Note: This post is about Medi-Cal rules for nursing home care in California (it’s called Medicaid in other states, but it’s different in those places) as of May 2022. If you are in a jurisdiction outside of California or reading this much later, you may not be getting the most updated information.
I come to you with an unpleasant thought. The more we know about nursing homes, the worse they seem. There may well be “good” nursing homes, but we need to expand our conception of “good” out of necessity. Some families cannot take care of their elders. With a nursing home, you are talking about a place where people don’t want to work, where overmedicating elders is often the first option, and where lawsuits for neglect and abuse are commonplace.
Still, nursing homes are necessary.
The reasons are varied but can include:
- In some cases, having people with severe memory care issues can be dangerous for small children.
- Adult children have economic or space limitations that prevent them from caring for their elders, even if home-based care options are available from government sources.
- Some elders don’t have children or close family; the nearest family member may be a niece or nephew if they are lucky.
- In many middle-class and upper-middle-class families, it is common for children to go far away from home for college, get jobs in other cities, marry and start families far away, and lose connection with their parents and siblings. In American culture, there is no fundamental obligation to elder parents.
- Families can be complicated, with lots of love, pain, and trauma mixed with some incendiary family politics.
Paying for Nursing Homes
So, we have exhausted alternatives, and it is necessary to get an elder into a nursing home. What happens next?
Insurance does not pay for long-term care at all. There are insurance products that pay for long-term care, but most people do not purchase it, or by the time people are interested, it’s too expensive anyway.
You can also just pay for it in cash. If the elder is wealthy, it’s not a problem. But otherwise, you are looking at costs that range from $10,000 a month (if you are lucky) to $20,000 per month. Relatively few people have this kind of cash lying around.
The last option is, of course, going to government programs. Elderly Americans are eligible for Medicare, which for the most part, does not pay for nursing home care. The next option is Medi-Cal, which is healthcare for the poor.
Medi-Cal for the Poor, and You are not Poor
People want to pass on their assets and not have their hard-earned wealth go down some nursing home sinkhole. So historically, people got rid of assets putting themselves into a virtual state of destitution. They have done this even when they are not sure they will ever be going to a nursing home. Relatively healthy elders have done this even when they have years or even decades ahead of them, just to deal with this fear.
Unfortunately, working with this fear is the way things have been for some time: To get Medi-Cal, you need to go through “Medi-Cal qualification.” That means people purposefully impoverishing themselves. They can have no more than $2,000 in liquid assets; while certain things, like homes, don’t count towards qualifications, they are subject to “Medi-Cal estate recovery.” Essentially it means Medi-Cal is loaning the cost of care to the family, and they will get it back after death.
The family member in a nursing home figures they will pay for it one way or another, so they just start giving things away in anticipation of Medi-Cal. What makes this even more complicated is that if you start giving things away too soon before needing Medi-Cal to pay for a nursing home, the government will count this against you. Medi-Cal rules exclude people- why people had done Medi-Cal planning long before they needed it (and ultimately may never need it). In some cases, adult children may prod this kind of activity to take possession of the assets earlier. A typical strategy is to use the technical rules of Medi-Cal to purchase exempt assets and dispose of others creatively.
Purposefully impoverishing yourself is a horrible idea. Every person is entitled to autonomy, liberty, independence, and personal dignity. Do not voluntarily give away such things unless there are no other options. I would never recommend anyone start gifting away everything they have.
How Medi-Cal Planning Has Worked
For example, Abdullah, 81 years old, and his children expect him to go to a nursing home in the next few months because he believes he may be going through the early stages of dementia. Abdullah has a paid-off home worth 1.6 million, a car, investments worth 210,000, and his only income is social security. Medi-Cal has an income limitation (138% of poverty). Under Medi-Cal rules, he cannot have more than $2,000.
However, if he were married between himself and his wife (not going on Medi-Cal), both are allowed $139,400. For Medi-Cal purposes, his house is exempt from consideration. There is the prospect of Medi-Cal recovery, but the rules have relaxed in recent years; the government only goes after assets subject to probate. Assets in a living trust, including one done through an Islamic Estate Plan, would be exempt from the estate recovery process. So Abdullah should not give his house away just yet.
How Things Are Changing
Under a new California law (AB 133), starting July of 2022, Abdullah would be able to keep $130,000, which is up from $2,000. Combined with his wife, the number is $267,400. But more importantly, for purposes of planning over the long term, the asset limitations will be eliminated starting January 1, 2024. So, Abdullah can have millions of dollars and still qualify for Medi-Cal, so long as his income is low enough.
Medi-Cal asset recovery will still exist (a federal requirement California cannot get rid of entirely). Still, all you need to do to avoid this is do what you should be doing anyway, get an Islamic Estate Plan.
Don’t get rid of your wealth out of fear of losing your wealth. The government in California seemed to encourage this before, but no more.