CALIFORNIA MEDI-CAL GUIDELINES AND PLANNING FOR NURSING HOME CARE
California residents can get the state to pay for nursing home care thru Medi-Cal ("Medicaid"in most states). This guide summarizes requirements to obtain this benefit and planning to assure eligibility, plus reasons why elders need to plan before California adopts new rules mandated by Federal la
WHAT IS MEDI-CALCalifornia calls its implementation of the Federal Medicaid program "Medi-Cal." California administers this program through its Department of Health Care Services (the "DHCS") and various County welfare departments. Federal statutes and regulations, as well as less formal guidelines, both govern aspects of Medi-Cal eligibility, benefits and restrictions.
Medi-Cal is a "needs based " program, rather than an entitlement like social security or Medicare. In order to qualify for benefits, a person much meet very strict limits on assets which amount to impoverishment. Income can also limit your right to benefits under some circumstances even if you meet the asset limitations.
Medi-Cal covers a number of services, but this article focuses only on the long-term nursing home benefit.
Without Medi-Cal, you face costs of $10-30,000 per month if you need this care. Such costs can wipe out your (and your spouse's) wealth in many cases, or substantially impair the inheritance you can leave for your heirs. However, with proper planning, you can protect substantial wealth and income for your spouse and heirs, yet still be eligible for this benefit.
KEY PLANNING CONCEPTSIn planning for Medi-Cal eligibility, goals usually include to:
o Maximize Exempt and Unavailable Assets
o Avoid impoverishing your spouse by maximize the amount of property and income a spouse can keep
o Find ways to preserve property for your loved ones but not limit your eligibility (without proper planning, many gifts will make you ineligible).
o Minimize your "share of cost" for your care
o Limit Medi-Cal's ability to recover its expenses from your estate
Generally, the best way to give property to loved ones is through a special trust designed to work with the Medi-Cal rules. However, if gifts are not properly structured, they result in a period of ineligibility for nursing home benefits.
WARNING: THE NEED TO PLAN BEFORE CALIFORNIA CHANGES ITS RULES
Many of the Medicaid rules in other states tightened severely after President Bush signed the Debt Reduction Act of 2005 (the "DRA"). The rules will limit Exempt Assets, limit strategies to give property to loved ones, more than double the period of ineligibility for certain gifts and tighten other favorable California rules.
However, the most serious of those rules do not go into effect until the respective state adopts implementing regulations. Fortunately, California has not yet adopted the DRA rules. Therefore, you have a time-limited window of time when you can implement more effective planning than residents of other states can do.
STRICT ASSET LIMITSTo qualify for Medi-Cal nursing home benefits, an individual needs to essentially impoverish him/herself, down to less than $2,000 (!) of "Non-Exempt" assets.
If the applicant is married, the non-applicant spouse, also called the "Community Spouse," can generally retain no more than $120,190 in "Non-Exempt" assets. The rules refer to this amount as the "Community Spouse Resource Allowance" ("CSRA"). [See below under "INCOME AND SPOUSAL IMPOVERISHMENT" for strategies to increase this amount.]
Non-Exempt Assets include all of your property which is available to pay for your care, unless it is specifically categorized as an Exempt Asset. Non-Exempt assets include your:
o Investment Accounts
o Promissory Notes
o Most Investment Real Property
o Cash Value of Insurance Policies
o Stocks, Bonds, Bank Accounts and Brokerage Accounts
Fortunately, the rules let you keep "Exempt" assets - these do not count in determining your eligibility.
The most significant Exempt assets include:
o Your principal residence (currently of any value, so long as you state you intend to return there, even if that is highly unlikely) - a principal residence can include an entire multi-family residence, so long as at least one unit is your principal residence!
o Jewelry within limits
o Your personal effects and most household goods
o Musical instruments
o One vehicle
o Term Life Insurance Policies with no cash value, and other life policies with less than $1,500 aggregate cash value
o Prepaid Funeral Arrangements / Burial Plots
o Medi-Cal Qualified Annuities
o Other real property (including rental real estate) with a "value" (lesser of fair market value or property tax assessed value) of less than $6,000, after subtracting encumbrances (mortgages)
o Most property used by the applicant in a trade or business (but, not ownership interests in a corporation, partnership or LLC, though see below under "Unavailable Assets").
Sound planning can be used to convert some Non-Exempt Assets to Exempt Assets.
UNAVAILABLE ASSETSThere are other assets which, even if not Exempt, are considered "Unavailable," and therefor do not count toward disqualifying you. These can, subject to limitations, include
o Some fractional interests in a closely held Corporation, Partnership or Limited Liability Company
o Joint Tenant Interest in Real Property
o Interest in an Operating Business
o Other Assets that are difficult to sell (so long as you make active efforts to sell them)
INCOME AND SPOUSAL IMPOVERISHMENTIn determining an Applicant's Income, Medi-Cal uses a "Name on the Check Rule", which means that income in the name of the Applicant will be treated as available for his/her care under a "Share of Cost." That would apply to interest, social security, pensions, IRA distributions, etc., (Medi-Cal will allow the Applicant to retain all of $35 per month or his/her Personal Needs Allowance - whoop de do). Share of Cost can be further reduced by any premiums paid for supplemental insurance; dependent care; and to keep the spouse from being "impoverished".
A well spouse can keep from joint or applicant income the Minimum Monthly Maintenance Needs Allowance (MMMNA), which is $3.023 in 2017. However, the well spouse's personal income will be subtracted before any MMMNA is paid from the joint or applicant income.
Since the standard MMNA is relatively low for many California couples, he/she can request a court (or, less often, a DSRA hearing officer) to increase the MMMNA to an amount which equals his/her current amount needed to maintain lifestyle. IF the MMMNA is increased above the amount of income currently available, the same order can increase the CSRA to a level the court thinks will provide adequate income, allowing the spouse to retain substantially more than $120,190 (2017 number) that the CSRA otherwise allows. When interest rates are low, an increase in the MMMNA of just $1,000 per month and increase the CSRA your spouse can keep by as much as $1.2 million!
PRESERVE PROPERTY FOR HEIRS AND AVOID TRANSFER PENALTIES AND LOOKBACKTo get Medi-Cal to evaluate your eligibility, you must disclose all transfers by you to any non-spouse for less than fair market value within the "Lookback" period, currently 30 months in California (the Lookback will increase to 60 months when the DRA rules go into effect).
The amount of any gifts is then divided by the Average Private Pay Rate ("APPR") of $8,515 (scheduled to change in April, 2018). The result, rounded down to whole digits, becomes the number of months of your ineligibility. Thus, a gift counted as less than the APPR results in NO INELIGIBILITY.
California has a unique rule allowing "Stacked" Gifting where multiple gifts are each counted separately for ineligibility, and the periods of ineligibility run concurrently. So, you could, if properly documented, make multiple gifts of $8,500 and have ZERO ineligibility. It is possible to protect hundreds of thousands, or even millions, in value with well-designed Stacked Gifting. In some cases, applicants with multiple children and accounts can give away millions in a single month with no period whatsoever of ineligibility.
NOTE: We expect California's favorable rules on stacked gifting will be lost once it adopts the DRA rules, and ineligibility will start not with the date of the gift, but with the date you first need nursing home care. That means, if you want to protect assets, you need to implement planning before the DRA rules go into effect.
Using the right kind of trust for gifts can also improve the tax and non-tax treatment of these gifts.
The rules on ineligibility and Stacked Gifting are very complex. You should not attempt to structure Stacked Gifting without assistance from a qualified elder law attorney.
LIMIT ESTATE RECOVERYMedi-Cal has the right to recover from a patient's estate the cost paid by Medi-Cal for his/her care after death. Nothing is recovered while his or her spouse lives.
Fortunately, a new statute effective January 1, 2017 limits recovery to the patient's "Probate Estate." Therefore, property held through a living trust, the interests of named beneficiaries on life insurance, IRAs, pensions and the like are no longer subject to estate recovery, adding to the benefits of sound estate planning.
NOTE: Medi-Cal rules and strategies can be quite complex, can change over time, and involve significant tax aspects not discussed above. Medi-Cal planning should also be integrated with an Applicant's estate plan. This article provides only a summary of the rules as of April, 2017. Before acting or relying on this summary, you need to get current advice from counsel familiar with the relevant issues and your specific situation.
If you have any questions or comments about the subject of this article, contact the author at [email protected]