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MEDI-CAL PLANNING
Legal and Financial Planning for the Elderly: Long Term Care
by A. ANN ARMSTRONG, Esq.
November 1, 2007
Clients often request information concerning the benefit programs that are available to retirees and to those who are elderly and infirmed. This article is intended to serve as a primer on the subject.
I. Overview of the Benefit System
1. Medicare Program. Medicare is a program of federal insurance, earned over a worker's lifetime. Among other things, Medicare pays for hospitalization. In addition, after a minimum three day hospital stay Medicare may pay 100% of the cost of care in a skilled nursing home facility for as much as 20 days, so long as the stay is "medically necessary". If "medically necessary" for rehabilitation, therapy or other care, Medicare continues to pay 20% of costs in the nursing home for an additional 80 days (a total of 100 days). A Medicare Supplemental Insurance policy will pay as much as 80% of the remaining charges, depending upon the policy. However, the Medicare Supplement does not pay unless Medicare coverage is in effect. If it is not "medically necessary" for the care in a nursing home (such as for custodial care alone), then neither Medicare nor a Medicare Supplemental policy will pay.
2. Medi‑Cal Program: Medi‑Cal is a joint program of benefits financed by California and the federal government, each paying 50% of costs. In California, the program is administered by the Department of Social Services who maintain offices in each county in the State. In other states, the federal program is called Medicaid. Medi‑Cal is called a "Needs Based" program, because there are limits to the resources one may have in order to be eligible for benefits. Medi‑Cal is the program that many have come to rely upon to pay the cost of custodial care in a nursing home.
Indeed, many families have come to look upon the Medi‑Cal program's benefits as a right. This is so for two reasons. First, the health care policy in our country discriminates against certain kinds of illnesses. One who suffers from a heart condition may be entitled to hundreds of thousands of dollars of medical expenses ‑‑ all covered by Medicare, while another who suffers from a disease such as Alzheimer's, Parkinson's Disease or Multiple Sclerosis (or other crippling disease) receives no Medicare benefits at all! Second, the family "struck by lightning" (a random event), that is, one whose loved one has a degenerative disease not covered by Medicare, believes that the cost of long‑term care should be of national concern, rather than rest upon the resources of that particular victim's family! In any event, whatever our particular political persuasion, most perceive the need for a national health care policy that covers the long‑term care of one who is the victim of any ‑‑ and not only selected diseases or conditions.
Second, there is no useful information generally available to the public. Unless a family member gets in touch with a qualified Elder Law Attorney, the entire issue of long-term care and the Medi-Cal program is directed (or mis-directed) by rumor and misinformation! Certainly no accurate information can be gleaned from the County itself.
II. Administration of Medi‑Cal by the California Department of Social Services
Few are aware of the basis for Medi‑Cal, that is the source of law that governs the benefit program. First, federal statutes and federal regulations govern eligibility. At the State level, we have statutes (enabling legislation) and regulations that are supposed to conform to the mandates ‑‑ and the limitations dictated by federal statutes and federal regulations.
Much of the actual implementation of the Medi‑Cal program is set forth in "All County Letters" ("ACL") from the Director of the Department of Health Services to the various county offices of Social Services. You might say that the ACL's dictate the "nitty‑gritty" of the benefit programs. At the county level, administration of the benefit programs can vary dramatically from worker to worker (due to lack of training and information), and from county to county (probably due to the local political climate). Thus, it is not unusual to find substantial differences in the treatment one receives under these circumstances. As evidence of such inconsistencies, our experience has proven 100% successful in overturning unfavorable decisions regarding eligibility through the Fair Hearings (appeals) process. Experts throughout the State find that approximately 85% of unfavorable decisions are overturned on appeal. Obviously, many errors are made by county workers, and the uneducated and unwary are easily intimidated by the system.
It is also true that the implementation of federal law and federal regulations is slow to occur. In January 1990, for example, the Medicare Catastrophic Coverage Act became effective in California, and its provisions make significant changes in the rules for eligibility. However, some of its major provisions (penalties for transfers) were not implemented for 34 months ‑‑ almost three years! During that time, federal law was ignored and anyone who transferred his or her resources immediately qualified for Medi-Cal benefits, regardless of the amount transferred.
III. Specifics of the Medi‑Cal Program
An understanding the Medi‑Cal program can best be approached by dividing the discussion between (1) eligibility, (2) transfers of resources, (3) treatment of income and share of cost, and (3) recovery.
1. Eligibility: Exempt Assets. For eligibility, one must meet certain resource or asset limitations. Some assets are not "countable". In other words, they are "exempt", as follows:
One Residence
One Automobile
All Household Furniture and Furnishings
All Jewelry
A "Pre‑Need" Burial Plan (unlimited value)
A Savings Account of $1,500, established for "Last Rites"
Life Insurance with a Face Value of no more than
$1,500, or (if more than $1,500 Face Value)
no more than $1,500 of Cash Value
$2,000 for an "Individual" Applicant
$101,640 for the Community Spouse of an Individual
("Community Spouse Resource Allowance", or "CSRA")
2. Eligibility: Penalties for Transfers of Non‑Exempt Assets. For assets that are not exempt ("non‑exempt resources"), an Applicant (the ill individual) and/or Community Spouse (the well spouse at home) must "spend down" until he or she reaches the limitations. Otherwise, an Applicant and/or his or her Community Spouse may transfer assets to another (such an irrevocable trust), in order to meet the limitations. In considering ("counting") a couple's assets, note that the separate property of either spouse is included, along with any community property. Indeed, the federal law expressly provides that "community property laws are to be disregarded" in determining eligibility. Pre‑nuptial or Ante‑nuptial Agreements offer no protection for purposes of establishing Medi‑Cal eligibility for an ill spouse.
Transfers of assets have not been severely penalized in California to date. According to law, the transfer of non‑exempt assets imposes a penalty period, or period of ineligibility (during which time an Applicant must pay for his or her care from family funds). The period of ineligibility is ordinarily determined by the amount of the transfer, divided by the average cost of nursing home care in the State of California for the previous year (presently $5,101 per month, referred to as the "2007 Private Pay Rate"). Accordingly, for a transfer of non‑exempt resources in the amount of $50,000, the period of ineligibility (or "penalty period") would ordinarily amount to nine (9) months ($50,000/$5,101 = 9.8 months, with the fraction of a month being ignored!). However, in the case of a transfer of $200,000, the period of ineligibility would not be thirty nine (39) months ($200,000 / 5,101 = 39.2), since the penalty period is now "capped" at thirty (30) months (the maximum period of ineligibility imposed for any transfer, otherwise referred to as the "look‑back period").
Notwithstanding the federal rules, California has chosen to treat transfers of non‑exempt resources quite differently! For a couple, it is now possible for the Applicant (ill spouse) in the nursing home to transfer his or her assets to the Community Spouse (well spouse at home). Thereafter, the Community Spouse is free to retransfer any disqualifying assets to another (for example, an irrevocable trust), without penalty! As soon as the transfers are complete, the Applicant (ill spouse) is eligible for Medi‑Cal benefits.
For individuals, California has chosen to treat "penalty periods" as if they run concurrently, that is, to treat each transfer on its own rather than in the aggregate. Thus, the individual who transfers $50,000 from one bank account would be penalized by being ineligible for nine (9) months, whereas the same $50,000, if broken into five (5) $10,000 accounts/CD's/stocks/bonds/or what‑have‑you, would be penalized only one (1) month ($10,000 / 5,101 = 1.9 months), and each penalty period would run concurrently with all others!
It is also fair to note that California has treated annuities (those that provide current income to the beneficiary) as "unavailable". Accordingly, purchasing an annuity with excess funds, rather than "spending down" to the resource limit, has been one option that families have considered in the past. However, the annuity is subject to recovery by the State of California upon the death of the annuitant! Accordingly, the purchase of an annuity in connection with Medi-Cal planning is not recommended!
5. Income and Share of Costs. Since January 1, 1990, the Department of Social Services has treated income by looking to the "name on the check". A community spouse (well spouse at home) can retain all of his or her income, even if it is derived from separate property. The Medi‑Cal beneficiary in the nursing home is assigned a "share of costs" equal to his or her income. However, there is an important exception to the general "name on the check" rule. If such income is available to either spouse, a community spouse must be allowed to keep a minimum of $2,541 per month. In the case where the ill spouse in the nursing home receives $1,200 per month from Social Security and/or pensions, and the community spouse receives Social Security of $500 per month (a total of $1,700), the Medi‑Cal beneficiary's share of cost is zero (‑0‑). The community spouse keeps all income (up to $2,541). If, in the same case, the community spouse's income amounted to $2,500 per month (for a total of $3,000 per month), then the Medi‑Cal beneficiary's "share of costs" would be $459 per month, less a personal needs allowance of $35 per month, or $424 per month ($3,000 ‑ $2,541 = $459 - $35 = $424).
In the case of an unmarried, or individual Medi‑Cal beneficiary, his or her share of costs is based upon the total amount received, less a $35 per month personal needs allowance.
These rules have not changed under OBRA '93, other than those associated with the cost of living indices.
4. Recovery Upon Death of Medi‑Cal Beneficiary: Prior to July 1, 1993, recovery by the State was limited to real property owned by a decedent/Medi‑Cal beneficiary at death, and no recovery was allowed if the decedent was survived by his or her spouse. New legislation was passed by the legislature on July 1, 1993, which permitted the State to recover any and all benefits received by a Decedent during his or her lifetime, from his or her estate. Consistent with federal law, the 1993 law extended the State's right to recover against personal property (bank accounts, stocks, etc.) as well as real property, including real or personal property held in joint tenancy with another!
Thus, recovery by the State has become a trap for the unwary. Elders who have placed their children's names on title as joint tenants, believing that such strategy would avoid probate and avoid a Medi‑Cal lien (true under prior law), are in for a rude awakening!
Further, while California law does not allow recovery upon the death of a Medi-Cal beneficiary who is survived by a spouse, recovery may be made upon the death of that same surviving spouse! This is so when the surviving spouse inherits real or personal property upon the death of the Medi-Cal beneficiary. -- Another trap for the unwary!
IV. What‑to‑do: Strategies
First, don't wait for the crisis. Plan ahead, to the extent possible. Get your "ducks in a row" beforehand, rather than waiting until it's too late! Consider the following:
The foremost, most important step that the family of an ill person can take is to have that person execute a comprehensive Durable Power of Attorney for Property Management. The statutory, stationery store form Durable Power of Attorney is wholly insufficient to meet the needs of a chronically ill person who is facing long‑term care! Without the proper legal authority to act on behalf of an ill person, the family may have to bring a conservatorship (court) proceeding to gain authority to act appropriately. This expensive, sometimes humiliating proceeding should be avoided at all costs.
Second, if your loved one is now in a nursing home and an application for Medi‑Cal benefits is an option, he or she should transfer all property from his or her name. Otherwise, the State will recover, to the extent possible, all benefits paid during his or her lifetime.
Third, consider creating an irrevocable trust to hold the Medi‑Cal beneficiary's assets. The language of a trust instrument can be structured to preserve valuable capital gains tax benefits, such as a "stepped‑up" basis at date of death, the right of the trustee to sell the residence during the loved one's lifetime and also utilize the $250,000 exclusion from capital gains tax.
Finally, if Medi‑Cal planning will be required in the near future, DO IT! Once California implements the new federal legislation, your options will be severely limited.
If you have further questions, please telephone Patricia Callahan of our office, at (530) 269‑1515. She can keep you abreast of new developments, and also assist you with planning for your loved one! Your questions will be met with a caring attitude, and competent, cost-effective approach.
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