If you are concerned about long term care costs, you are not alone. According to the study Aging in Place in America, more people over the age of 65 are afraid of moving into a nursing home than are afraid of death.
One of the problems with our fears is that so many of us choose to ignore them. Ignoring the possible need for nursing home care means that you miss out on the valuable chance to plan ahead. Not only does planning ahead let you shape what your nursing home experience might look like, it also allows you to think carefully about how you’ll pay for nursing home care. Perhaps more accurately, it gives you time to find alternatives for paying for care, so you can preserve your hard-earned assets.
One of the most-used alternatives is Medi-Cal. We regularly assist clients with Medi-Cal planning for Long Term Care.
What is Medi-Cal?
Medi-Cal is the name of California’s version of Medicaid, a joint federal-state program that pays certain healthcare costs. The program is needs-based, meaning that it is available to those who meet certain financial criteria, including income and asset limits. The federal government helps to fund the program, and it establishes the program’s guidelines. Each state receives varying amounts of matching funds and grants from the federal government, and each state is allowed by federal law to interpret and enforce the Medicaid/Medi-Cal eligibility guidelines within reason.
With each state empowered to enforce Medicaid/Medi-Cal guidelines according to its own interpretation, the actual rules for qualifying for Medicaid can vary significantly from state to state. People tend to confuse Medicare and Medi-Cal, but the two programs are not the same.
Medicare is federally funded health insurance designed for people 65 and older or on Social Security Disability for over two years. The coverage available through the program is divided into four categories, called “parts”:
- Part A is hospital coverage. It helps pay for the cost of inpatient care in a hospital or skilled nursing facility with a limit of 100 days. It also provides some coverage for home health care, as well as hospice care.
- Part B is medical coverage. It helps pay for medical services other than hospital stays, such as doctor’s visits, outpatient care, certain types of medical equipment, and home health care.
- Part C is also known as Medicare Advantage. Under Medicare Advantage, recipients of Medicare can choose to take their Medicare benefits through private health insurance plans, rather than through Medicare Parts A and B.
- Part D is prescription drug coverage. It helps to defray the cost of prescription medications.
While Medicare covers many healthcare expenses, it does not provide complete coverage. For instance, many people are surprised to discover that the program’s coverage for long-term care is extremely limited both in scope of service and length of coverage, if any.
Who Needs Medi-Cal?
The goal of the Medi-Cal program is to provide health care coverage for people with limited income and assets. The program is aimed at providing coverage to low-income senior citizens, children, and people with disabilities.
Because Medi-Cal offers more comprehensive long-term care coverage than the Medicare program, and because long-term care costs are so high, many middle class seniors rely on Medi-Cal to pay for their care.
A common misconception about Medi-Cal is that you have to impoverish yourself and your family completely before you can qualify for long-term care coverage. This is simply not true. Medi-Cal guidelines allow you to keep certain assets and they allow your spouse, who does not need nursing home care, to retain at least a portion of his or her income. Also built into the Medi-Cal guidelines are “safe harbor” provisions that allow you to plan ahead so that you can protect at least a portion of your assets and still qualify for long-term care coverage through Medi-Cal.
This guide will give you a basic overview of Medi-Cal guidelines and help you understand some of your planning options. Remember, it is never too late to qualify for Medi-Cal. However, the earlier you begin to plan, the easier it is to make the most of the safe harbor provisions… and the more likely you’ll be to keep all or most of your assets, rather than making unnecessary nursing home payments.
How do the Medi-Cal Rules Work?
Medi-Cal has a reputation for being complicated and difficult to qualify for. There are a few reasons for this. First, because each state decides how it will apply and enforce federal Medi-Cal eligibility guidelines, the details of eligibility vary from state to state. Second, Medi-Cal guidelines tend to change frequently. Third, each person’s circumstances are different. The way the Medi-Cal guidelines are applied to your neighbor’s, or your brother-in-law’s, situation may not be true for your situation. This is why estate planning and elder law attorneys do not recommend a do-it-yourself approach to Medi-Cal planning.
Use this guide to get an overall picture of how the Medi-Cal program works, and then talk to a qualified elder law attorney who has experience with Medi-Cal planning. He or she can let you know how California’s Medi-Cal rules apply to you. They can also help you design a plan that will allow you to retain as much of your assets as possible while applying for long-term care coverage.
Income and Assets
When it comes to Medi-Cal planning for long-term care, eligibility depends on a handful of factors. After you have demonstrated that you need nursing home care, two things matter: your income and your assets.
Countable Assets vs. Exempt Assets
Viewed through the lens of Medi-Cal requirements, each of your assets falls into one of two categories: either countable or exempt.
Countable assets are those whose values are tallied, and the total value is compared to Medi-Cal asset limits for purposes of determining eligibility. Exempt assets are those whose values are not looked at for purposes of determining Medi-Cal eligibility.
Because the list of exempt assets is short, the best definition of a countable asset is an asset that is not on the list of exempt assets.
Exempt assets include:
- Your home, up to certain equity limits
- Personal belongings such as clothing and jewelry, as well as furniture and other household items
- One motor vehicle, as long as it is used as transportation for you or a member of your household
- A designated funeral fund for you with a value of up to $1,500 or a prepaid funeral plan of a reasonable amount
- A life insurance policy with a face value of $1,500 or less
- Certain assets that are considered “inaccessible”
- If you are married and your spouse’s total income does not reach the statutory minimum, certain other assets may be deemed exempt in order to raise your spouse’s total income up to the minimum
With very few exceptions, everything you own that is not identified as an exempt asset is included when your assets are totaled for purposes of determining your (or your spouse’s) Medi-Cal eligibility. This includes:
- Checking and savings accounts
- Stocks and bonds
- Mutual funds
- Certain Trusts
- Certain real estate
- Certificates of deposit
- Motor vehicles (other than your primary vehicle) and boats
- Most other assets
The total value of countable assets you are permitted to have as a Medi-Cal nursing home recipient varies from state to state, and it changes each year based on inflation and other factors.
Currently, to qualify for Medi-Cal, you as a nursing home resident are allowed to have no more than $2,000.00 countable assets. If you are married, your spouse who does not live in a nursing home (called a “community spouse” under Medi-Cal guidelines) can typically keep half of your joint countable assets up to a maximum of $123,600 in 2018.
Medi-Cal also applies income limits to nursing home residents and their spouses. Currently, nursing home residents are permitted to have up to $35.00 per month in income each. If your income exceeds the maximum, the excess is paid to the nursing home as a contribution toward the cost of your care.
If you are married, your spouse is allowed to keep his or her income. If you are the main breadwinner, and your spouse does not have enough income to live on, he or she is entitled to a Minimum Monthly Maintenance Needs Allowance (MMMNA) which is $3,090 in 2018. If your spouse’s income does not reach the MMMNA, then instead of being paid to the nursing home, your excess income goes to your spouse in the amount required to boost his or her income to the monthly minimum.
Mary and Joe are a married couple. Joe is in a nursing home, and Mary is the at-home spouse. Mary’s MMMNA has been set at $3,090, but she only receives $1,200 per month in Social Security. Here is what happens to Joe’s $1,900 in Social Security income under the Medi-Cal rules:
$ 2,000.00 Joe’s Social Security Income
– 35.00 To Joe
– 1,890.00 To Mary (to allow her to reach MMMNA)
$75.00 Paid to Nursing Home
Why is Medi-Cal Planning Important?
What happens if the time comes for nursing home care and you don’t meet the Medi-Cal income and asset tests? For too many people, the answer is to enter the nursing home and pay for care out of pocket each month until they have spent enough assets to qualify for coverage.
With annual nursing home bills averaging over $100,000 in California in 2018, many residents go through their life savings in a matter of months, rather than years. There are a couple of problems with this approach.
First, spending your assets in this manner leaves your loved ones with no financial cushion. Wouldn’t it be a shame to let a lifetime of hard work and disciplined savings go to waste, leaving your family without a safety net in the event they are faced with their own crisis in the future?
Second, there is often no need to spend all, or even most, of your assets on nursing home care before you can qualify for Medi-Cal coverage. The Medi-Cal guidelines have built-in “safe harbor” provisions that allow you to plan ahead and protect your assets.
However, because the rules are complicated, many people do not seek expert help and end up making one of two mistakes: they either spend more than they should, or they run afoul of the rules and subject themselves to harsh penalties.
Why Not Just Give Away Your Assets? The Look-Back Period
Some people mistakenly believe that they can simply give some or all of their assets to their children or other relatives in order to qualify for Medi-Cal. The truth is, part of Medi-Cal planning may involve giving away some of your assets. However, this has to be done with extreme caution and should only be done with the advice of an experienced attorney. If you give away your assets at the wrong time, or use the wrong method, you can face tough penalties.
In 2006, the federal government passed a law called the Deficit Reduction Act (DRA). As a result of this law, it is harder to qualify for Medi-Cal. One of the tough provisions of the DRA is the five-year “look-back period.” Currently, California imposes a thirty month “look back period”, but will likely comply with the longer five year period in the future.
Currently in California, this provision imposes a penalty, tied to the state’s average cost of nursing home care, to certain transfers made within the thirty months before you apply for Medi-Cal coverage.
For example, in 2018, for every $8,841.00 worth of assets that you give away 30 months prior to applying for Medi-Cal (the “look-back period’), you are ineligible for benefits for one month.
There are some important exceptions to the look-back period. Because the rules are strict and the penalties are harsh, it is critical that you seek the advice of an experienced and qualified elder law attorney before you attempt to give away any assets.
Can’t You Give Away $15,000 Per Year?
A common myth about Medi-Cal eligibility is that people can give away up to $15,000 per year per person in order to qualify for coverage. This myth stems from confusion between the federal gift tax law and Medi-Cal law. Under federal gift tax law, you are permitted to give away up to $15,000 annually (as of 2018), per recipient, to an unlimited number of recipients without the need to file a gift tax return. While gifting certain assets can be part of Medi-Cal pre-planning (discussed below), gift tax rules do not apply to the Medi-Cal program. In other words, Medi-Cal applicants do not enjoy an absolute, penalty-free right to give away any amount of property, no matter how small.
In the next installment, we’ll look at various planning options to obtain Medi-Cal benefits while preserving hard earned assets.