I. LONG TERM CARE DEFINED
Long term care can be defined as that care which is expected to last for no less than thirty days. Long term care normally involves services of a custodial nature, the assistance necessary for a person to perform activities of daily living (ADL). Because of the custodial nature of the care required, long term care, absent long-term care insurance, is only marginally covered by Medicare and supplemental insurance policies with the majority of the cost of care borne by the individual. When the individual’s resources have been depleted to a prescribed limit, the federal government with state involvement will pay for some or all of the cost of long term care under the Medicaid or Medi-Cal program.
II. THE MEDICARE SYSTEM
In most cases, you first look to Medicare or your Health Maintenance Organization (HMO) for the costs of long term or nursing home care. For purposes of this discussion alone, we will consider an HMO to be equivalent to Medicare and a supplemental insurance policy. Medicare was established in 1965 as a national medical insurance program designed to provide health care benefits to the elderly and handicapped. It is not a public benefits or social welfare program as the costs of Medicare are, for the most part, covered payroll deductions. While the program is federally funded, Medicare is actually administered by private organizations and large insurance companies, called Medicare fiscal intermediaries, carriers and peer review organizations. These organizations actually handle the day to day operations of the Medicare program including the processing of all claims, deciding which claims to pay, the amount of payment for the claim and the first stages of all appeals and complaints. As private contractors, the intermediaries have a financial incentive to interpret Medicare regulations very restrictively and to rely on extensive computerization and screening procedures to evaluate claims. As you can see by its very design, Medicare is not intended to provide unlimited medical coverage. To compound the problem further, the Medicare system usually delegates the initial authority to approve or deny benefits to the actual health care provider. Unfortunately, the bulk of the health care provider’s training as to coverage is supplied by Medicare carriers and intermediaries. Further, the health care providers are often under financial pressure to deny or restrict coverage. For these reasons, it is easy to see why Medicare is often viewed by the persons it serves as an inhuman bureaucracy that denies or reduces claims arbitrarily. Even with its significant problems, Medicare remains the major source of payment for most medical services provided to the elderly.
Medicare will pay for inpatient hospital care that is medically necessary for that particular treatment or diagnosis. The Medicare coverage is limited to 90 days of inpatient hospital care for each “spell of illness.” After 90 days of hospitalization, the patient may draw on his/her 60 lifetime reserve days if any remain. The concept of “spell of illness” is central to both coverage and deductible payment requirements. A spell of illness begins on the day a patient first receives inpatient care and ends when the patient has not been in a hospital or skilled nursing facility inpatient for 60 consecutive days. For example, if a person spends 90 days as an inpatient at the hospital, is then released home and returns with a different illness or injury after only 30 days, Medicare would consider the new injury or illness under the previous spell of illness and would refuse coverage.
The issue of remaining in the hospital too long is not a common problem for most elders. In fact, there has been a steady trend in the past few years toward releasing patients “quicker and sicker.” This is due to Medicare’s use of the Diagnostically-Related Group (DRG) system. Under the DRG system, a set price that a hospital will be paid is established for almost every medical procedure without regard to the actual length of the hospital stay. If the patient remains in the hospital longer than provided for under the DRG, the additional costs of care fall on the hospital. If the patient is discharged in less time than called for under the DRG, the hospital benefits. As should be obvious, the DRG system creates a strong financial incentive for hospitals to terminate Medicare coverage as soon as possible. Once the hospital announces that Medicare coverage is terminated, the patient is faced with the option of being discharged or remaining in the hospital at the patient’s expense. Unfortunately, where the elderly patient cannot afford to stay in the hospital on private pay but is too weak or ill to return home to live alone or be cared for by an aging spouse, the only feasible alternative is placement in a skilled nursing facility (SNF).
III. MEDICARE AND SKILLED NURSING FACILITIES: LIMITED COVERAGE
Medicare will pay for a maximum of 100 days of coverage in a skilled nursing facility per spell of illness provided that the patient requires more than custodial care alone. It is important to understand that this figure is a maximum, not a guarantee; actually obtaining the maximum 100 days of coverage may be a rare occurrence. Medicare coverage in a skilled nursing facility is not automatic and is subject to numerous restrictions. In order to receive any Medicare coverage, the person in the SNF must have been hospitalized for at least three days prior to admission to the skilled nursing facility. The three day requirement does not include the day of discharge. Once the three day hospital stay requirement has been met, the person must be admitted to a Medicare-certified skilled nursing facility within 30 days of the discharge from the hospital. Under this provision, a person can be discharged to home after meeting the required three day hospital stay and then, if within 30 days of the discharge, be admitted to a skilled nursing facility. The placement in the SNF must be to treat a medical condition that was treated in the hospital and that treatment must be prescribed by the patient’s physician. Further, it must be determined that the placement in the SNF is the most efficient and economical means of providing the required treatment. Even after all of these requirements have been met, Medicare will only continue coverage for as long as the patient needs skilled nursing or rehabilitation services. The absence of a need for skilled nursing services and/or the failure to progress with rehabilitation are the most common reasons for discontinuance of Medicare coverage in a skilled nursing facility.
Although a person may be placed in a skilled nursing facility, there is no guarantee that s/he requires skilled nursing services. Skilled nursing service is usually defined as that care that is so complex and complicated it can only be provided by or coordinated by a registered nurse. Services that consist of assistance with a person’s Activities of Daily Living are considered “custodial” and not skilled care. The need for skilled care must be determined to exist seven days a week. If a person does not require skilled nursing seven days a week, s/he can still retain Medicare coverage in a skilled nursing facility if rehabilitation is required and the person progresses. Where the patient plateaus, Medicare coverage will be discontinued.
Once Medicare coverage is terminated, whether due to the lack of need for skilled care, the diminution of progress or simply because the 100 days have run, the costs of long term care in a skilled nursing home fall on the individual. This is true in most cases even where the patient has a supplement insurance policy that provides for more than 100 days of coverage in a skilled nursing facility since most supplements only cover Medicare approved services.
At the termination of Medicare coverage, the cost of long-term care falls on the person requiring skilled nursing facility services. The average private pay rate for a skilled nursing facility in the State of California is $8,189.00 per month (2017). This rate may be significantly higher where the skilled nursing unit is part of an acute medical hospital.
IV. MEDI-CAL COVERAGE IN A SKILLED NURSING FACILITY
Medi-Cal is actually the California enhanced federal Medicaid program. Unlike Medicare, Medi-Cal is restricted to those in need of assistance and is based on a resource limitation. The program is coordinated by the California Department of Health Services and administered through the local Social Welfare office. Medi-Cal will pay for the costs of long-term care in a skilled nursing facility provided that you are properly placed but will not cover the costs of care in facilities providing lower levels of care such as “retirement housing,” “board and care” or residential care facilities.
As a starting point to qualifying for Medi-Cal in a skilled nursing home facility, you must first be either aged (65 years of age or older), disabled (as determined by the Social Security Administration) or blind. Once you have met one of these basic requirements, you must then prove that you do not possess non-exempt assets in excess of the allowable resource limit. This statement is of little assistance unless we understand the concept of Medi-Cal “exempt” and “non-exempt” assets.
A. MEDI-CAL EXEMPT ASSETS:
A Medi-Cal exempt resource is an asset that the applicant may retain without adversely affecting the applicant’s eligibility. By definition, a Medi-Cal non-exempt resource is everything that is not exempt (not surprisingly, this is a governmental definition). The following is a brief description of the most common Medi-Cal exempt assets allowable for both single and married applicants. Later in the discussion, we will consider some of the special rules and allowances for married couples where one spouse is in long-term care.
(1) Principal Residence: Currently, a person’s principal residence is exempt without regard to value, equity or size. Once the Deficit Reduction Act is implemented, however, the State will restrict the allowable value of the principal residence. Although we anticipate the value limitation to be $750,000.00, the details and methods for valuation are still unknown at this time. The principal residence may be a fixed or mobile home, be located on land or water and includes all of the land surrounding or touching the principal residence. It also includes any other buildings or structures located on the land surrounding or touching the principal residence. By definition, the principal residence could be a home, duplex, apartment complex, hotel, the house in which you reside along with every other lot and house that touches your principal residence. As is obvious, this is one of the most significant exemptions allowed under the Medi-Cal program. In order to maintain the exemption, you must either live on the property, have a spouse, child under the age of 21 or a dependent relative (normally a disabled child) who lives on the property or, where none of the above exist, maintain a “subjective intent to return” to the residence. The subjective intent merely requires that if you are absent from your residence for any purpose including placement in a skilled nursing facility, you intend to return to the residence if and when you are able. The intent need not be based on reality but merely represent a desire to return. The intent should be expressed in writing. Any real property not determined to be your principal residence may be considered non-exempt.
(2) Property Used in a Trade or Business: All land, buildings, inventories, vehicles and other equipment that form a part of your business are exempt. This exemption is extremely valuable for protecting farm land and grazing acreage not surrounding or touching the principal residence.
(3) Property Necessary for Employment or Self-Support: Equipment, inventory, licenses and materials necessary for employment or self-support are excluded from Medi-Cal countable resources. However, the Department of Health Services has taken the position that rental property that produces income for self-support is not exempt.
(4) Motor Vehicle: You can own one motor vehicle as exempt whether you still drive or not as long as the vehicle can be used to meet your transportation needs (shopping, visits, medical appointments, etc.). There is no limit on the value of the vehicle. You cannot exempt a recreational or commercial vehicle if you have any other type of vehicle.
(5) Personal Effects: You can retain your furnishings, furniture, clothing, heirlooms, wedding and engagement rings and some jewelry (limited to $100.00 if you are single and unlimited if you are married and one spouse is institutionalized) as exempt. It is also possible to exempt collectibles such as art, coins, guns, dolls and musical instruments.
(6) Burial Plots, Vaults or Crypts: All burial plots, vaults and/or crypts that will be used by any member of the applicant’s immediate family is exempt without regard to the number or value of such items.
(7) Irrevocable Burial Arrangement: An irrevocable burial trust or prepaid burial contract for funeral, cremation or interment is exempt without regard to total value. In addition, each applicant and/or spouse can set aside an additional $1,500.00 in a revocable burial fund for unexpected burial costs.
(8) Life Insurance: All term or group insurance is exempt since there is no cash surrender value attached to such policies. In addition, if the total face value of all of a person’s whole life insurance does not exceed $1,500.00, the cash surrender value of the policies is exempted.
(9) Individual Retirement Accounts (IRAs): The principal amount in a non-institutionalized spouse’s IRAs, 401K accounts, Deferred Retirement Compensation Plans and other retirement type of accounts belonging to the non-institutionalized spouse are fully exempt, whether the accounts are paying minimum distributions (after age 70 1/2) of principal and interest or not. This retirement income, however, will be considered in determining the applicant’s share of cost as discussed below.
B. MEDI-CAL UNAVAILABLE AND NON-EXEMPT ASSETS:
All assets that are not exempt are considered non-exempt and will be valued and included in your Medi-Cal excess resources. There is one exception to this statement. Any assets that are not available to you will not be included as part of your excess resources.
(1) Availability of Assets: In order for an asset to be available, you must have the legal right, power and authority to liquidate that asset. If you own an asset with another person who is unwilling to sell the asset, you may have legal right to the asset but, without securing court involvement, you do not have the power to liquidate the resource. Medi-Cal, in that case, would not count the asset as part of your non-exempt resource limit. While the issue of unavailability may help to qualify you for Medi-Cal benefits when you have excess resources, it is not a good idea to put a great deal of reliance on the approach. Unavailable resources are considered available at your death and the State may place a claim for benefit recovery against those previously unavailable assets.
(a) Individual Retirement Accounts (IRAs): The one area where unavailability is beneficial both for qualifying and for later protection against a death claim for benefit recovery is work-related retirement plans owned by the institutionalized person. As stated earlier, IRAs, 401K accounts, Deferred Retirement Compensation Plans and other retirement type of accounts belonging to the non-institutionalized spouse are fully exempt. Unfortunately, those same accounts belonging to the institutionalized spouse are not considered as exempt. If the accounts are paying out periodic payments of both income and principal, the retirement accounts belonging to the institutionalized spouse will be considered unavailable and the principal amount held in the account(s) will not be included in the non-exempt resource valuation. If not paying out periodic payments of principal and interest, the institutionalized spouse’s retirement accounts will be considered available non-exempt resources. When a person reaches age 70 1/2, s/he should begin making minimum distributions from the retirement accounts. This minimum distribution is considered a periodic payment of principal and income even if only made once each year. Persons under the age of 70 1/2 can also receive periodic payments of principal and income but such action should not be taken without first consulting with your accountant and/or attorney.
(2) Ownership and Valuation of Non-Exempt Assets: If an asset is not classified as exempt and is available to the applicant, Medi-Cal will treat that asset as a non-exempt resource and add its value to the applicant’s property reserve. Since the applicant’s property reserve is used to determine Medi-Cal eligibility, two major issues must be considered: (1) ownership; and, (2) valuation.
(a) Ownership and Transfer of Asset Penalties: The issue of ownership is often confusing and may create unexpected problems. In the case of a single Medi-Cal applicant, issues of ownership normally involve assets held in joint tenancy with a child or loved one. First, ownership in joint tenancy must be equal. If you place a child on title to real property in joint tenancy, you each own a one-half interest in that property. Second, placing a person on title to your asset(s) normally constitutes a transfer or gift of an interest in that asset and may subject you to a period of ineligibility if the transfer occurs within thirty (30) months of your Medi-Cal application (please note this period is sixty (60) months in all other States besides California). Unfortunately, placing another person on your asset(s) does not always constitute a gift and/or a reduction in your total assets.
To constitute a gift and/or reduction to your total assets, the transfer of an interest in your assets must be complete and irrevocable. For example, if I give my son $1,000.00, the gift is completed with the transfer of the money and irrevocable since my son did not agree to later return my funds. If the transfer of this money occurred within 30 months of my Medi-Cal application, the gift would have to be disclosed and may involve some period of ineligibility. A different result occurs if I intend to transfer $1,000.00 to my son by placing his name in joint tenancy on my bank account which contains $2,000.00. In that case, merely placing my son’s name on my account does not constitute a completed and/or irrevocable gift. At any time before my son withdraws the money, I can revoke the gift merely by withdrawing the funds myself. The gift only becomes complete upon my son’s withdrawal. Therefore, any period of ineligibility for Medi-Cal only begins with such a withdrawal and only to the amount withdrawn.
It is also very important to realize that placing another person on title to your asset(s) may allow access to those assets to the other person’s creditors should your co-owner be sued or experience financial problems.
In the case of a married couple, the issue of ownership for Medi-Cal eligibility purposes is straight forward but not always fair. Medi-Cal considers all assets owned by either or both spouses to be available for the care of the Ill Spouse. While this approach may seem appropriate in a long-standing first marriage, it is much less so in a short-term second marriage. Take Husband (H) and Wife (W) for example. H and W have been married for less than one week. W, who brought all of the assets to this marriage as her separate property, had H sign a pre-nuptial agreement that stipulated that the assets were W’s separate property. H is now in a skilled nursing facility and will require Medi-Cal assistance to pay the $5,500.00 per month cost. Medi-Cal will not distinguish between separate and community property in this case and will consider all of the assets available to either spouse in determining H’s eligibility.
(b) Methods for Valuating Non-Exempt Assets: As with issues of ownership, the value of a non-exempt asset is critical to establishing Medi-Cal eligibility. The following methods of valuation are allowable under Medi-Cal law:
(i) Non-Exempt Real Property: California real property that is not exempt may be valued at the tax assessed value less encumbrances. This may be extremely favorable where the property has been held for a long period of time and is protected under Proposition 13. If the property is co-owned, the applicant will be credited with the taxed assessed portion of his/her interest. The creation of co-ownership may constitute a transfer subject to the 30 month look back period (discussed below) and a period of ineligibility.
(ii) Bank Accounts: A bank account is valued according to the balance of funds remaining in the account at the time of application. Medi-Cal will consider the full account to belong to the applicant unless the co-owner can establish that s/he contributed to the account.
(iii) Stocks. Bonds. Mutual Funds. Brokerage Investment Accounts: The value of the stocks, bonds, mutual funds and/or brokerage accounts is determined according to the valuation of the assets at the time of application. If the consent of all owners of the assets is required to sell or liquidate, the value of the applicant’s interest alone will be applied to the applicant’s property reserve. The addition of a person to an asset or account will constitute a transfer and may result in a period of ineligibility if the addition occurred within 30 months of application for Medi-Cal.
(iv) Life Insurance Policies: If the total face value of all whole life insurance policies belonging to the applicant exceeds $1,500.00, then the cash surrender value of all of those whole life insurance policies will be included in the applicant’s property reserve. If the face value of all of the whole life insurance policies is less than $1,500.00, the cash surrender value of all of the policies is disregarded. Term life insurance without a cash surrender value is not included in the above calculations and/or as part of the property reserve.
(v) Promissory Notes: A promissory note is valued at the remaining amount owed on the note (principal) or the market value of the note (discounted value) if the note were to be sold. Co-ownership in a note reduces the value charged to the applicant but may constitute a transfer if the co-owner’s name was merely added without adequate compensation.
(vi) Deferred Annuity: The surrender value of a deferred annuity is included in an applicant’s Medi-Cal property reserve. It is treated in much the same manner as a traditional certificate of deposit bank account.
(vii) Individual Retirement Accounts (IRAs): As stated earlier, the full value of an IRA belonging to a Medi-Cal applicant is considered available and included in the property reserve unless it is paying out periodic payments of principal and interest.
C. ASSET LIMITATION FOR MEDI-CAL QUALIFICATION:
The value of each Medi-Cal non-exempt asset is added together to arrive at the property reserve valuation. Based on that valuation Medi-Cal will determine if the applicant is eligible to receive Medi-Cal benefits. In order to qualify for Medi-Cal, an applicant cannot exceed the following property reserve limits:
(1) Asset Limitation for a Single Person: A single person will qualify for and remain eligible to receive Medi-Cal benefits when his/her property reserve (non-exempt assets) does not exceed $2,000.00 on the last day of the month.
(2) Asset Limitation for a Married Couple: Qualification for a married couple usually falls into one of two general categories: (1) a married couple living together; and, (2) a married couple with one spouse in a skilled nursing facility (SNF).
Normally, where both spouses are either both living outside of a skilled nursing facility or both living in a skilled nursing facility, the couple is considered to be living together. If a married couple apply for Medi-Cal while living together, both partners will receive benefits. A married couple living together will qualify for and remain eligible to receive Medi-Cal benefits when the couple’s total non-exempt assets do not exceed $3,000.00 on the last of the month.
If one spouse of a married couple is in a skilled nursing facility (Institutionalized Spouse) while the other is not (Community Spouse), the Institutionalized Spouse will become eligible for Medi-Cal benefits when the couple’s total non-exempt assets do not exceed $120,900.00 (2017) on the last day of the month of application. Thereafter, the Community Spouse may acquire assets in excess of $120,900.00 while the Institutionalized Spouse remains eligible for Medi-Cal benefits in the skilled nursing facility. Ninety (90) days after qualifying for Medi-Cal benefits, the Institutionalized Spouse’s name cannot appear on non-exempt assets totaling more than $2,000.00 on the last day of the month.
D. MEDI-CAL’S TREATMENT OF INCOME & SHARE OF COST:
The role of income in the Medi-Cal long term care system is extremely important but often misunderstood. Simply stated, a single person or married couple’s income does not have any effect on Medi-Cal eligibility. This is not to suggest, however, that an applicant or beneficiary’s income is not considered in the Medi-Cal process.
(1) Single Person’s Share of Cost: Once a single person or institutionalized spouse has been determined eligible for Medi-Cal long-term care benefits, the monthly co-payment for that Medi-Cal must be calculated. This monthly co-payment is referred to as, “share of cost.”
In the case of a single Medi-Cal beneficiary, the share of cost calculation is fairly straight forward. All of the beneficiary’s monthly income is first determined. Included in that income is the beneficiary’s Social Security, Railroad Retirement, pension, quarterly adjustments to pension (normally associated with the State Teacher’s Retirement System), Individual Retirement Account (IRA) distributions, interest and dividends (whether actually received, retained or reinvested), rent (including rental of an exempt principal residence) and certain goods and services contributed by family and/or friends (referred to as “in-kind income”). From the total gross monthly income, the Beneficiary’s Medicare premium is deducted. The beneficiary is then entitled to retain $35.00 per month for his/her personal needs allowance. And finally, the beneficiary may retain sufficient monthly income to pay for his/her monthly Medicare supplemental insurance (Medigap) premium. The remaining monthly income must be sent to the skilled nursing home as the single beneficiary’s share of cost. Medi-Cal will pay the remainder of the beneficiary’s monthly cost of care directly to the skilled nursing facility.
(2) Married Couple’s Share of Cost: The determination of the share of cost for a married couple where one spouse is institutionalized and one is not is much more difficult. As with the single person, all of the monthly income received by both spouses is counted toward the monthly share of cost. And, as with the single person, the Medi-Cal beneficiary may retain sufficient income to pay for the beneficiary’s Medicare premium, the monthly personal needs allowance ($35.00) and the beneficiary’s Medicare supplemental insurance premium. After the above deductions have been calculated, the non-institutionalized or Community Spouse is given an election.
The Community Spouse is entitled to retain a minimum monthly needs allowance (MMMNA) of $3,023.00 (2017) from all income received by both spouses, or all of the income received in the Community Spouse’s name alone, whichever is greater. To better understand this election, consider the following hypothetical case:
Henry (H) and Wanda (W) are married. H was placed in a skilled nursing facility last month and has just qualified for Medi-Cal long-term care benefits. After all allowable deductions for H’s Medicare premium, his personal needs allowance ($35.00), and H’s Medicare supplemental insurance premium, the couple receives a total monthly income of $4,500.00. Of this total, H receives $3,500.00 per month in Social Security and Pension benefits while W receives $1,000.00 from her Railroad Retirement. Since W has the option of retaining $2,980.50 per month from all income received in both spouse’s names, or all the income received in W’s name alone, whichever is greater, W will select the guaranteed $3,023.00 as her minimum monthly needs allowance (MMMNA). If, however, W is the institutionalized spouse and H is the Community Spouse, H will select all of the income that comes in H’s name alone since that income ($3,500.00) is greater than the guaranteed $3,023.00 alternative.
(3) Method of Paying the Share of Cost: While the share of cost is determined for each month, the actual allocation is normally accomplished on a yearly basis at the time of establishing eligibility and each redetermination thereafter. If the amount of income changes from the date of eligibility or the last redetermination, the beneficiary, his/her spouse or the beneficiary’s authorized representative must report the changed income within 10 days of the change. Failure to report changes of income or assets can result in a determination of ineligibility, overpayment or both.
It is important to note from the above discussion that Medi-Cal does not alter the method in which a person receives his/her income. If the beneficiary receives his/her Social Security and/or pension through the direct deposit process, the direct deposits will continue after Medi-Cal eligibility has been determined. It is the responsibility of the beneficiary, his/her spouse or authorized representative to provide the skilled nursing facility with the established monthly share of cost.
E. MEDI-CAL POST-MORTEM RECOVERY OF ASSETS:
The above-described system continues until the Medi-Cal recipient recovers, becomes ineligible or dies. If a person recovers or becomes ineligible for Medi-Cal benefits, Medi-Cal, in contrast to common belief, does not attempt to recover the benefits paid during the recipient’s life.
It is important to note that the term “lien” is not used in describing the recovery program. Medi-Cal rarely imposes a lien on a recipient’s assets during the recipient’s life. Instead, Medi-Cal defers reimbursement for the benefits paid to or on behalf of an individual until that person’s death. This post death recovery is referred to as a death claim.
**2017 Medi-Cal Recovery Reform Update** The Medi-Cal post-mortem recovery laws were changed and will affect those who die on or after January 1, 2017. For individuals who died prior to January 1, 2017, the old recovery rules still apply. This overview will outline recovery for deaths occurring prior to January 1, 2017 and any changes to the law for deaths on or after January of 2017 will be addressed in bold as indicated.
As a starting point, currently Medi-Cal can only recover for those benefits paid to or for an individual who was over age 55. Any benefits paid to or for that person prior to reaching age 55 are not recoverable under current law. Beginning January 1, 2017, individuals who were under the age of 55 but “permanently institutionalized” will also be subject to recovery claims. Further, recovery is limited to the amount of benefits paid (after age 55) or the value of the deceased Medi-Cal recipient’s “Estate,” whichever is less. To better understand recovery, let’s look first examine the Medi-Cal Recovery System as it relates to a single Medi-Cal recipient.
(1) Recovery Against a Single Person’s Estate: John, a 75 year old single man, has been in a skilled nursing facility and on Medi-Cal long-term care for the past six years. After “spending down,” John owns a Medi-Cal exempt residence valued at $100,000.00 held in joint tenancy with John’s son, Fred, an exempt vehicle worth $7,000.00 held in John’s name alone and approximately $1,500.00 in a checking account held in John’s name with Fred as an agent. At John’s death, Medi-Cal has paid $75,000.00 for John’s benefit.
John dies, passing his Estate to his son, Fred, by right of survivorship through joint tenancy. Under California Probate Code ‘215, Fred must notify the Department of Health Services (DHS) of John’s death. The notification required involves sending a copy of John’s death certificate to the Director of DHS in Sacramento, California. Merely informing the local County Welfare worker of John’s death is not sufficient and does not constitute formal notice.
Once the Department of Health Services has been notified of John’s death, DHS will send a creditor’s claim to Fred. That claim should describe each and every service paid for by Medi-Cal by date. Fred should examine the services for accuracy. Once Fred has determined that the creditor’s claim is accurate, Fred should determine the value of John’s Estate. Since John was on Medi-Cal and limited to not more than $2,000.00 of non-exempt assets, the bulk of John’s Estate is made up of exempt resources.
(a) House: Although the house was held in joint tenancy with Fred and is not part of John’s probate estate, for deaths occurring prior to January 1, 2017 the State of California will include John’s one-half (2) interest in the house in John’s Estate for recovery purposes. This is due to California’s 1993 expanded definition of “Estate” which includes everything in which John had any legal title or interest at the time of John’s death including all assets passing by joint tenancy, tenancy in common, by survivorship, by life estate, in a living trust or any other similar arrangement. Since the house is worth $100,000.00 at John’s death and John owned a one-half (2) interest in the house, the State can assert a $50,000.00 claim against the house.
(1) For deaths occurring on or after January 1, 2017, only assets considered part of the decedent’s “Probate estate” would be subject to recovery. As the house was held in joint tenancy at John’s death, it would be exempt from recovery and sole ownership would pass to John’s son Fred.
(b) Vehicle: Since the vehicle is held in John’s name alone, the State may assert a claim in the amount of $7,000.00 against the vehicle. Claims against vehicles are rare but have occurred.
(c) Checking Account: The $1,500.00 checking account was owned by John with Fred able to sign for John as an agent under a power of attorney. As the authority of an agent ends upon the death of the principal (John), Fred cannot claim any ownership interest in the account and the State can recover the entire $1,500.00 checking account.
The value of John’s Estate for recovery purposes is $58,500.00 ($50,000.00 interest in house, $7,000.00 interest in the vehicle and $1,500.00 interest in the checking account). The State has paid $75,000.00 for John’s care. As the State’s claim is greater than the recoverable value of John’s Estate, Fred would pay the State $58,000.00 if he died prior to January 1, 2017 and $8,500.00 if he died on or after January 1, 2017. The State will release the unpaid remainder. Fred is not liable for the difference. If, on the other hand, John’s recoverable estate was greater than the State’s claim, Fred would pay the State claim and the remainder would go to John’s heirs under his Will.
As should be clear from the above, the use of a living trust, joint tenancy or similar arrangements did not protect the assets of a single Medi-Cal recipient from State recovery if he/she died prior to January 1, 2017. The State is prohibited from recovery, however, when the Medi-Cal recipient leaves a minor, blind or disabled child even if that child is not a beneficiary of the Medi-Cal recipient’s assets. The State may also be prevented from recovery where such an action would cause a hardship. Historically, however, the hardship waivers were few and far between. Effective January 1, 2017, however, the State will be required to waive a claim for substantial hardship when the estate is a homestead of modest value. This would be for homes whose fair market value is 50 percent (50%) or less of the average price of homes in the county where it is located.
Also beginning January 1, 2017, only assets considered part of the decedent’s “Probate estate” will be subject to recovery. Therefore, living trusts, joint tenancies and similar arrangements, when used appropriately, would effectively avoid recovery at the death of a single individual. However, it is rarely, if ever, advisable for a single person to own assets in joint tenancy with another person, particularly his/her primary residence. Sound legal advice as to the liability exposure, negative tax consequences, and Medi-Cal ramifications should be sought prior to transferring any property into joint tenancy. Although maintaining ownership of the home in a living trust will avoid recovery at death, renting out the home while the Medi-Cal recipient is in skilled nursing will adversely affect his/her share of cost, and sale of the home may cause the Medi-Cal recipient to lose his/her Medi-Cal coverage.
(2) Recovery Against a Married Person’s Estate: While recovery against the Estate of a single Medi-Cal recipient is fairly straightforward, the same was not true for recovery against the Estate of a married Medi-Cal recipient. To better understand the previous rules of recovery of assets belonging to a deceased married Medi-Cal recipient, it is helpful to review the manner in which recovery was made in the relatively recent past. To simplify the matter, let’s examine Herman (H) and Wanda (W).
H and W were married for fifty years and had three children, one of whom is permanently disabled. Upon placement in the skilled nursing facility, H and W owned a small amount of cash and investments. W was able to qualify H without much trouble and H remained in the skilled nursing facility for approximately two years. At the time of placement and for the remainder of H’s life, the couple owned and maintained a principal residence held in the names of H and W as joint tenants. The residence was worth approximately $150,000.00. H and W both received Social Security income and a small pension totaling less than $2,000.00 per month. While H was receiving Medi-Cal, W did not have to pay a monthly share of cost or co-payment. The couple owned $84,000.00 in non-exempt assets and W had removed H’s name from those assets while H was still competent.
At H’s death, W notified the local Medi-Cal case worker by phone and sent a copy of H’s death certificate to the Department of Health Care Services (DHCS) in Sacramento as required by law. A few weeks later, W received a letter from DHCS claiming that the State had spent $100,000.00 on H’s care. Included with the letter was a simple form requesting information concerning the assets owned by H at his death including all of those assets held in joint tenancy. W replied to the request for information and waited for a response.
Within a few months, W received a legal form entitled, “Creditor’s Claim,” wherein W was informed that H owed the Department of Health Services $100,000.00 and to send the payment to the Sacramento office. W did not have $100,000.00 and did not respond to the Claim. Without providing any further notice or an opportunity to be heard, the Department simply recorded a lien against H and W’s house. W was not aware such a lien had been imposed until two years following H’s death when she sold the house to move closer to her children. Upon the close of escrow, W received a check for $50,000.00 and the Department received H’s share of the sales proceeds.
As should be clear from the above, the State of California recovered its payments through the use of an unnoticed and unheard lien procedure. That procedure, in failing to provide adequate notice and an opportunity for hearing, was a violation due process. Based on the Department’s due process failure, the State of California was permanently enjoined and prohibited from recovering against the Estate of a deceased Medi-Cal recipient spouse without first providing the surviving spouse adequate notice of the State’s recovery intent and allowing for a hearing by that spouse to object to the action.
In response to the injunction, the State of California reformed its recovery procedure involving assets belonging to a deceased Medi-Cal recipient’s spouse. Those procedures are in effect for deaths occurring prior to January 1, 2017 and are as follows:
At the death of a spouse who had received Medi-Cal benefits at any time after reaching age 55, the Department of Health Care Services must be notified. The Department may then (and does) inquire into the assets belonging to the deceased spouse at his/her death. Thereafter, the Department must defer recovery until the death of the second spouse. Further, the recovery at the second spouse’s death is restricted only to those assets that passed to the surviving spouse from the deceased Medi-Cal recipient spouse.
Although the Department continues to utilize this approach for deaths occurring prior to January 1, 2017, there remain many unanswered questions. For example, if H left W his interest in the house and W later sold the house, was the State entitled to the proceeds from the sale at W’s death or only a share of the house? What if W invested the proceeds in Internet stock and increased the value of the proceeds, is the State entitled to share in the appreciation? On the other hand, what if W invested her money and lost all of the sales proceeds, is the State entitled to seek other funds belonging to W at her death?
As you can see, there remai many unsettled issues involving recovery against a deceased spouse who received Medi-Cal benefits subsequent to reaching age 55. And, as in the past, recovery is easily avoided by taking action during a recipient’s lifetime.
In response to the ambiguous and often unequitable application of recovery laws at the death of the second spouse, the Medi-Cal Recovery Reform Act was adopted to greatly simplified this issue. Beginning January 1, 2017, if an individual is survived by a spouse or domestic partner, a claim is prohibited and forever barred. Additionally, effective January 1, 2017, the State will no longer be able to recover for basic health services (such as doctor’s office visits) provided by Medi-Cal unless they are related to nursing home care, or home and community based services. Cost of premiums, co-pays, and deductibles paid on behalf of Qualified Medicare Beneficiaries (QMBs), Specified Low-Income Medicare Beneficiaries (SLMBs), Qualifying Individuals, Qualified Disabled and Working Individuals who are categorized as a group of dual eligibles are also not recoverable.
3. **Summary of Medi-Cal Recovery Reforms 2017**: Senate Bills 33 and 833 incorporated the Medi-Cal recovery reform provisions, which severely restrict Medi-Cal recovery for those who die on or after January 1, 2017. The new recovery law:
- Prohibits claims on the estates of surviving spouses and registered domestic partners;
- Limits recovery for those 55 years of age or older (or under 55 if permanently institutionalized) to services provided in nursing homes or in community based services. Thus, no longer recovery for basic health services such as doctor’s visits, prescription drugs, managed care reimbursements, unless serveces are related to nursing home care or home/community based services);
- Limits recovery to only those assets subject to California probate;
- Restricts the amount of interest the State can charge on liens;
- Creates a substantial hardship waiver for homesteads of modest value (i.e. a home worth 50% or less of the average price of homes in that county); and
- Requires the State to provide each current or former Medi-Cal recipient with a copy of the amount of Medi-Cal expenses that may be recoverable.
As should be obvious from the above discussion, Long Term Care Planning for Medi-Cal eligibility is highly technical and complex. If done improperly, it can result not only in ineligibility and/or recovery, but can have adverse tax and estate consequences as well. For this reason, consultation with a qualified attorney specializing in Long Term Care Planning is money well spent. To find a Certified Elder Law Attorney in your area, please contact the National Academy of Elder Law Attorneys at (520) 881-4005 or visit www.nelf.org or www.naela.org.
About the Authors: Neil A. Harris is the founding attorney for The Estate and Long Term Care Planning (LTC Center). The LTC Center, staffed by Certified Elder Law Attorneys Neil A. Harris and Nicole R. Plottel, provides a wide range of legal services designed specifically for the elderly and those with special needs. Mr. Harris was one of the first attorneys to become certified as an Elder Law Attorney, with almost thirty (30) years of specialty experience in Estate Planning and Long Term Care Planning. Ms. Plottel is one of only 15 attorneys in California to be dual certified in both Elder Law and Estate Planning, Trust & Probate Law. For more information, please call (530) 893-2882 or visit www.HarrisPlotttel.com.
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