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Medi-Cal Planning: Eligibility and Recovery Liens

Matthew Schlau
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Of Medicaid, Medi-Cal and Medicare

Medi-Cal planning is often overlooked in estate plans. However, proper planning is important to ensure beneficiaries can qualify or maintain benefits and state recovery liens for benefits provided are avoided when possible. In this blog post, we’ll discuss Medi-Cal, Medicaid and Medicare, as well as eligibility requirements and how to avoid a state recovery lien.

Key Takeaways

  • Medicaid, Medi-Cal and Medicare are distinct programs

  • It’s likely your estate requires some Medi-Cal planning

  • There are strict rules governing eligibility of Medi-Cal benefits and limited circumstances that allow you to avoid a state Medi-Cal recovery lien

MEDICAID IMPLEMENTATION IN CALIFORNIA

In order to understand the intersection of estate planning and governmental medical assistance, it’s important to note the differences between Medi-Cal, Medicaid and Medicare.

Medicare is a federally funded program that provides financial assistance without regard for financial circumstances to all social security participants (those that are age 65 and older). Medicaid is a federally funded program that provides financial assistance to those with limited income and resources so medical costs are covered. Each state, including California, implements its own version of Medicaid. California’s program is called Medi-Cal and is implemented by the Department of Health Care Services (DHCS).

Medicaid and Medi-Cal are essentially provided to those that require financial assistance during their working years, while Medicare is provided to retirees. For this reason (presumably), Medicare does not implicate recovery while Medicaid and Medi-Cal seek to recover the cost of certain medical services from a decedent's estate.

ESTATE PLANNING AND MEDI-CAL

Medi-Cal planning issues arise when planning estates for those in California who:

  • Anticipate the need for long-term healthcare, such as nursing home or hospice care.

  • Are currently receiving governmental medical support and want to maintain Medi-Cal eligibility, but expect to receive an inheritance, gift, or trust distribution.

  • Want to, through their estate planning, provide for:

    • a Medi-Cal recipient without reducing or eliminating the recipient's Medi-Cal benefits; or

    • a potential Medi-Cal recipient without affecting their eligibility for those benefits.

  • Would like to protect their assets from a Medi-Cal estate recovery lien.

MEDI-CAL ELIGIBILITY

There are strict rules governing eligibility for receiving Medi-Cal benefits. Medi-Cal is available to those:

  • Receiving financial assistance from other government programs, such as Temporary Assistance for Needy Families (TANF), Supplemental Security Income/State Supplementary Payment (SSI/SSP), and others;

  • Receiving medical assistance based on blindness or disability, or age (65 years or older), and have an income asset limitations; or

  • Covered under the Medi-Cal/Medicaid expansion. The Patient Protection and Affordable Care Act (ACA) expanded Medi-Cal coverage to include previously ineligible persons, primarily childless adults between the age of 19 and 64 years old.

Medi-Cal rules limit the types of assets which count towards the available resource limit, which means applicants/recipients of Medi-Cal can own this property without affecting Medi-Cal eligibility. Exempt property includes, but is not limited to:

  • A personal residence. If the owner is institutionalized or otherwise absent from the property, the owner must intend to return to the residence. A principal residence includes:

    • single family homes;

    • entire multi-family dwellings if one unit is the recipient’s residence; and

    • mobile homes, houseboats, or any other vehicle or shelter used as a residence.

  • The proceeds from the sale of the applicant's principal residence and other real property can be exempt.

  • Certain real and personal property used in trade or business, regardless of equity or income produced.

  • Limited rental property and other non-business income producing property that does not amount to property "used in a trade or business." Income in excess of limits is counted to determine eligibility.

  • A motor vehicle.

  • Personal effects valued at more than $100.00 per item.

  • Household items like pots, pans, dishes, towels, and linens, etc.

  • Certain IRAs, KEOGHs, and other work-related pension plans not in the name of the Medi-Cal applicant. The value of these types of accounts in the name of the Medi-Cal applicant is not considered.

  • Life insurance policies with a combined face value of $1,500 or less.

  • The principal amount of, and payments made from, qualifying Special Needs Trusts.

HOW TO AVOID A MEDI-CAL ESTATE RECOVERY LIEN

Aside from attempting to qualify for or maintain Medi-Cal benefits, the other goal of Medi-Cal planning is to avoid estate recovery liens. For a decedent who received Medi-Cal services, the state will claim against the decedent's estate or against any recipient of that estate's property, subject to certain exceptions, the lesser of the payments for the health care services decedent received or the value of the property received by any recipient from the decedent by distribution. The state will generally attempt to recover these costs if either:

  • The decedent died before their 55th birthday, was not qualified under Modified Adjusted Gross Income rules, and was institutionalized without the expectation to return home; or

  • The decedent died on or after their 55th birthday and received Medi-Cal, regardless of the eligibility qualification test used.

For individuals who die on or after January 1, 2017, state law provides that the state may recover against only the minimum required to be collected under federal law. That is, the state may recover against the recipient's probate estate, only, and not against assets in a living trust, held as joint tenancy, or other non-probate assets. This is why it's so important to properly plan your estate and ensure that any trusts are adequately funded.

Following a person's death, the person handling the estate must give notice to DHCS. If the personal representative or trustee provides proper notice using the applicable creditor's claim procedures, the department then has four months to file an estate recovery claim. In all other cases, the DHCS has three years from the date the department receives notice of the decedent's death.

Medi-Cal will waive or reduce an estate recovery lien, or delay its collection if:

  • The decedent is survived by a blind or disabled child or a child under the age of 21 years old.

  • The decedent is survived by a spouse.

  • Recovery will cause a substantial hardship. This "hardship waiver" is made if:

    • a beneficiary's share of the estate allows the beneficiary to discontinue eligibility for public assistance;

    • the property subject to the lien is part of an income-producing business and recovery would result in the beneficiary losing their primary source of income;

    • an aged, blind, or disabled beneficiary lives in the decedent's home and lived there for at least one year before the decedent's death and the beneficiary is unable to obtain a loan or other financing to pay back the recovery lien;

    • the beneficiary lived in the decedent's home while providing care to the decedent for a period of longer than two years, allowing the decedent to delay or avoid placement in a medical or long-term care institution;

    • the beneficiary transferred the property subject to the lien to the decedent for no consideration;

    • the beneficiary requires the property's equity to make the property habitable or to provide for the necessities of life (food, clothing, shelter, or medical care); or

    • the beneficiary is a surviving registered domestic partner.

The state will grant a substantial waiver, subject to federal approval, if the estate recovery subject is a homestead of modest value (the fair market value of the homestead is 50 percent or less of the average price of homes in the county where the homestead is located, on the date of the decedent's death. The substantial hardship waiver will not apply if the decedent created the hardship by using estate planning methods to divert or shelter assets to avoid estate recovery.

WHAT AN ESTATE PLANNING ATTORNEY CAN DO TO COORDINATE ESTATE PLANNING AND MEDI-CAL PLANNING

Of course, a competent attorney can also assist in determining whether the client meets the income and asset guidelines for Medi-Cal eligibility based on the guidelines and restrictions. Beyond that, one of the first things an estate planning attorney can do to coordinate estate planning and medi-Cal planning is account for the medi-Cal recipient’s incapacity. Through a power of attorney, the client is afforded flexibility in planning for Medi-Cal eligibility by naming an agent and specifying in the document(s) whether and to what extent the agent or trustee can make transfers and gifts. For those who are no longer able to make gifts, authority to make gifts and transfers must be specifically authorized in the power of attorney and the associated trust (if there is one) or authorized by court order.

Another item to consider is whether to give the agent or successor trustee, or both, authority to amend or revoke the recipient’s estate plan. This is especially important for married couples because often a first step in estate planning to qualify for Medi-Cal is to revoke a couple's trust. This is followed by transferring income and assets to the non-recipient spouse to allow the recipient spouse to meet the income and resource Medi-Cal eligibility requirements. This also has to be done to account for incapacity of the recipient spouse and prevent them from inheriting the couple's assets and losing Medi-Cal eligibility should the non-recipient spouse die first.

Yet another way to coordinate estate planning and Medi-Cal planning is considering whether to "spend down" by investing in exempt assets or paying off debt and paying privately for his or her own care until he or she becomes eligible. Lifetime transfers are also another available tool, but this must be done very carefully and in concert with applicable federal and state law and regulations that seek to discourage such transfers. If transfers are made in violation of applicable law, the otherwise eligible recipient of Medi-Cal benefits will be disqualified for the number of months calculated by dividing the amount transferred by the statewide average monthly cost of nursing home care (a figure established annually by DHCS).

To ensure your estate plan and Medi-Cal planning are coordinated, schedule a strategy session today. Keep planning smarter.

Matthew Schlau is a co-founding principal of Schlau|Rogers and an estate and business planning lawyer practicing in Orange, San Diego, Los Angeles and Riverside counties. He is a husband, father, blogger, crossfitter, and really good at helping people achieve their goals.

At Schlau|Rogers, we do more than just estate and business planning, probate and trust administration. Our objective is to provide individually-tailored plans that allow you the opportunity to reach your goals, all while minimizing headaches and risk, and maximizing peace of mind.

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