount, plus a maximum of $1,500 in designated burial funds (which must be kept separate from any other account).  Accumulated interest on burial funds is also exempt.
1. Prepaid irrevocable burial plan of any amount and $1,500 in designated burial funds. These designated funds must be kept separate from all other accounts. Accumulated inter­est on burial funds is also exempt.
2.   IRAs and work-related pensions are exempt.  If they are in the applicant’s/beneficiary’s name, the balance is considered exempt if the applicant/beneficiary receives payments of interest and principal.  If they are in the spouse’s name, they are totally exempt and are not included in the community spouse’s resource allowance (CSRA).

Annuities

It is important to remember that annuities are never exempt. With an annuity, excess resources are turned into income. The annuity income will have to be spent toward their “share of cost” and any balance remaining in the annuity after their death may be subject to estate recovery by Medicaid.

Annuities that are not work-related, such as single premium deferred annuity, etc., have caused concern in recent years as originally income received from an annuity was exempt.  This led to individuals purchasing single premium immediate annuities for large amounts, and the income from these annuities would all be exempt, bypassing the intent of Medicaid and Medi-Cal.  In recent years California has taken strong steps to stop this practice and there are severe penalties if this is attempted so that the annuitant can qualify for Medi-Cal benefits.  Annuities now are treated as exempt or not-exempt, depending upon when they were issued.:

Annuities purchased prior to 8/11/93:  Balance is considered unavailable (exempt) if the applicant/ beneficiary is receiving periodic payments (of any amount) of interest and principal.

Annuities purchased between 8/11/93 and 3/1/96:  Annuities purchased between 8/11/ 93 (the date the federal law changed) and 3/1/96 (the date California law changed) that cannot be restructured to meet the new requirements, will continue to be treated under the old rules (see above).  Written verification from the company or agent who issued or sold the annuity must be obtained stating that the annuity cannot be re­structured.

Annuities purchased on or after 3/1/96:  Individual and/or spouse must take steps to receive periodic payments of interest and principal from the annuity and the payments must be scheduled to exhaust the balance of the annuity at or before the end of the annuitant’s life expect­ancy.  Annuities structured to exceed the life expectancy will result in denial or termi­nation of benefits due to transfer of non-exempt assets.  This stops the practice of transferring assets by purchasing of assets for purpose of qualifying for Medi-Cal.¹⁹⁸ 

 

This problem was so important that using annuities to by-pass the spending-down provisions of Medi-Cal that sections of the California Code address this problem specifically:

An act to amend Sections 787, 1725.5, 10127. 10, and 10509.8 of, and to add Sections 789.9, 789.10, 1724, and 1749.8 to, the Insurance Code, relating to insurance.

1.   Prohibits the sale of annuities to seniors in certain circumstances.

Pursuant to Section 789.8 of the California Insurance Code, if a life agent offers to sell to an elder any life insurance or annuity product, the life agent shall advise an elder or elder’s agent in writing that the sale or liquidation of any stock, bond, IRA, certificate of deposit, mutual fund, annuity, or other asset to fund the purchase of this product may have tax consequences, early withdrawal penalties, or other costs or penalties as a result of the sale or liquidation, and that the elder or elder’s agent may wish to consult independent legal or financial advice before selling or liquidating any assets and prior to the purchase of any life or annuity products being solicited, offered for sale, or sold. This section does not apply to a credit life insurance product.

A life agent who offers for sale or sells a financial product to an elder on the basis of the product’s treatment under the Medi-Cal program may not negligently misrepresent the treatment of any asset under the rules and regulations of the Medi-Cal program, as it pertains to the determination of the elder’s eligibility for any program of public assistance.

AB 2107, Scott. Elder abuse.

"   The bill would only permit life agents, on or after July 1, 2001, to sell or offer for sale to an elder or his or her agent any financial product on the basis of the product’s treatment under Medi-Cal after providing the elder or his or her agent with a specified disclosure, in writing, explaining the resource and income requirements of the Medi-Cal program."

Add Section 789.8 to CIC – Elder Abuse

"…Only permits life agents, on or after July 1, 2001, to sell or offer for sale to an elder or his or her agent any financial product on the basis of the product’s treatment under Medi-Cal after providing the elder or his or her agent with a specified disclosure, in writing, explaining the resource and income requirements of the Medi-Cal program, including, but not limited to, certain exempt resources, certain protections against spousal impoverishment, and certain circumstances under which an interest in a home may be transferred without affecting Medi-Cal eligibility. The bill excludes from the application of these disclosure provisions credit life insurance, as defined."¹⁹⁹  

“Spend Down” Details

An individual whose personal property is above the Medi-Cal resource limit may “spend down” to $2,000 and resources must be reduced to the property limit for at least one day during the month in which a person is establishing eligibility.  Giving away resources may render a person ineligible for a period of time, starting at the date of the transfer.

There are penalties for transferring or gifting away assets so as to qualify for Medi-Cal, but they only apply if a Medi-Cal beneficiary or applicant enters a nursing home.  A Medi-Cal applicant can give away assets and still be eligible for Medi-Cal depending on when the asset was transferred, the value of the transfer and whether they enter a nursing home.  When a person enters a nursing home and applies for Medi-Cal, the application asks if the applicant transferred any non-exempt assets within the 30 months prior to the date of the application.

A transfer of non-exempt assets can result in a penalty of a period of ineligibility, which is the lesser of 30 months or the value of the transferred assets divided by the average monthly private pay rate (APPR) at the time of application, which is $4,477 (2004).

 

If the recipient of an asset transfer is blind or a disabled child or any age, then there is no limit on the amount or the timing.  The child must be eligible for SSI or SSA disability benefits.  Transfers of a residence or any other asset to the child will not affect the Medi-Cal’s beneficiary’s or applicant’s eligibility.  Note:  A transfer of liquid assets could affect the benefits of the child who is receiving SSI benefits, therefore the SSI or an expert in SSI disability should be consulted.

The spend-down of resources may include spending on any item or service for their own benefit as long as they will not exceed the $2,000 eligibility at the end of the month in which Medi-Cal is requested.  Resources can also be spent down to the $2,000 eligibility limit on any item or service for their own benefit as long as what they purchase will not make them exceed the $2,000 limit at the end of the month, in which they desire Medi-Cal eligibility.  (Note the “own benefit” restriction on spending—they cannot give the family farm away to the blonde bartender just because she is cute…)

If a person has given resources away or sold them for below fair-market value, it does not matter that there were sound reasons for the transactions, or even that the person did not know anything about Medicaid or had no intention of making a Medicaid plan when the transfers were actually made.

Applicants must provide evidence of what they spend after they apply for benefits, so all spending must be carefully documented, such as by receipts, cancelled checks, etc. (The blonde bartender probably wouldn’t give a receipt anyway…)

Medi-Cal Treatment of Property Transfers

Property transfers, by gift or sale at less than fair-market value, made during the “look-back” period of 30 months Medi-Cal will calculate the period of ineligibility for nursing facility level of care by dividing the monthly average private nursing facility cost (ADPPR) into the net fair market value of the property.  The ADPPR for 2004 was $4,477 per month.

Exempt assets are not protected against Medi-Cal recovery, including the personal residence.  If the home has not been previously transferred, it is part of the estate and Medi-Cal has the right to recover the cost of Medi-Cal benefits received after the recipient is age 55, after the death of the community spouse and/r there are not other dependents.

There are very strict rules regarding transferring property including trust, annuities (see discussion above) to another person in order to obtain Medi-Cal assistance.

For spousal transfers, there is no look-back period.  But for non-spousal transfers, there is a 30- month look-back period, which will be changed to 36 months for individuals and 60 months if the transfer was to a trust, in anticipation of Medicare/Medi-Cal.

Additional Property Acquired

If a beneficiary establishes eligibility for Medi-Cal and then subsequently purchases additional property—selling a residence, receives an inheritance, wins the lottery—the amount of the nonexempt property must be re-evaluated to determine if there would then be a period of ineligibility until the additional property has been “spent down.”  They would essentially have to “go off” Medi-Cal for a period of time until their assets were lower than the amount allowed, then they could “go back on” Medi-Cal.

If the additional property results in more non-exempt assets than the state allows, they would be ineli­gible for Medi-Cal benefits until they had spent-down the excess assets for their care, at which time they could again qualify for Medi-Cal benefits.

A Medicare recipient cannot simply turn down the additional property, as part of the Medicaid requirement (and so stated on the application) is the promise to collect all funds to which the recipient is entitled, regardless if it leads to termination of Medicaid eligibility.  As a matter-of-fact, there is a penalty period if the property is rejected.

Separate Property

If a spouse is institutionalized and has a well spouse still at home, resources for Medi-Cal include both separate properties—such as property owned by one spouse as the result of a previous marriage or inheritance—plus community property that is not exempt.  The $2,000 limit of the spouse in the institution must be kept separate and accounted for separately.

Residence under Medi-Cal

The private residence of a Medi-Cal beneficiary will remain exempt under many situations.  A home will continue to be considered as an exempt principal residence if:

1. During any absence, including nursing home stays, the individual intends to return to the home and states so in writing. If the beneficiary is incapacitated, a family member or some­one acting on his/her behalf may so state this intent.
2. The individual’s spouse, child under the age of 21, or dependent relative continues to reside in the home.
3. The residence is inhabited by the recipient’s sibling who has an equity interest in the home or by a son or daughter who has resided there continuously for at least one year prior to the date the recipient entered the nursing home.
4. There are legal obstacles preventing the sale and the applicant/beneficiary provides evidence of attempts to overcome such obstacles.
5. The home is a multiple dwelling unit, one unit of which is occupied by the applicant.
6. As long as the individual’s spouse lives in the home, it will continue to be exempt: This is the case in many Medi-Cal planning situations. Even without a spouse, as long as the applicant or beneficiary declares an intention to return home on the Medi-Cal application, the house will be treated as a principal residence exempt from being counted as a resource by Medi-Cal. However, this does not mean that the home is immune from an estate claim for the purposes of recovery.²⁰⁰ 

 

Intent to Return

The exemption of the principal residence continues upon a person’s subjective (based on an individual’s perceptions, feelings, or intentions, as opposed to externally verifiable phenomena) intent to return.²⁰¹  Whether a person actually has the ability to return to that residence is beside the point.  If the individual is unable to complete the application, their representative may indicate that intent to return.  The eligibility worker may not restrict, in any way, the individual or his/her representative in the process of indicating that intent.²⁰² Unless the applicant is requesting the income deduction for upkeep and repair of the home,²⁰³ the county may not require any verification of the individual’s ability to actually return home.  If the applicant or his/her representative incorrectly states that there is no intent to return and later makes a correction, the county must accept that correction.

If the “community” (at-home) spouse dies before the institutionalized spouse, the intention of returning home will keep the home safe until the institutionalized spouse passes away.  Medi-Cal recipients may wish to transfer their home entirely to the community spouse in order to avoid an estate claim after the surviving spouse dies.  Also, if the community spouse dies first, the possibility looms large that the residence will eventually be part of the probate estate of the institutionalized spouse and much of the value will be spend in estate claims.  In any event, this type of situation must be addressed by competent legal advisors before selling or transferring property or assets.

The home is sacrosanct for purposes of eligibility as it makes no difference as to how much the residence is worth, how large it is, how much ground it sits on or even how recently it was purchased before the Medicaid application.  A home, or former home, is an exempt asset for Medi-Cal purposes, as long as the person lives there and the home is not considered as an asset if:

1. They have the intent to return home (which they can demonstrate by simply stating this on their Medi-Cal application);
2. Their spouse lives there;
3. Their child, who is under 21, or is blind or disabled lives there;
4. A sibling lives there, who is part owner of the home, and lived with them for at least a year prior to their entering the nursing home;
5. An adult child lives there who lived with and provided care for them for at least two years prior to their entering the nursing home; or
6. They are making a good faith effort to sell their home.

If an person has assets that need to be “spent-down,” they can use these excess assets to pay off a mortgage, repair the home, or even purchase a home if they are not homeowners—all without loss of Medi-Cal eligibility.

Maintaining the Home for Return of Medi-Cal Recipient

In addition to the $35 for personal and incidental needs, a Medi-Cal recipient in long term care can retain an amount of income for upkeep of a home provided that all of the following conditions are met:

1. The spouse or family of the LTC is not living in the home.
2. The home, whether rented or owned by the LTC patient, is actually being maintained for the return of the LTC patient.
3. There is a verified medical statement that the person will return home within six months.
4.    The amount allowed for upkeep of the home depends on the living circumstances of the LTC patient.²⁰⁴

Home Transfers

The exempt home or former home, may be transferred to another without penalty, as long as it was exempt at the time of transfer.  However if the home is transferred out of the name of the Medi-Cal recipient, Medi-Cal may be entitled to place a claim against the estate after the recipient dies.

Medi-Cal Form 7077

The following statement is part of the Form 7011, Medi-Cal Eligibility Information:

 

Medi-Cal applicants that sell their homes have turned the exempt asset into a non-exempt asset—money—that will not affect their eligibility but the money must be used for their care before Medi-Cal will accept them.  Actions of this type should be done only with competent legal advice.

Second Home or Other Real Property

Mentioned earlier, real property other than the principal residence can be exempt if the net market value of the property is $6,000 or less and if the beneficiary is “utilizing” the property, i.e., receiving yearly income of at least 6% of the net market value.²⁰⁵

If the net market value of the other real property exceeds $6,000, the first $6,000 of net value will be exempt if the property generates yearly income of at least 6% of the net market value. Any property value in excess of $6,000 will be counted in the property reserve.²⁰⁶

Utilization Requirements

Other real property must meet utilization requirements in order to be exempt.  This means that the property must generate at least 6% a year of the net market value.  If the property does not generate income, then the full net market value of the property will be counted.²⁰⁷

Good Cause

If the applicant has made bona fide efforts to meet the utilization requirements but is unable to do so, the utilization period can be extended indefinitely and the applicant can be eligible. For example, if the applicant has made bona fide efforts to sell the property, but is unable to do so, the property won’t be included in the countable resources. Note that the regulations include specific criteria for what consti­tutes “good cause” and “bona fide” efforts to sell.²⁰⁸

Market Value

The market value of property is very important, since it is used to determine the net market value.  The market value of real property in California is one of the following, whichever is less:

(a) The assessed value determined under the most recent property tax assessment or

(b) the appraised value by a qualified real estate appraiser.

The market value of real property outside of California is one of the following, whichever is less:

(a) The value established by the assessment method used where the property is located or

(b) the appraised value by qualified real estate appraiser.²⁰⁹

Determining Net Market Value

The net market value of real or personal property is the owner’s equity in that property and is determined by subtracting the encumbrances of record from the market value.

Business Property

Property used in whole or in part as a business or as a means of self-support is exempt.  Rental real property, however, will be exempt unless the property is clearly held as a business.  If the applicant can demonstrate with tax returns or other evidence that the property is clearly a “business” and not just investment property, it can be exempt.²¹⁰

Income from Real Property

If a Medi-Cal beneficiary is renting real property, including the principal residence, the “net” income from the property is used in determining the share of cost.  Certain expenses are deducted from the gross rental income to determine the net income that includes taxes and assessments, interest payments (not principal), insurance, utilities, upkeep and repairs.

Upkeep and repairs are the determined as the greater of either (a) the actual amount expended for upkeep and repairs during the month or (b) 15% of the gross monthly rental, plus $4.17 per month.²⁴⁰  Note that other calculations are used for income from rental of rooms, rental of unit(s) in a multiple dwelling unit or other dwellings on the property.²¹¹

Only one property, including land that is contiguous or adjacent to it plus any other buildings on that contiguous/adjacent property, is eligible as the exempt principal residence.  For all other real property, the first $6,000 of equity will be exempt as long as the property is utilized—defined as realizing a 6% annual rate of return.  Any net market value over the $6,000 will be included in the property reserve of the applicant and Community Spouse Resource Allowance (CSRA) if applicable.

Trusts

Most trusts cannot be used to shelter assets from Medi-Cal except that some irrevocable trusts set up to benefit a disabled relative may not be counted for eligibility and any money remaining in the trust after the person’s death may be subject to estate recovery by Medi-Cal

Corporate Stock & Bonds

Corporate stock is nonexempt for Medi-Cal purposes regardless if whether or not the owner is actively involved in the business.  For securities that are publicly traded, the value of each share is the lowest closing balance during the month.

Stock, which is not publicly traded must be considered separately.  It is generally stock of a closely held corporation such as a family business.  The value of such non-traded stock is determined from the most recent financial statements, in particular the balance sheet, of the business.  The shareholders’ equity is determined by subtracting the total liabilities of the business from the total assets of the business (net value) that is then divided by the total number of shares of stock and then multiplied by the number of stocks owned by the Medi-Cal applicant.

Example:  If a business had a net worth of $200,000 after subtracting liabilities from assets, and had 100 shares of stock outstanding, then each share would be worth $2,000.  If the individual owned 50 shares of the stock, his equity would be worth $100,000.

Medi-Cal Share of Cost

The “maintenance need standard” is the amount set by the state as a method of determining needs and is the payment rate for Medi-Cal.  This has remained at $600 a month for 15 years for a single, elderly or disabled person, so the long-term care maintenance need level remains at $35 monthly for each person derived as a function of the maintenance need standard.  This amount will increase, if the $600 increases.

Individuals whose net monthly income is higher than the state payment rate may qualify for the pro­gram if they agree to share the cost by paying (or agreeing to pay) a portion of their income for monthly medical costs.  Those eligible under this concept must either pay or take responsibility for paying part of their medical bills each month before they can receive coverage.  Medi-Cal then pays the remain­der of covered services, similar to an insurance co-payment.  The amount of their share of the cost is the difference between the “maintenance need standard” and the individual’s net non-exempt monthly income.

As an example, assume that John’s monthly income is $1200.  He is allowed $35 for maintenance need, leaving $1,165, which is what John must pay to the nursing home, or for medical costs not covered by Medi-Cal.

While residents are allowed to keep $35 of their income as a personal needs allowance, some people have no income, in which case they may apply for the Supplemental Security Income/State Supplemental Program (SSI/ SSP), and, if eligible, they will receive a payment of $49 as a personal needs allowance.

Medicare Patients

If the individual qualifies for Medi-Cal, he does not need a Medicare Supplemental policy or benefits of an HMO to pay for costs, but if such insurance is carried, the premiums are deducted from income when comput­ing the share of cost.

The “Share-of-Cost” formula starts with the personal needs allowance of $35.  If the Medi-Cal recipient continues to pay premiums or co-insurance for health insurance, these amounts are excluded from income.  The Community Spouse Income Allowance (CSIA) and allowances for dependant children, if any, are subtracted.  The remainder is the Share of Cost amount, which must be spend toward the person’s care each month.  If the amount does not cover the costs, Medi-Cal pays the nursing home, the difference between the Medi-Cal payment rate and the share-of-cost amount paid by the nursing home resident and the costs of all Medi-Cal covered services.

CALIFORNIA’S MEDI-CAL ESTATE RECOVERY PROGRAM

OBRA ’93 mandated recovery of Medicaid expenses in certain situations, and it permitted states to expand the definition of “estate” to include such assets previously exempt such as joint tenancies, tenancies in common and life estates.  California enacted law in 1993 so as to allow the Department of Health Services’ Recovery Unit to expand its efforts to recover certain   Medi-Cal funds spent on nursing home beneficiaries.²¹²

If a person had exempt property, such as house, car, etc., and/or assets during the eligibility process, such property/assets are not protected during estate recovery.  Upon the death of the Medi-Cal recipient, the State Department of Health Services, Medi-Cal Recovery Unit can place a lien and/or claim against the entire estate of the deceased for expenses incurred by the Medi-Cal program to recover those costs paid by the state.  If the recipient is married, a lien would not be placed against the estate property until the remaining spouse dies or sells the property.

The Department of Health Services (DHS) implemented an estate recovery (ER) program in June 1981.²¹³

The Estate Recovery collections for the past fiscal year exceeded $42 million. 

In accordance with these and other statutes, the person responsible for the administration or disposal of the estate assets is required to notify the Director of DHS of the death of any individual who has or may have received Medi-Cal benefits.  This notification must be submitted within 90 days of the date of their death and must include a copy of the death certificate.

Federal Law requires the California DHS to present claims against the estates of deceased Medi-Cal Beneficiaries who have received any nursing home care and/or any expenses incurred after age 55.  A claim is prepared reflecting these costs and is presented to the party handling the estate.  The ultimate collection of the claim is limited to the lesser of the value of the estate assets or the amount of Medi-Cal paid services.

 

 

Liens V. Estate Claims

There are times that a “lien” against property is appropriate, and there are times that an estate claim is used.  For clarification, liens are placed on living Medi-Cal beneficiaries’ estates to, in effect, “hold” the property until the death of the beneficiary.  Estate claims are used to make a claim against an estate of a deceased Medi-Cal beneficiary.  In actual practice, liens are used only in rare situations where the beneficiary’s home is not exempt and is going to be sold.

If a nursing home resident applies for Medi-Cal and does not indicate an intention to return home and the home is not otherwise exempt, the applicant will be denied eligibility unless he/she lists the home for sale.  Then they can be accepted for Medi-Cal but the state then puts a “listing” lien on the property so as to collect the funds that Medi-Cal will pay out on behalf of the beneficiary. These are the only liens that are permitted to be placed on the homes of living beneficiaries.

After the Medi-Cal beneficiary’s death, the state can make a claim against the estate of an individual who was 55 years of age or older at the time Medi-Cal benefits were received or who (at any age) received benefits in a nursing home, unless there is a surviving spouse or a minor, blind or disabled child.  If there are assets remaining in the estate of the deceased beneficiary, Medi-Cal will claim those assets for reimbursement for Medi-Cal benefits paid on behalf of the beneficiary.

Because of OBRA ‘93 and subsequent 1993 changes in state law, California has adopted the “expanded” definition of an estate.  Therefore, in addition to property and assets under the probate definition, California will also seek to recover from “any other real or personal property or other assets in which the individual had any legal title or interest at the time of death (to the extent of such interest). This includes assets conveyed to a survivor, heir or assign of the deceased through joint tenancy, tenancy in common, life estate, living trust or other arrangement.”²¹⁴ The law requires that, when a deceased person has received or may have received health care benefits or was the surviving spouse of a person who received such benefits, the estate attorney, the beneficiary, the personal representative or the person in possession of the property is required to notify the Director of the Department (at the Sacramento office of DHS) of the person’s death.  A copy of the death certificate is required to be sent. It is recommended that the notice of death be sent by registered or certified mail to: Director, DHS, and P.O. Box 2471, Sacramento, CA 95812-9851.

The Director has four (4) months after notice is given in which to file a claim.  If a claim is not filed, the state is forever barred. ²¹⁵

Claims against Spouses

Medi-Cal may not recover expenses while a surviving spouse of a deceased Medi-Cal benefi­ciary is alive.  However, after the surviving spouse dies, recovery may be made against any property received by the spouse through distribution or survival, e.g., property left under a will or community property.  But if the home is transferred out of the Medi-Cal beneficiary’s name while he or she is alive, no claim can be placed on the home.

Upon the death of the surviving spouse, ER (Estate Recovery program) may present a claim against the surviving spouse’s estate to collect the amount of Medi-Cal paid services provided to the predeceased spouse or the value of the assets received by the surviving spouse, whichever is less.  The ER claim is only against the assets of the decedent, not against the personal assets of the heir(s).

Contesting A Claim

An applicant for Medi-Cal has several options to contest the claim.

The applicant,(the dependent, heir or survivor or the decedent) may file for a hardship waiver within 60 days of notice of the claim.  The hardship application must contain the notice of the claim and the itemized billing, along with a copy of the regulations.  A written decision regarding the hardship application must be sent to the applicant within 90 days of submission of the application.

If the hardship waiver is denied, then there is provision for the applicant to challenge the Department’s hardship waiver decision by requesting an estate hearing within 60 days of the date of the Department’s hardship waiver decision.  The estate hearing is an administrative law hearing and is required to be set within 60 days of the date of the request and must be conducted in the court of appeals district in which the applicant resides.

Estate hearing decisions can be appealed judicially by filing a writ of mandate with the appropriate court.  The state may also refer the claim to the Office of the Attor­ney General if the claim is not paid and their collection efforts are unsuccessful.

For more information on Medi-Cal: http://www.dhs.ca.gov/CPLTC or http://www.canhr.org

Transfer of Interest in the Home

There is no 30-month “waiting period” for transferring an exempt asset including a home, as often misconstrued.  In fact, under federal law, title to the principal residence may be transferred to the following persons at any time without affecting Medi-Cal eligibility:

1. A spouse;
2. A son or daughter underage 21 or who is blind or permanently disabled;
3. A sibling who has equity in the home and who was residing there for at least one year imme­diately prior to the individual’s admission to a nursing home;
4. A son or daughter who was living there for at least two years immediately prior to the individual’s admission to a nursing home and who provided care which enabled the parent to live at home;
5. To anyone, so long as the home was exempt at the time of transfer. Note: even if no one lives in the home, as long as the Medi-Cal applicant checks “yes” on the application concerning intent to return home, the home is exempt and can be transferred. If the home is transferred while the Medi-Cal beneficiary is alive, there is no estate claim on the home.

Transfer of the Home to a Spouse

The law allows transfer of a home to an at-home spouse without affecting Medi-Cal eligibility, such transfer may occur prior to or after the spouse enters a nursing home.  If the spouse in the nursing home no longer has any interest in the home, anything the community spouse does with the house will not affect the spouse’s Medi-Cal eligibility.  The community spouse can move out of the home, rent it, or sell it, all without affecting the spouse’s Medi-Cal eligibility.

It must be noted that a Medi-Cal beneficiary’s at-home spouse is allowed to keep up to $92,760 (as of January 1, 2004) in non-exempt assets.  If they sell the home before their spouse applies for Medi-Cal, the proceeds from the sale will count towards that limit, since cash is a non-exempt asset.  However, if they sell the home after their spouse becomes eligible for Medi-Cal, it will have no effect on eligibility.

Available Guides for Long Term Care

CANHR publishes a layperson’s guide to Medi-Cal eligibility for long-term care. “ If You Think You Need a Nursing Home... A Consumer’s Guide to Financial Considerations and Medi-Cal Eligibility.” You can purchase the guide for $7 by calling CANHR at 1-800-474-1116.²¹⁶ CANHR has a statewide, state bar-certified lawyer referral service.  Referrals are provided for attor­neys specializing in estate planning for long term care, including Medi-Cal, wills, trusts, and asset preservation.

Tax Consequences/Legal Advice on Property Transfer

Any transfer of real property can have tax consequences that may outweigh a Medi-Cal estate claim.  There are a number of legal options (irrevocable life estates, occupancy agreements, and certain types of trusts) available to avoid probate, avoid tax consequences and avoid estate claims, but the tax consequences should be weighed.

Persons should consult with an attorney experienced in Estate Planning for Long Term Care before any transfer is made. Real property transfers usually involve tax consequences, which may outweigh the benefits of the transfer.

Medi-Cal Planning

“Medi-Cal Planning” conjures up visions of one planning with anticipation of becoming destitute or impoverished so that they have to go on welfare.  Actually, that is what it is: Medi-Cal Planning is the process of impoverishing oneself on paper in order to qualify for Medi-Cal (welfare).

This is becoming harder to do, and rightfully so.  Laws and regulations have been enacted closing loopholes in the law.  As an example, the 30-month look-back period will soon be changed to 36 months, or 60 months if assets are transferred to a trust to comply with OBRA 93. 

Estate recovery has been strictly enforced to recover some of the funds that actually belong to Medi-Cal.  Further, there have been more lawsuits regarding financial abuse of senior citizens—note some of the discussion of using annuities to avoid property transfer so to qualify for Medi-Cal.

Medi-Cal is a welfare program and was not intended to be used as an estate planning tool so that people with means can protect their assets by transferring them to others, thereby allowing Medi-Cal the privilege of picking up the bill for their long-term care.  The facts are that that attorneys and financial planners have assisted their clients in sending assets elsewhere so that their clients can qualify for Medi-Cal.  This has meant that taxpayer’ dollars intended to help the needy, infirm or indigent, are being spent otherwise.  The problem is that Medi-Cal (and Medicaid in other parts of the country) is running out of money.

The Omnibus Budget Reconciliation Act of 1993 makes it much more diffi­cult for upper and middle-class persons to qualify for Medicaid/Medi-Cal. Spend down and estate recovery has made an impact on those who transfer assets in order to qualify for Medicaid/Medi-Cal.

Medi-Cal’s requirements are quite complex, often dependent upon case law interpretations.  For those contemplating applying for Medi-Cal and to divest themselves of property and/or assets to qualify, should obtain advice from a qualified Elder Law professional before taking action.  This could be one of the most financially devastating decisions a senior could make.

 

Legal Counseling Individuals as How to Transfer Assets

HIPAA made it illegal for persons to transfer funds in order to make themselves eligible for Medicaid.  The Balanced Budget Act of 1997 amended this HIPAA provision, making it a crime for attorneys and others to counsel individuals (provided they are paid for such advice) to transfer assets and then apply during the penalty period.  To do so is a federal misdemeanor with penalties of up to one year’s imprisonment and/or up to $10,000 fine, and the law could be applied to lawyers, accountants, financial planners, insurance professionals, or anybody else who gave professional advice about Medicaid planning, for a fee.  In many places attorneys and financial planners advertised in newspapers and on television of their services to “preserve the estate in case of disability,” etc., and to a certain extent, still do so, but not as flagrantly. 

Due to efforts of the New York State Bar Association, however, the Attorney General declared this legislation unconstitutional and unenforceable, and an injunction against it was granted later that year with national implications.  In a letter to the Speaker of the House, she offered to help Congress write something that would be enforceable.  On 12-18-98 she filed a notice of appeal to protect the Justice Departments right to appeal the injunction.

Attorneys, insurance agents and financial planners should also be aware of the sharp rise in errors and omissions claims particularly for those involved in Medicaid planning.  These professionals must be wary of conflict of interest situations wherein they may be accused of representing the interest of the heirs in protecting their inheritance instead of protecting the best interest of the elderly client, which has been mentioned in respect to discussing LTCI with an elderly person or of not discussing LTCI with such a person.

Professionals may be deemed guilty of participating in “senior financial abuse” if they conserve the estate for the children or grandchildren by intentionally impoverishing the nursing home patient (many of whom are cognitively impaired) in order to qualify them for Medicaid/Medi-Cal.

The present “Medi-Cal Planners” advertise openly, often through “infomercials” an television, but they never publicly state that they are going to show how to avoid divesting oneself of personal property in order to be qualified for Medi-Cal benefits—although Medi-Cal is not mentioned by name.

It would behoove an agent to be well versed in Medi-Cal requirements and benefits so that they can refute some of the assertions made by these “planners.”  The state continues to provide strict regulations in this respect.  Regulations are available at the Department of Health Services website: www.dhs.ca.gov

Problems With Medi-Cal Planning

There can be a very strong case against Medi-Cal planning for a variety of reasons.  The very heart of the matter is that Medi-Cal planning and financial/estate planning are often diametrically opposed.  The big difference is, of course, that financial and estate planning is usually concerned with the upper-income and wealthy persons, while Medi-Cal is a welfare program.  It just makes sense to note that the two types of planning do not always work together well. 

Estate planning can have adverse Medi-Cal consequences as estate planning is concerned with the retaining of assets so that there will be an estate to transfer without paralyzing tax consequences; whereas Medi-Cal planning is the process of removing assets and property from the estate albeit to the advantage of the property owner/applicant.  There are gift taxes and inheritance taxes, although the inheritance taxes are gradually becoming extinct.  Tax on gifts can be very heavy on property transferred by gift—except for unlimited transfer among spouses, gifts to individuals have an annual limit of $10,000 (per “giver”) and then gift taxes start.

This is not to say that financial/estate planning and Medi-Cal planning should not both be addressed, it is simply a matter that the potential of earnings from a financially-planned opportunity of the tax savings because of a planned transaction, or some other action with positive estate tax implications, must be balanced against future loss of Medi-Cal benefits.

Another conflict could occur if the parent’s Medi-Cal plan calls for transferring excess assets to a child or other person, who may be in the position of having a much better tax outcome if the assets were left by inheritance.

Capital gains should be addressed, as the tax consequences to the recipient are different depending on whether a lifetime gift or an inheritance is received.  If the beneficiary simply gives their residence away, they lose the capital gains exclusion.  The person that receives the house, whether it be children or other persons, may take advantage of the capital gains exclusion if they have lived in the house at least two of the last five years before the house is sold.  If the house is given to children and the applicant for Medi-Cal continues to live in the house, when the house is eventually sold, the children could be liable for a substantial capital gains tax.

Eligibility for Medi-Cal benefits depends upon Medi-Cal rules, not tax or estate rules, so in effect, trying to integrate financial/estate planning with Medi-Cal planning is like riding horses going in two different directions.  For instance, if something is tax-deductible or has been removed from the taxable estate, has absolutely nothing to do with Medic-Cal eligibility or estate recovery.  Conversely, the fact that a transaction is permitted by Medicaid rules does not exempt it from income taxation or estate tax consequences.

The Danger of Transferring Assets

There are many concerns and disadvantages in transferring assets, starting with the obvious loss of the control of the assets once they have been transferred—which also means a loss of dignity, independence and freedom of choice.  A residence is usually the largest investment the individual has ever made, and there is often great emotional connection to the property which is lost if the property passes.

If the property is transferred and the proceeds given to the children, they may lose the money due to divorce or lawsuits, the child may die before the parent, and if stock or other investments are involved, the children may pay tax on the “paper gain” of the stock/property which was purchased at a lower price than what it presently is worth.

It makes good business sense to consider a Long Term Care Insurance policy instead of transferring assets as if some of the money that was to be transferred is spent toward such protection, there should be money left over, and in any event, it can be much less expensive and more effective than transferring funds. 

It simply is wrong morally and ethically for a person to artificially impoverish him/herself to that welfare pays for their nursing home expenses, plus, there is always the possibility that there can be serious legal and financial consequences.  And, in many cases, the transfer may not be effective if Medi-Cal beds are not available or at least available in the facility most convenient or best managed in the area.

Surveys have shown that the main reason people purchase Long Term Care Insurance is so that they can maintain choice, independence and personal dignity—asset protection is secondary.  Speaking of dignity, while transferring assets does not provide a dignified safety net because of loss of control of assets, LTCI provides a dignified safety net, especially for middle-income persons.

Careful planning must be made, based upon all alternatives, taking taxes into consideration by determining how the property transfer will affect a possible future Medi-Cal application, and how the property transfer would affect the administration and taxation of the estate.  Planning must be accomplished by a professional and competent legal advice is a must if transfer of property for Medi-Cal qualification is in the future.  In any event, insurance agents should never attempt to give legal or tax advice to their clients regarding property transfers.

Practical Considerations

Property reduction for the purpose of qualifying for Medi-Cal can create sort of a conundrum—one may wish to reduce excess property on the purchase of exempt assets prior to a entering a nursing home, however, it can be difficult to find a nursing home placement for a person that has no resources!

Nursing homes many not require private pay for a set period of time, although they can and do closely review potential patient’s finances before admission.  In many cases they will not accept Medi-Cal eligible residents so the longer a person can pay privately, the more options there are open to them in respect to choice of nursing homes.

A private pay patient may receive a higher level of service such as a private room and perhaps even better meals.  These factors should be taken into consideration if a person is contemplating reducing excess resources so as to become Medi-Cal “qualified.”  As mentioned earlier in the text, since a patient in a Medi-Cal certified facility couldn’t be transferred or evicted just because of a change from private pay to Medi-Cal, it may be advisable to find a Medi-Cal certified nursing home, even if they can afford to pay.

Medi-Cal Changes in 2004

The Department of Health Services has released draft regulations that would implement most of the OBRA’93 transfer rules. These regulations will likely include, among other changes, a 36-month look back period, rather than the current 30-month look back and a 60-month look back for trusts; aggregation of all transfers made during the look back period, thus eliminating the ability to make concurrent transfers; elimination of the ability of the community spouse to transfer separate property; and requiring annuities to pay fixed, equal monthly payments, thus eliminating balloon payment annuities.²¹⁷ 

 

STUDY QUESTIONS

 

1.  Medicare/Medi-Cal

      A.  is a welfare system that pays very little towards long-term care.

      B.  is a welfare system that pays a very large percentage of nursing home care costs.

      C.  is a federal government program authorized by HIPAA.

      D.  is a system of allowing middle-income Americans to provide long-term care.

 

2.  Medi-Cal’s largest budget item is

      A.  the cost of health care for underprivileged children.

      B.  subsidized housing.

      C.  cost of nursing home care for the elderly.

      D.  for home health care.

 

3.  Statistics indicate that the largest expenditure of Medicaid is

      A.  Hospitalization.

      B.  Health insurance.

      C.  Home Care.

      D.  Institutionalized Long Term Care.

 

4.  Statistics indicating the percentage of persons served by Medicaid by age would indicate largest percentage of persons served were

      A.  under 6 years old.

      B.  ages 6-20.

      C.  Ages 21-64.

      D.  Ages 65 and older.

 

5.  Medicaid does not cover

      A.  nursing home costs.

      B.  certain prescriptions.

      C.  physician visits.

      D.  assisted living or continuing care retirement communities (unless there is skilled nursing units within the center.

 

6.  Mary is a Medi-Cal beneficiary and has to go to a nursing home.  There is a “lovely” nursing home within 2 miles of her children.

      A.  Mary will be able to go to the place of her choice.

      B.  If a facility is available and Medi-Cal approved within a range of 10 miles, it would be approved for her.

      C.  If the nursing home is approved by Medicare, then she has the right to go there if she is also a Medicare beneficiary, whether or not Medicare pays for her institutionalization.

      D.  Mary has little, if any , choice as to where she can receive nursing home care, and even the type of care she will receive.

 

7.  Medi-Cal’s Person Care Services Program provides

      A.  assistance for those who are confined in a nursing home.

      B.  who need assistance only with financial matters.

      C.  care managers for those who need them.

      D.  services that will help individuals with basic ADLs, much as in Custodial Care.

 

8.  Once a person is admitted to a nursing home approved by Medicaid, and if later they are not able to pay the nursing home bills and become approved by Medicaid,

      A.  they will ordinarily be transferred to the Medicaid ward.

      B.  they will be moved from their semi-private room to any available ward.

      C.  they will be transferred to a nursing home that only handled Medicaid patients.

      D.  they cannot be transferred to another facility to be discriminated against in any way.

 

9.  To qualify for Medi-Cal, the recipient must demonstrate that

      A.  they can afford to pay for part of the nursing home care.

      B.  they are financial independent.

      C.  they have purchased an annuity with all of their assets.

      D.  they have limited resources available.

 

10.  A person who applies for Medi-Cal as they are going into a nursing home, and who has personal property above the Medi-Cal resource limit

      A.  must spend-down the assets to $2,000.

      B.  may give away assets until they only have assets worth $2,000.

      C.  has a period of 60 days before eligibility for Medi-Cal to transfer the property to another person without the proceeds going towards the nursing home costs.

      D.  may insert all of the assets less $2,000, into long-term securities.

 

ANSWERS TO STUDY QUESTIONS

1B     2C     3D     4C     5D     6D     7D     8D     9D     10A