Medi-Cal Planning for Long Term Care
One of the more frequent inquiries this office receives is in regard to Medi-Cal planning as it relates to the costs of long-term care. This article will provide some basic information about Medi-Cal to help you determine whether Medi-Cal planning would be beneficial for you or someone close to you.
What is Medi-Cal?
Medi-Cal is the California needs based health care program which is funded both by Federal Medicaid funds and California state funds. Medi-Cal will cover long-term care if ordered by a physician and deemed medically necessary. Medi-Cal will not cover most assisted-living facilities and will not pay for a private room. Medi-Cal is only available to those who do not earn enough to provide for their own health care. Recent changes in the law have substantially affected Medi-Cal rules.
Medi-Cal Eligibility
In the case of a married couple, when both spouses are going to live in a long-term care facility, to be eligible for Medi-Cal, each spouse has to show s/he is medically needy. In other words, that s/he has a monthly income insufficient to pay for necessary medical care.
After a brief period with no asset test at all, eligibility for Medi-Cal is again based on amount and type of income, as well as personal assets. Currently, individuals cannot have more than $130,000 in assets ($195,000 for a married couple). Certain assets, such as a house, one vehicle, and some retirement accounts are exempt and do not count against this amount.
If one spouse enters long term care and the other remains in the community, Medi-Cal will not count the income of the community spouse. Under the current rules, in addition to the institutionalized spouse’s $130,000 asset limit, the married couple can keep an additional $162,660 (Community Spouse Resource Allowance “CSRA”) in non-exempt resources. This is intended to prevent impoverishment of the community spouse. This amount increases each year. Additionally, retirement accounts in the name of the community spouse are generally exempt.
There is no limit on the income of the community spouse, but the state sets a minimum monthly maintenance needs allowance (MMMNA) every year, which in 2026 is $4,067 per month. The community spouse may supplement his or her monthly income to this set limit ($4,067), either by taking some of the institutionalized spouse’s income or by keeping additional income-producing resources. Therefore, if the community spouse’s income is less than $4,067 per month, the income of the institutionalized spouse can be transferred to the community spouse up to that amount, subject to the institutionalized spouse’s right to $35 for his personal needs allowance. Note that this is an exception to the share of cost rules outlined below.
For example:
Joe enters into a nursing home paid for by Medi-Cal and has monthly income of $4,000. Joe’s wife, Mary receives $900 per month from Social Security. Mary is short of the MMMNA by $3,167. Joe can allocate $3,167 of his income to Mary to bring her up to the $4,067 MMMNA and deduct it from his share of cost, leaving him with only $833. He is obliged to pay $798 for his own care (i.e. $4,000 minus $3,167 minus $35 personal needs allowance).
Income and Share of Cost
While you are in long term care, you can keep income of up to $35 per month. That is called the “maintenance need standard,” and is set by the state. If your income is higher than that, you may qualify nonetheless if you agree to pay the medical costs each month until you reach the $35 threshold, then Medi-Cal will pay the remainder, provided the services are covered. This is known as the share of cost.
For example:
If Joe enters a skilled nursing facility and his income is $1,200 per month from Social Security, Joe will have to pay $1,165 toward the cost of the facility, that will be his share of cost. Joe is entitled to keep only $35 of his $1,200 per month Social Security check as his personal needs allowance.
If you require a nursing home level of care, Medi-Cal will pay the cost, as long as you pay all of your income, minus the $35 personal needs allowance.
What does Medi-Cal Cover in Terms of Long Term Care?
Medi-Cal has several different types of programs, and each one utilizes different rules. Long term care will be covered if ordered by a physician, and “medically necessary.” You should know that Medi-Cal will generally not cover assisted-living facilities and will not pay for a private room. Further, because nursing homes can charge private-pay residents considerably more, at times they may have admissions policies that discriminate in favor of private-pay residents. Applicants often fear that they will receive inferior care as a Medi-Cal recipient based on the knowledge that the facility gets paid considerably more from private-pay residents than from Medi-Cal. Of course, the law requires equal treatment, but economic incentives continue to encourage facilities to favor private-pay residents.
When just one spouse of a married couple applies for Nursing Home Medi-Cal or a Home and Community Based Services (HCBS) Medi-Cal Waiver, only the income of the applicant is counted. To be eligible, the applicant’s income cannot exceed $2,982 per month for nursing home care, and $1,530 for Home and Community Based Services (HCBS) programs. Income is counted differently when only one spouse applies under the Regular Aged, Blind and Disabled Medi-Cal. In that case, the income of both the applicant and non-applicant spouse is calculated towards the applicant’s income eligibility. Individuals and couples whose income exceed the above amounts will be deemed ineligible. Note: There is no Monthly Maintenance Needs Allowance for a non-applicant spouse for non-nursing home (i.e., assisted living) care.
Annuities
When you invest in an annuity, you enter into a contract with an insurance company under which, in return for your investment, the insurance company promises you (and/or your heirs) a stream of payments starting immediately or in the future. An annuity can be appropriate as part of an overall financial plan, even for an older adult. There are two basic types of annuities: immediate annuities, in which the pay-out begins shortly after the contract is entered into, and deferred annuities in which the payout is delayed. Both immediate annuities and deferred annuities can be purchased as fixed or variable. Fixed annuities lock in an earnings rate, while variable annuities do not lock in an earning rate and depend on how investments in the stock market perform.
The Medi-Cal program regulates the treatment of annuities in great detail. Deferred annuities are counted as available resources by the Medi-Cal program. An immediate annuity is considered “unavailable” because the purchase of the annuity is irrevocable and there will be periodic payments of principal and interest. But an immediate annuity must be likely to make all of its payments within the applicant’s lifetime (or based on the spouse’s lifetime) otherwise Medi-Cal will consider the annuity a partially disqualified transfer to the annuity’s remainder beneficiary. Payments from an immediate annuity are considered “income” and must be used towards share of cost if eligibility is established. Also, DHCS seeks recovery against the residual of annuities after the death of the Medi-Cal beneficiary.
Medi-Cal Recovery
Upon the death of an individual, the Department of Health Care Services will seek to recover the amounts paid by Medi-Cal during the individual’s lifetime. If the individual is married, DHCS will delay recovery until after the death of the surviving spouse. Under current rules, DHCS can only collect on assets that are subject to Probate.
Medi-Cal Lookback
The Medi-Cal program has developed a complex set of rules to discourage people from giving away their assets in order to become eligible. Under the current eligibility rules, there is a 30 month lookback (disqualification) period on transfers of assets for nursing home residents before Medi-Cal will begin to pay. The lookback penalty is triggered for nursing home residents, and for gifts that exceed the Average Private Pay Rate for Nursing Homes. (See below). This means that assets given away within that 30 month period may disqualify a nursing home resident for up to 30 months. The disqualification period can be calculated by dividing the amount given away by the Average Private Pay Rate (APPR) $14,440 per year in 2026. Transfers of amounts less than the APPR do not count. Also, California does not count partial months, so if the result is 1.5 months, the period of ineligibility will be only one month.
For example: Joe needs to enter a nursing home, and has $150,000 in countable assets. He transfers $20,000 to his son to qualify for the Medi-Cal asset test. Because Joe is in a Nursing Facility, this triggers a lookback period. Medi-Cal will determine that he transferred $20,000 worth of assets, which is above the APPR, and that the transfer was made the month before Joe entered the facility. Medi-Cal divides the $20,000 gift by the APPR of $14,440. The result is 1.38 months, but California will only count one month. Joe is ineligible for one month, but Medi-Cal will pay for his care after that first month.
There is no penalty for transfers to a spouse. However, for unmarried individuals who intend to rely on Medi-Cal for long term care, early planning is essential to avoid the transfer penalty. Transfers made more than 30 months prior to entering a skilled nursing facility will not be penalized.
Estate Claim
By law, the California Department of Health Care Services must be notified whenever a person dies in California, regardless of whether that person received Medi-Cal benefits during their lifetime. If a person receives Medi-Cal benefits during their lifetime, the California Department of Health Care Services will seek repayment from the beneficiary’s estate after the Medi-Cal beneficiary dies. This is known as Medi-Cal recovery. These claims often run from tens of thousands to hundreds of thousands of dollars.
A recent change in California law represents a seismic shift in the Medi-Cal recovery law. The new law, which applies to Medi-Cal recipients who die on or after January 1, 2017, greatly expands the assets exempt from Medi-Cal recovery and reduces the medical services provided by Medi-Cal for which the California Department of Health Care Services may seek recovery.
Under the new law, there are two main groups whose estates are subject to Medi-Cal recovery: 1) beneficiaries who were 55 or older when they received Medi-Cal benefits for nursing facility services, and some home related services, along with related drugs; and 2) beneficiaries of any age permanently institutionalized in a medical facility.
Under the new law, the assets exempt from recovery are greatly expanded. After January 1, 2017, exempt assets will include: retirement accounts and life insurance policies (unless the estate is the named beneficiary), a home with a fair market value of less than 50% of the average price of homes in that county, and property not subject to probate. The last exemption is the most important.
Our clients who have a revocable living trust already know that a properly funded trust removes assets from their probate estate. Under the new Medi-Cal recovery rules, assets placed under the umbrella of a revocable living trust are not subject to probate and are now also exempt from recovery for Medi-Cal. For our clients who have placed assets in their revocable living trust, those assets are now also not subject to Medi-Cal recovery. This is a significant added advantage to having a revocable living trust. Now, not only does your revocable living trust protect your estate from probate and ensure your assets are distributed according to your wishes, but your assets will also be protected from Medi-Cal recovery, should you ever be entitled to and receive said benefits.
Conclusion
If you or your loved ones are considering the possibility of receiving Medi-Cal benefits at some point in the future and do not already have a revocable living trust, we urge you to schedule an appointment with our office.
If you already have a living trust and are considering the possibility of receiving Medi-Cal benefits in the future, now is a good time to review your trust to ensure it is properly funded.
Remember, the new law only concerns Medi-Cal recovery; qualifying for Medi-Cal is a separate issue. DROBNY ROSENTHAL LAW OFFICES, PC has experience with Medi-Cal planning and will be honored to assist you.
This article was written by Attorney, Terri L. Easlon. For questions, she can be reached at tle@drlo.law.
Very truly yours,
DROBNY ROSENTHAL LAW OFFICES, PC
/s/
MARK S. DROBNY, Founder and CEO
ANNE E. ROSENTHAL, Managing Shareholder
This testimonial or endorsement does not constitute a guarantee, warranty or prediction regarding the outcome of your legal matter.