Employer sponsored pension plans are all but a thing of the past. In addition, Social Security retirement benefits have not kept up with the cost of living. Consequently, many people now fund their own retirement through the use of tools such as an Individual Retirement Account (IRA). If you are one of those people, and you are now faced with the need to qualify for Medi-Cal to help pay for the high cost of long-term care, you may be wondering if your IRA is at risk. To help you plan ahead, we discuss whether Medi-Cal can take your IRA.
Why Might You Need to Qualify for Medi-Cal?
When you reach retirement age, your odds of needing long-term care (LTC) will already be high (about 50-50) and will increase each year. The longer you live, the higher the odds that you will end up in a nursing home. Paying for that care could put your assets at risk given the high cost of LTC. In the Sacramento area, a year of LTC care cost, on average, almost $130,000 per year in 2018. Like most seniors, you may rely on Medicare to cover most of your healthcare expenses once you retire; however, because Medicare excludes LTC, you won’t be able to turn to Medicare for help with your LTC bill. Unfortunately, most health insurance policies also exclude LTC expenses. Medi-Cal (California’s Medicaid program) does cover LTC expenses, which is why over half of all seniors currently in a LTC facility rely on Medicaid for help paying their bill. Qualifying for Medicaid, however, can put your assets at risk because of the low income and asset thresholds imposed by the program.
Is Your IRA Subject to the Medi-Cal Spend-Down Rules?
Eligibility for Medi-Cal for the aged and disabled depends, in part, on an applicant’s income and assets. To qualify, the value of your “countable resources” and your monthly income must not exceed the program limits. If you have resources valued in excess of the limit when you apply, Medi-Cal will deny your application and expect you to “spend-down” your resources in order to qualify. Fortunately, some assets are exempt from consideration when applying for Medi-Cal.
When it comes to your IRA and how it is treated, Medi-Cal will count your IRA or 401k as an available source of funds to pay for your care, unless it is in payout status. “Payout status” means that you are taking at least the required distribution out of your plan on a monthly basis. If your IRA account is in payout status, the monthly payment will be counted as income, thereby impacting the Medi-Cal income limits. Either way, your IRA account will potentially be an obstacle to qualifying for Medi-Cal which is why it so important to incorporate Medi-Cal planning strategies into your comprehensive estate plan long before you actually need to qualify for benefits.
The Medi-Cal Estate Recovery Program
If your application for Medi-Cal is approved, there is still another potential threat to your assets that you should consider because your initial eligibility evaluation for Medicaid is not the only time your assets could be at risk. The Medi-Cal Estate Recovery Program (MERP) puts your assets at risk once again after your death. The purpose of MERP is to allow the individual states to try and recover some of the funds they spend on Medi-Ca; recipients after the recipient’s death. The MERP rules allow the California Department of Health Care Services (DHCS) to file a claim against the recipient’s estate, for the amount spent on the recipient, during the probate of the estate. Assets included in your estate after your death are, therefore, still at risk of being lost to Medi-Cal. There are, however, some limits to MERP. DHCS will not file a claim:
- While the member’s spouse/registered domestic partner is living
- If the member is survived by a child who was younger than 21 when the member died
- If the member is survived by a child of any age who is blind or disabled (as defined by the federal Social Security Act) as of the date of the Estate Recovery claim
There is also a catch all “substantial hardship” exemption to a MERP claim that you may be able to claim if faced with a claim for assets. Because hardship claims are evaluated on an individual basis, talk to your estate planning attorney about the possibility of using the hardship exemption.
Please download our FREE estate planning checklist. If you have additional questions or concerns about how Medi-Cal will treat your IRA, or about Medi-Cal planning in general, contact us at the Northern California Center for Estate Planning & Elder Law to discuss your legal options by calling (916)-437-3500 or by filling out our online contact form.