Think Tank

How Should California Handle Eligibility for Long-Term Medi-Cal?

Among the many byproducts of the aging baby boomer generation will be increased need for prolonged health care. As they age, baby boomers will stretch and test the system’s ability to provide — and pay for — long-term care.

Along with that demographic shift of unprecedented proportions, other major changes are coming with national health care reform. How those two large evolutionary cycles mesh will determine, in large part, what California’s health care system looks like a generation from now.

In California, long-term care insurance is expensive and often not included in employer-based purchasing agreements, leaving it up to individuals to arrange for coverage.

Some observers contend that Californians routinely transfer assets or otherwise manipulate their financial status to qualify for government-subsidized long-term coverage. Critics of the system, some of whom have ties to the long-term insurance industry, say California officials are not diligent enough in tracing financial histories of individuals before they qualify for subsidized coverage.

The Affordable Care Act in 2014 will bring more Californians into the Medi-Cal program, many of whom will be eligible for long-term care.

Medi-Cal, California’s federally subsidized Medicaid program, is already by far the largest provider of long-term care in the state. Long-term Medi-Cal coverage pays for more than 60% of all nursing home days in the state and accounts for almost 50% of total nursing home expenditures. In addition to paying for nursing home care, Medi-Cal also provides a range of services for the elderly and people with disabilities who need long-term care due to chronic conditions.

Federal guidelines call for states to establish asset levels and standard “look-back periods” into a potential Medicaid beneficiary’s financial history. California officials are working on setting levels of financial responsibility for new beneficiaries of Med-Cal long-term coverage.

Getting eligibility questions clearly answered and qualifying procedures clearly established before 2014 would help California deal with its aging population.

Is asset transferring to qualify for Medi-Cal indeed a problem? How big a problem is it? What steps should state policymakers — especially those forming California’s new Health Benefits Exchange — take to address the issue?

We got responses from:

Medi-Cal Long-Term Care a Growing Cost

Approximately 66,000 individuals residing in California nursing facilities are Medi-Cal beneficiaries. While the cost of nursing facility care services has increased under Medi-Cal, the number of individuals receiving such services at any given point in time has not. A recent snapshot of Medi-Cal beneficiaries who were newly admitted to long-term care in a month demonstrated that less than 2% of them were also new to Medi-Cal in that month. This means that more than 98% of these individuals were already in the community living at the poverty level as recipients of cash aid or were immediately eligible for Medi-Cal long-term care because they were already Medi-Cal beneficiaries.

To address this small group of individuals, as required by federal law, the Department of Health Care Services is working on regulations to implement required provisions of a 2009 law (SB 483) that will bar payment for long-term care and home- and community-based services under Medi-Cal for those individuals who have equity in their homes in excess of $750,000 or who have made disqualifying transfers of income or property. The policy challenge for DHCS lies in drafting regulations that will not also adversely impact access to needed care for those individuals who do not have that amount of home equity or who have not made disqualifying transfers of assets. Furthermore, federal law does not make these individuals ineligible for all services under Medicaid. These individuals remain eligible for all other Medi-Cal-covered services except for long-term care and home- and community-based services. Therefore, individuals who are subject to the transfer of asset rules and subsequently ineligible for payments for nursing home and home- and community-based waiver services will have to be transferred to more expensive levels of hospital care if they cannot be safely discharged to their homes.

Planning for long-term care is good. DHCS’ California Partnership for Long-Term Care — a public/private alliance between consumers, the state of California and select private insurance companies — educates Californians about the costs of and the risks associated with long-term care. The partnership, which plays a key role in improving the number and quality of long-term care insurance policies sold in California, has championed many consumer protection provisions, such as built-in inflation protection, coverage of residential care facilities, interchangeable benefits, policy lapse protections, flexibility in accessing home- and community-based benefits, care coordination, minimum daily benefit amounts, and maximum elimination periods.

When one is elderly, frail and confused, it’s too late to qualify for long-term care insurance; then, one must deal with Medi-Cal. Unfortunately, individuals who are over age 64, enrolled in Medicare, or recipients of long-term care or home- and community-based waiver services are left out of the Medi-Cal expansions created by federal health care reform. The California Health Benefit Exchange, however, could provide an avenue to showcase long-term care insurance and encourage those who are healthy enough to qualify for coverage to contact the company of their choice.

The partnership was initiated as an alternative to relying on the Medi-Cal program for long-term care and to impoverishing oneself through artificial means, such as transferring assets, to bear the costs of long-term care. The partnership was envisioned to help cope with long-term care costs associated with the aging of baby boomers. If significant numbers of Californians are forced to turn to Medi-Cal for their long-term care needs, it would considerably impact the program.

Forget About Assets Test

In the midst of massive state budget cuts, the debate about how to fund long-term care services has encouraged some in the long-term care insurance industry to assert that artificial impoverishment via transfer of assets is the major culprit in escalating Medi-Cal costs for long-term care, particularly nursing home care. These commentators would have us believe that thousands of wealthy elders are impoverishing themselves in order to obtain a Medi-Cal-covered bed in a nursing home, while draining the public coffers.

In fact, according to statistics compiled by the California Office of Statewide Health Planning and Development, the number of Medi-Cal patients in nursing homes remains approximately the same today in 2011 as it was in 1992, and the overall number of nursing home days has stayed virtually the same for the last decade.

There is ample research to the contrary as well, including studies by the Georgetown University Long-Term Care Financing Project, the Kaiser Family Foundation and the Government Accountability Office. All of these studies found that the vast majority of Medi-Cal residents:

  • Were already eligible for Medi-Cal prior to entering a nursing home or if they did have assets, they were impoverished within less than a year by paying privately;
  • Had few assets to begin with; and
  • Did not transfer significant assets prior to entering a nursing home.

Not eager to be deterred by facts, long-term care insurance advocates argue that more restrictive Medi-Cal eligibility requirements will force consumers to purchase long-term care insurance — an unlikely scenario, given the strict underwriting that limits who can purchase policies in the first place, the high premiums that limit who can afford such policies, the unpredictable premium increases (as much as 50% a year in some cases) and the decreasing number of companies that even offer such policies. MetLife, which had been one of the largest providers of long-term care insurance, announced on Nov. 10 that it plans to stop selling both group and individual long-term-care policies.

A much better scenario would be for California to eliminate asset rules altogether. This would save millions of dollars in Medi-Cal administrative costs, create uniform eligibility criteria based on income and allow California’s low-income elders and persons with disabilities to access the less expensive home and community-based long term care alternatives they need and so obviously want.

Too Easy To Qualify for Medi-Cal

If an evil genius designed a dysfunctional and ruinously expensive long-term care financing system, he could not do a better job than California has done, with help from the U.S. government.

Aging Californians can ignore the risk and cost of LTC, avoid saving for it or insuring against it, wait to see if they ever need expensive LTC, and if they do, qualify easily and shift the cost to Medi-Cal.

But wait, you say. Medi-Cal is a means-tested public assistance program, welfare. You have to be poor to qualify. You must spend down your life savings for your own care before the government helps.

Think again. If that were true, Californians would be impoverishing themselves for LTC. They’d use reverse mortgages to fund home care services. They’d be standing in line to purchase private LTC insurance.

But that’s not what happens. Medi-Cal doesn’t require people to spend their savings for LTC. Buy anything you want. Take a world cruise. Purchase a new car. Remodel your house. Just don’t give away your wealth for less than fair market value.

Assets rarely interfere with Medi-Cal LTC eligibility. Keep home equity up to $750,000. Retain, with no limit on value: the capital and cash flow from a business, even a rental property; one automobile; unlimited prepaid burial plans for you, your spouse and immediate family members; term life insurance; household goods and personal belongings; even IRAs if you’re receiving periodic interest and principal payments.

Income is only rarely an obstacle to Medi-Cal LTC eligibility. As long as your income is below your medical expenses, including the cost of nursing home care, you’re eligible.

Are you still too rich to qualify for Medi-Cal? No problem. A cottage industry of Medicaid planners will wave a magic legal wand and hide or divest your wealth so you can get Medi-Cal LTC. Their bag of tricks is full of special trusts, Medi-Cal friendly annuities, life care contracts, planned divestiture, and special reverse half-a-loaf gimmicks, to name a few. Just Google “Medi-Cal planning”!

No wonder Medi-Cal is bankrupt. No wonder people ignore LTC until it’s too late for anything but Medi-Cal. No wonder private payers have nearly disappeared.

Doubt my analysis? Want to fix the problem? Read my report for the Pacific Research Institute titled, “Medi-Cal Long-Term Care:  Safety Net or Hammock.”

Who Is Responsible for Taking Care of Elders?

Historically, societies have placed the responsibility of caring for older adults on families. In the United States over the past 75 years, we have seen the federal government taking more responsibility for some of these basic needs. The government began to offer income security, health insurance, and other types of benefits to families because it recognized that filial responsibility has its limits. Some older adults have no family to rely on and in other situations, providing this support could further impoverish multigenerational families.

Between the 1930s and 1970s, we saw considerable growth in the creation of welfare programs like Medicaid and Supplemental Security Income for the poor and social insurance programs for the elderly like Social Security and Medicare. Over the past 30 years, we have seen attempts to restructure the governmental system of care and support. Some would argue that the goal of these efforts has been to shift responsibility from the government back to families and individuals. The goal of the Deficit Reduction Act of 2005 was to reduce federal expenditures on Medicaid through tightened eligibility requirements. Efforts related to the Olmstead decision encourage diversion from nursing home care and transition assistance out of nursing homes.

Since the enactment of Medicare, Medicaid and the Older Americans Act in 1965, the world of long-term care has changed significantly. Older adults are living longer and with more chronic conditions. While long-term care was primarily care in a skilled nursing facility in those previous years, different models of providing person-centered care have emerged. Many older adults who would have lived in nursing homes 40 years ago today live in assisted living facilities. The National Aging Network provides home and community-based services and support to help many people remain in their own homes.

The care of about 60% of nursing home residents is from Medicaid. Many of those individuals spent down their assets and became Medicaid eligible as a result of their nursing home stay.

Is Medicaid a crucial means-tested program for low-income groups or a core social entitlement that extends its reach into the middle class? Should the government preserve Medicaid’s means-tested origins or should the program evolve into something more universal? Who is responsible for taking care of elders?

Long-Term Care Insurance is About Having Choices

Long-term care insurance benefits permit a more dignified approach to care than the Medi-Cal route to a two-to-four-beds-per-room skilled care nursing facility. Most people do not need full-time nursing, just custodial care. Policyholders can have options such as home care, respite time off for their caregiving family, equipment, home modifications and/or be able to afford quality assisted living facilities.

Long-term care insurance can include a care coordinator to help family members figure out what to do, as well as provide the extra money needed to make any choices about where and how claimants will live receiving care.

Many of my long-term care insurance clients have had health issues, sometimes more than once, and their long-term care insurance policies have allowed them to stay at home paying friends and other caregivers to help them recover.

A 1999 JAMA/AMA study found that older caregiving spouses face a 63% higher risk of mortality than non-caregiving spouses. We can save more than money with long term care insurance. As one client wrote me, “Your program made my wife’s last days infinitely more comfortable, and for that I am eternally grateful.”

We will not be able to afford 75 million baby boomers (half of whom at 85 are predicted to have Alzheimer’s) “going on Medicaid” when the ones who can afford it could have made rational plans to protect their dignity and independence with LTC insurance. Three years of care could cost nearly $2 million in 30 years if costs only rise by 5% annually. A three-year, $250 a day LTC plan with 5% inflation bought today will meet that number.

We need to save the under-reimbursed, understaffed and overworked nursing facilities for the truly needy.  No one ever intended Medicaid/Medi-Cal to save wealth for heirs via funding by taxpayers.

In my 16-year career, I have often heard, “My mother got the same care as the person in the next bed on Medi-Cal. My lawyer will get me on Medi-Cal, too.” It saddens me to think they could have bought insurance enabling them to stay home or in an assisted living facility with a monthly long-term care insurance premium less than the cost of one day in a nursing home.