Counsel's Corner: planning for Medi-Cal subsidies

The Assisted Living Program Waiver (ALWP) is designed to assist Medi-Cal beneficiaries to remain in their community as an alternative to receiving care in a licensed health care facility. The program provides specified benefits to eligible seniors and persons with disabilities. Medi-Cal is the government program designed to help subsidize the healthcare costs for those individuals who meet the Medi-Cal resource limits.

However, you must financially qualify for this subsidy; that is to say you cannot have too much income or too many assets. For example, in 2013, if a married person needs an assisted living subsidy, the couple's non-exempt resources cannot exceed $115,920.

In an effort to qualify, some couples give away excess assets to their children. While perhaps this may be wise for tax planning and to avoid the Medi-Cal Estate Recovery Liens, such gifts transfers are not treated kindly by Medi-Cal when you are attempting to qualify for benefits.

Indeed, Medi-Cal imposes a period of ineligibility, or penalty, linked to the value of any gift made within 30 months of application. This 30-month period is called the "look back" and is dealt with under the Medicare Catastrophic Coverage Act (MCCA). It provides that transfers of non-exempt resources can result in a period of ineligibility, which is the lesser of: (A) 30 months; or (B) the value of the transferred items divided by the "average private pay rate" (APPR) then in effect in California (currently $7,549).

For example: if Mr. D transfers $15,000 to his son in January 2013, and applies for Medi-Cal in April of 2013, a transfer period will be triggered. The amount transferred ($15,000) is divided by the 2013 APPR ($7,549), and Mr. D will be subject to a period of ineligibility of 1.98 months. Since California does not count partial months, he will be ineligible for 1 month, running from the date of transfer (January 2013). Thus, Mr. D will not be eligible for January and February of 2013 but he would be eligible as of March 1, 2013.

The gift penalty only affects gifts of cash or other non-exempt assets. Gifts of exempt assets, such as a home, can usually be made even during the "look back" without triggering a gift penalty. However, gifts of the home require special care and legal planning strategies to reduce or eliminate the effect of this Estate Recovery Lien and to preserve associated tax benefits.

In the near future, because of a federal law called the Deficit Reduction Act of 2005, the Medi-Cal penalty rules will tighten up: the look-back will increase to 5 years; gifts to multiple recipients will trigger penalties which run consecutively; no more rounding down; and the penalty will not even begin to run until the donor is in actual need of a subsidy, which could be up to 5 years down the road when he may have limited funds to pay for care, eliminating his access to a Medi-Cal "safety net" and placing him at risk.

In short, gifts made with only tax or probate-avoidance concerns in mind can have devastating consequences for a parent who later needs assisted living. To minimize these consequences, any planned gifts should be carefully structured so as to preserve the parent's eligibility for a future Medi-Cal subsidy, if necessary. Currently, with proper planning, this can still be done: with special care even gifts of non-exempt assets can be made without generating a gift penalty, and improperly made gifts can sometimes be fixed so as to qualify for the subsidy.

The purpose of this column is to provide general information on the law, which is subject to change. It is not legal advice. Consult a lawyer if you have a specific legal problem.

********** Published: Feb. 13, 2014 - Volume 12 - Issue 44