For the purposes of this introduction an overview is appropriate, but we cannot examine or discuss all of the intricacies of the law. Therefore, it is possible that some of the reasoning and usual recommendations will not be discussed or will not be discussed fully in the context of this letter. Later conversations will expand upon what is said here.

    Medi-Cal Defined. Medi-Cal is a joint Federal-State program of medical assistance to eligible needy persons. Medical services are provided by participating providers and reimbursed according to state formulas.

    While there are other eligibility requirements, if a person is "medically needy" that person must meet certain financial criteria in order to be eligible for Medi-Cal. Once qualified, California will charge nominal co-payments for the services provided to the person. In other words, if the eligible person does have some income, that income will be required to be used to pay a portion of the payments for medical services. During the person’s life liens may be imposed on real property in certain cases, but they may be foreclosed only (1) after the death of the recipient or (2) upon sale of real property. Apart from liens, the cost of certain services must be recovered from the estate of the eligible person where the eligible person was fifty-five (55) years of age or older when the benefits were received.

    California cannot require non-spouse relatives to contribute financial support; however, any actual contributions from those relatives are considered income to the recipient.

    General Overview of the Rules. Other than acute care, the primary need for Medi-Cal is when a person becomes institutionalized; in other words, needs to live in a nursing or convalescent home. As already indicated, an institutionalized Medi-Cal recipient's income is expected to be used to pay for his or her own care. Only income received in the name of the Medi-Cal recipient is used to calculate the recipient’s income for qualification and for this reimbursement to Medi-Cal. The income that is chargeable is reduced by allowances for personal and maintenance needs.

    California denies eligibility for a period of time to any institutionalized person who has transferred certain resources to someone other than the spouse for a less-than-fair-market value during or after a thirty-six (36) month period beginning immediately before applying for Medi-Cal. This look back period encompasses transfers by the healthy spouse. A period of ineligibility commencing on the date of the transfer results from these transfers. The period of ineligibility is determined by the amount of the transfer divided by approximately $4000.00.

    When one spouse is institutionalized and the other remains in the community, California must permit the community (healthy) spouse to retain or acquire a Minimum Monthly Maintenance Needs Allowance ("MMMNA") from the institutionalized spouse. The amount of the MMMNA is approximately $2000.00. The community spouse can have income greater than this amount, but if the community spouse does not have income greater than that amount, then the institutionalized spouse must contribute to the minimum monthly maintenance needs allowance so that the community spouse has adequate moneys with which to live.

    The community spouse can also retain a Community Spouse Resource Allowance ("CSRA") of approximately $90,000.00 in non-exempt resources without affecting the institutionalized spouse's Medi-Cal eligibility. This means the community spouse can have assets totaling this amount and not affect the Medi-Cal qualification of the institutionalized spouse. When one has greater values of assets, the person needing Medi-Cal or the spouse of that person will be expected to spend those assets before the qualifying for Medi-Cal. It is interesting to note that retaining $90,000.00 may not be enough to earn $2000.00 in income. In such a case, and in other instances, the community spouse would have to request from the Medi-Cal authorities or the court permission to retain more assets so as to obtain the minimum income allowed.

    Planning Strategies. There are several strategies to consider in planning for Medi-Cal assistance with an institutionalization. The first rule of planning is that an application to Medi-Cal must not be made until (1) the expiration of a period which ensures no transfers are made during the look-back period or the effect of the transfer has been minimized and (2) the income and resource limits have otherwise been met. You should, however, obtain a Medi-Cal application and start a draft so that you commence your plan of becoming eligible. You can obtain a form at Health and Human Services at your local county administration office.

    An important understanding when planning for institutionalization is that there are certain exempt assets. Generally, a home is an exempt asset and not considered a resource when determining eligibility. Other exempt assets include one motor vehicle if used for transportation; all items used to furnish and equip the home; personal effects; musical instruments; life insurance, if it has no cash surrender value or has cash surrender value, but its face value is less than $1500.00; a burial plot, vault or crypt for use by any member of the immediate family; and an amount of funds in an irrevocable burial trust and/or $1500.00 in funds set aside for the burial. Cash value of life insurance policies is considered to be a non-exempt asset and included in the asset list of the person seeking eligibility.

    In most instances the home can be protected from later claims by the state of California. The protection is accomplished by gifting all interest in the home except the right to occupy the home. Many benefits flow from the gift of the home: (1) the qualification for Medi-Cal is not impeded; (2) the income from future rental of the home is not used to pay for the institutionalization; (3) the real estate taxes remain at the Proposition 13 amount until death of the person making the gift (and may remain there if the gift is to children); and, (4) the property assumes a date of death value, thus eliminating capital gains income tax for the accrued appreciation in equity.

    Some assets are not exempt assets, but, nevertheless, may not prevent qualification for Medi-Cal. Even if you do not have Individual Retirement Accounts as part of your family’s estate, discussing them is a good introduction to investment in annuities. Individual Retirement Accounts and annuities are two assets that may not prevent qualification for Medi-Cal. An Individual Retirement Account does not prevent qualification, especially if required distributions are being made from the account. Further, the State of California does not have a procedure to make a claim for recovery from the named beneficiaries of the account for Medi-Cal benefits paid.

    Annuities may not prevent qualification either, and present obstacles to later claims for recovery by California. Annuities, though, must meet certain qualifications. The annuity must be an "immediate annuity;" in other words, an annuity which is not just an investment, but an annuitized contract for payment. The annuity must be payable to the person seeking Medi-Cal assistance over the actuarial life expectancy of that person, but payments do not have to be equal over that period of time. The payments, then, can be more or less at the beginning of the term of the annuity and lesser or greater at the end of the term of the annuity. If the objective were to maximize the use of Medi-Cal benefits, then a smaller payment at the beginning of the annuity, graduating to a larger payment at the end of the annuity, would be appropriate.

    Here is a summary regarding IRA’s and annuities:

    (1) Individual Retirement Accounts, pension funds and work-related annuities are "unavailable" for the purposes of qualifying for Medi-Cal if they are held in the name of the institutionalized spouse and if this spouse has elected to receive periodic payments.

    (2) Individual Retirement Accounts, pension funds and work-related annuities are "exempt" for the purposes of qualifying for Medi-Cal if they are held in the name of the healthy spouse.

    (3) Non-work related annuities are unavailable if the institutionalized spouse is receiving periodic payments of interest and principal, even if the payments are made to the healthy spouse. There is question as to whether or not deferred annuities are unavailable, but "immediate" annuities will be unavailable so long as the expected return on the annuity is commensurate with a reasonable estimate of the life expectancy of the annuitant (this being a life expectancy according to government tables and has no relation to the health of the institutionalized spouse). If the payments on the annuity exceed the life expectancy of the institutionalized spouse (annuitant), the annuity will be available and must be spent down before the institutionalized spouse will qualify for Medi-Cal benefits.

    What did he say? With all of these rules, how do you understand what has been said? The answer to this question is that while two or three readings of this Introduction will familiarize you with some concepts, you need not understand all that has been mentioned; rather, you need a consultation with Attorney J.R. Hastings.

    In the consultation he will learn of your situation and you will tell him of the assets that are owned by the person needing institutionalization and that person’s spouse. He can then focus on the strategies and actions appropriate to you, explain those to you and develop a plan of action with you.