Medi-Cal Nursing Home Care Update: Overall

Nursing home care in California costs on average about $60,000 per year. It doesn’t take long for many nursing home residents to deplete their savings paying for care. Meaningful government financial help for nursing home care costs is available only if a person is eligible for Medicaid (called Medi-Cal in California). Medi-Cal is a combined federal and state program, managed by the California Department of Health Services (DHS).

Major Changes Coming
On Feb. 1, Congress (with a 214-212 vote in the House) adopted the Deficit Reduction Act of 2005 (the DRA). All House Democrats and 13 Republicans voted against the bill. The President signed it on Feb. 8. The DRA’s significant changes in the Medicaid rules make it more difficult to become eligible.

Aspects of the changes and their impact on Californians are still unclear. This article provides our best early understanding.

Delaying the Start of the Penalty Period
While many aspects of the DRA changes qualify as making Medi-Cal “meaner,” the provision delaying the start of the penalty period easily grabs first place in our Scrooge Award competition. Unless California acts to soften its impact, this provision will deny Medi-Cal to people needing nursing home care, even though they have no money to pay for the care.

A little background: under existing California rules – with some exceptions – a person who makes a gift is penalized by being ineligible for Medi-Cal help for a number of months, starting with the month in which the gift was made. DHS calculates the number of months of ineligibility by dividing the value of the gift by the official statewide average cost of a month of nursing home care (roughly $5,000). This has been a sensible approach – give money away and be ineligible for the number of following months that the money would have covered your care costs.

Here’s an example: Let’s go back to March 2005, when Mrs. Moses was in good health and had $32,000 in savings (and no other assets that would count under the Medi-Cal rules). She gave $30,000 to her nephew so he could start his own business. Let’s assume this is the only gift she has ever made. The next March, Mrs. Moses has a stroke and enters a nursing home. She has only the remaining $2,000 in savings – so she applies for Medi-Cal help. She reports the March 2005 gift, and it makes her ineligible for six months ($30,000 divided by $5,000 produces a six-month ineligibility penalty). Under the current rules, Mrs. Moses is ineligible from March through August 2005. Because she has waited beyond that period to apply, she can receive Medi-Cal help in 2006.

The DRA dramatically changes this by making ineligibility periods begin to run only once a person applies for Medi-Cal. Apply the DRA to the example and Mrs. Moses has a big problem. Her six-month ineligibility period would begin when she applies for Medi-Cal in March 2006. This means that she’ll be ineligible for Medi-Cal help for the first six months of her need – when she doesn’t have the money to pay.

Under the DRA changes, Mrs. Moses has two options for dealing with her untenable situation. One, she can try to prove that the gift was made exclusively for a purpose other than qualifying for Medi-Cal – but to do so she has to overcome a DHS presumption that the gift was for eligibility purposes. Or, she can apply for a hardship waiver – under rules that have yet to be written.

This is not only a problem for Mrs. Moses. It’s also a problem for the nursing home. Since Mrs. Moses has no way to pay for her nursing home care, the facility has no source for payment. Discharging Mrs. Moses is not a solution – where will the nursing home send her? What other nursing home will take her without a way to be paid? The DRA says that the nursing home can apply for a hardship waiver, but it will be limited to 30 days’ payment.

This provision is a dreadful trap for the unwary. As it’s written, if you make a penalized gift and need Medi-Cal help paying for care within five years, you’ll be ineligible when you most need Medi-Cal help. This is the case even if you were healthy when you made the gift, and had no thought of ever applying for Medi-Cal. This is the case whether you were helping to pay for a grandchild’s education or a child’s home or medical bills, or donating to your church or a charity, or even giving a wedding or birthday present.

Weakening the Spousal Protections
Medi-Cal has never been a generous program, but the most generous aspect has been the spousal protections. These protections apply when one spouse needs nursing home care, but the other spouse is healthy enough to remain at home.

They were designed so that care for one spouse would not impoverish the other spouse, who needs to keep up the home and live in the community and may even outlive the nursing home spouse for years. Under the protections, the at-home spouse can retain $99,540 of countable assets. This is not a lot of money, and will disappear quickly if the at-home spouse then needs care.

The rules currently allow an at-home spouse whose monthly income is low (under $2,489) to retain additional assets above the $99,540 – to invest and bring his or her income up. This is especially important in cases where income of the nursing home spouse will stop at that spouse’s death.

The additional assets rule was hit hard by the DRA. The DRA requires that all of the nursing home spouse’s income be treated as owned by the at-home spouse – minimizing the at-home spouse’s ability to retain crucial additional assets. This change took second place in our Scrooge Awards.

Other DRA Medi-Cal Changes
Lengthening the Look-Back Period: When a person applies for Medi-Cal help in paying for nursing home care, the person must disclose gifts they’ve made to others in the past. The period for disclosure is called the “look-back period” and goes back in time from the date the person applies. Under the DRA, the look-back period jumps to five years (60 months) from the existing 30 month rule.

Home Equity Limits: Have home equity of $500,000 or more? Forget about Medi-Cal, unless your spouse or minor or disabled child is living in the home. Basically, Congress is saying that you are too wealthy for government help if your home has become that valuable. This is a challenge for those who live in areas where home prices have run up dramatically, since they must either sell their homes or borrow against them. It’s good news for the real estate sales, home equity loan and reverse mortgage industries. California has the option of raising the $500,000 to $750,000.

Continuing Care Communities: What you say when you apply to a continuing care or life care community can and will be used against you. The same is true for the deposit you make. Under the DRA, the community can limit what you do with the money you tell them about in your application. And your deposit (if refundable when you die) will be counted against you and may keep you or your spouse from receiving Medi-Cal help.

Daily Penalty Periods: Under the current rules, ineligibility penalties have been calculated in months – and rounded down. This provided a convenient way to deal with smaller gifts. As an example, a gift of $2,000 produces no ineligibility under the round-down approach ($2,000 divided by a $5,000 monthly cost of care equals 0.4 months, rounded down to 0.0 months of ineligibility). Under the DRA, penalties will be calculated in days – so a $2,000 gift makes the giver ineligible for 12 days.

Expanding Public-Private Partnerships: Now, here’s a positive aspect of the DRA. The public-private partnership for long-term care insurance – available in California since 1994 – will now become available across the U.S. The partnership programs encourage the purchase of long-term care insurance by excluding some assets from Medi-Cal calculations.

Others: The DRA places new restrictions on arcane arrangements involving annuities, notes, loans, and purchases of life estates in others’ homes.

Effective Dates Unclear
When do the changes become law (become effective) in California? For now, DHS appears to be following the old rules. California will have to adopt new statutes or regulations to incorporate the DRA changes.

We’re betting the changes won’t become effective until after the date of official California action. We’re guessing they won’t be retroactive, because it would be administratively unworkable for DHS to have to deal all over again with the eligibility of people who applied before the California rules are sorted out.

Is the DRA Unconstitutional?
For a federal bill to become law, both the House and Senate must have approved it in identical form. Due to a mix-up in the Senate clerk’s office, a Medicare provision of the DRA as passed by the House was different from that in the version passed by the Senate. So, what the President signed may not actually be a law. Litigation has been filed in federal court in Alabama seeking to declare the DRA unconstitutional. Stay tuned.