What is Medi-Cal?

Medi-Cal is a need based program which is funded jointly with federal Medicaid funds and California state funds to help pay for medical care.

Medi-Cal Eligibility

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 and has countable assets that fall below the $2,000 limit.

If one spouse will enter long term care and the other will remain in the community, between the married couple, they may keep a total of $104,400 (Community Spouse Resource Allowance "CSRA") in nonexempt resources. 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 2008 is $2,610. The community spouse may supplement his or her monthly income to a set limit ($2,610), 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 $2,610 per month, the income of the institutionalized spouse’s can be transferred to the community spouse up to that amount, and 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:

The community spouse can seek a CSRA that is larger than $104,400 if monthly income generated from the $104,400 is less than $2,610. The Department of Health Services must enlarge the CSRA if a shortfall is shown. However, the process to increase the CSRA is quite cumbersome in that Medi-Cal eligibility must be denied based on excess resources and then the claimant appeals based on a shortfall in income. It is not possible to simply work with county eligibility workers. Increasing the CSRA when income is insufficient accomplishes congressional intent to

protect the community spouse from impoverishment.

Income and Share of Cost:

While you are in long term care, you can have income of up to $35 per month, that is called the "maintenance need standard" which the state sets. 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 only $35 of his $1200 per month Social Security check as his personal needs allowance.

What does Medi-Cal cover in terms of long term care:

Long term care will be covered if ordered by a physician, and "medically necessary." You should know that Medi-Cal will 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 s/he 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.

Exempt Property:

Exempt property will not count when determining eligibility while, non-exempt or countable assets will effect eligibility. The following items are exempt: the home (as long as there is an intent to return to it), home furnishings, clothes, home repairs, satisfaction of mortgages, or other debts, an exempt burial space, one vehicle, term life insurance, whole life insurance with a face value of $1500, and, qualified IRAs and certain annuities (which must be scheduled to exhaust the balance of the annuity at or before the annuitant’s life expectancy).

Planning for Medi-Cal Eligibility:

If one decides that Medi-Cal is desired or necessary, many people accelerate eligibility by reducing their countable assets. The three most effective ways to reduce countable assets are to prove the assets are unavailable to pay for care, convert the assets into something that Medi-Care does not count (the equity in a primary residence by paying down a mortgage or improving the home), or give away the assets (giving away assets can result in a period of ineligibility though). Note that if countable assets are sold, the proceeds are counted, and if the assets are transferred in trust, Medi-Cal will usually count the trust assets too.

Demonstrating unavailability for purposes of Medi-Cal means that an asset cannot be liquidated or sold. That means that you made a good faith effort to sell for a reasonable amount of time, and the asset failed to sell. On the other hand, assets are generally considered available if the applicant has the legal right, power, and authority to liquidate them. Most assets will fit into the latter category and will not qualify as unavailable.

An applicant can "spend down" by paying for nursing home care until s/he is within the $2000 asset range or s/he can purchase exempt assets and services such as a home, home furnishings, clothes, home repairs, satisfaction of mortgages, or other debts, an exempt burial space, one vehicle, term life insurance, whole life insurance with a face value of $1500, and certain annuities (which must be scheduled to exhaust the balance of the annuity at or before the annuitant’s life expectancy or that of his spouse). Spending down on nursing care and then establishing eligibility is often a good idea because some facilities do not take individuals who immediately eligible for Medi-Cal on admission. However, if the goal is to avoid extinguishing the estate on healthcare, other strategies must be considered.

Annuities

When you invest in an annuity, you enter into a contract with an insurance company under which, in return for your investment, the insurer 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. Unfortunately, many older adults are purchasing annuities in what appear to be very inappropriate circumstances and clearly they are not being informed of all they need to know about annuities. 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 pay out 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 as partially a disqualifying transfer to the annuity’s remainder beneficiary. Payments from an immediate annuity will be considered "income" and will have to be used towards share of cost if eligibility is established. Also, DHS seeks recovery against the residual of annuities after the death of the Medi-Cal beneficiary. In addition to these drawbacks, converting excess resources into an immediate annuity will cause loss of liquidity, vulnerability to inflation, exposure to insurance company failure, and cost due to substantial commissions and due to the 2.35% tax on the purchase of an annuity. Annuities are expensive, and they tend to be oversold by insurance salespersons who do not have a good understanding of Medi-Cal regulations. There are often better Medi-Cal planning alternatives than annuities.

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