Three Common Misconceptions About Medi-Cal Health Insurance Resource Limits: Eligibility, Asset Transfers, and Special Needs Trusts

Three Common Misconceptions About Medi-Cal Health Insurance Resource Limits: Eligibility, Asset Transfers, and Special Needs Trusts

Three Common Misconceptions About Medi-Cal Health Insurance Resource Limits: Eligibility, Asset Transfers, and Special Needs Trusts


Three Common Misconceptions About Medi-Cal Health Insurance Resource Limits: Eligibility, Asset Transfers, and Special Needs Trusts

Three Common Misconceptions About Medi-Cal Health Insurance Resource Limits: Eligibility, Asset Transfers, and Special Needs Trusts 

       

         Health insurance is one of the most complex and difficult to navigate areas of American life for both the average consumer and advocates counseling on health insurance options.  The benefits of cost control that the Affordable Care Act was intended to bring about seem to have been lost in political infighting and program changes over the first two and a half years of the Trump Administration.  

 

         For California families eligible for full-scope healthcare coverage with income up to 300% of the poverty line or as a result of being categorically needy as aged or severely disabled, Medi-Cal’s income and resource requirements are strict and zealously enforced.  No individual receiving Medi-Cal may have more than $2000 in non-exempt resources at any one time and no married couple may have more than $3000. This requirement is enforced regularly, and families and individuals often lose healthcare coverage in times of need because they fail to maintain bank account balances or other assets below the monetary threshold.  Further, the Medi-Cal program may actually assess overpayments against individuals who failed to report changes in assets, which can number in the tens of thousands of dollars. Where a family member has a severe mental health disorder, it is nearly impossible for that person to save for a home or accumulate a savings while not running afoul of the resource requirements.  

 

         There are many misconceptions about public health insurance and Medi-Cal in particular, and I only have space in this article to discuss three.  But everyone who receives some form of Medi-Cal should know that there are ways to provide a decent life and economic security for disabled individuals regardless of these strict requirements.  Some of these methods are discussed below.  

 

I. MISCONCEPTION NUMBER ONE: THERE IS NO WAY TO SAVE ASSETS FOR FUTURE USE WHILE ON MEDI-CAL 

 

          Many people have this misconception because Medi-Cal informs them generally that they can never own more than $2000 in assets individually.  This is a general requirement for receipt of full-scope healthcare coverage. However, assets are only owned by an individual if those assets are currently accessible to that person.  I often advise my clients to plan for future home purchases (one home which is a principal place of residence is an exempt asset for Medi-Cal) by placing currently existing savings and other monies in a Special Needs Trust (“SNT”).  An SNT provides for continuous distribution of money to a beneficiary (the person with a disability) and may be managed by a family member or other trusted individual, who acts as the trustee. The most important provision in an SNT is the section making distributions to the beneficiary discretionary, thereby preserving the assets in the trust as assets of the trust, and not of the disabled individual.  This provision distinguishes an SNT from a Revocable Living Trust (or Irrevocable Trust of a deceased spouse) which retain assets as property held and managed by the person creating the trust or the estate. A properly drafted SNT preserves Medi-Cal and can also work for numerous other public benefit programs, both state and federal.  

 

II. MISCONCEPTION NUMBER TWO: I CAN’T TRANSFER ANY OF MY ASSETS INTO A SPECIAL NEEDS TRUST BECAUSE MEDI-CAL WILL ASSESS AN ELIGIBILITY PENALTY AGAINST ME

 

         To be clear, asset transfer penalties do exist for certain kinds of public health insurance plans, including Medi-Cal.  The federal law provides for transfer penalties for Medicaid benefits, including nursing home or long-term care, of which Medi-Cal is an included Medicaid program.  Basically, the formula penalizes individuals who transfer away their savings or other non-exempt assets in order to qualify for Medi-Cal and who otherwise have no other motive for doing so.  The transfer penalty is a period of ineligibility for health insurance, which can last for years on end, depending on how many months the transferred assets would have provided for the basic needs of the individual who wants to receive Medi-Cal.  However, in California, there is currently no asset transfer penalty for assets gifted or transferred to third parties or to a special needs trust where an applicant requests non-long-term care or non-nursing home care Medi-Cal (meaning all other types of health insurance).  This may change in the future, but this is currently the way the law and regulations are structured and enforced.  

 

III. MISCONCEPTION NUMBER THREE: FINAL MISCONCEPTION: IF A FAMILY MEMBER DOES NOT HAVE LEGAL MENTAL CAPACITY, THERE IS NO WAY TO PROVIDE A DECENT LIFE FOR THAT INDIVIDUAL AND STILL ENSURE THEY RETAIN THEIR HEALTH INSURANCE OR OTHER PUBLIC BENEFITS

 

        Individuals and families with mental health or cognitive disabilities often believe that there is no way to benefit someone with a serious mental health issue, young or old, because that person cannot set up a trust on their own for lack of capacity.  This is false. Federal law specifically provides for the creation of third-party Special Needs Trusts, usually set up by a parent, child, or other interested party or family member, which can be funded with assets of that person or transferred assets (assuming authority to do so) of the disabled beneficiary.  The creation, funding, and management of these trusts can be complex, and different types of income placed in a trust require different management practices and designations to preserve the viability of the income stream and the eligibility of the disabled beneficiary for public benefits. But these trusts are a viable method of ensuring that a loved one has a decent life, instead of living on the margins of poverty that some public benefit programs require.  Specialized legal advice and drafting should be consulted to set up this type of trust. Utmost care is required to ensure that the objectives of you and your family to preserve public benefits eligibility while providing for discretionary trust payments to a family member with a disability are fulfilled.   

 

       Please contact me at ryan@klolawfirm.com or (408) 634-9850 (my office referral line) with any questions or concerns regarding the above.  I provide free consults to eligible clients and enjoy helping families and individuals navigate these complex public benefits eligibility and health insurance issues.  For more information on my firm and our mission and practice areas, please visit the firm website below.  

Firm Website

www.klolawfirm.com

LinkedIn

https://www.linkedin.com/in/ryan-knutson-520b01102/

DISCLAIMER: “The information you obtain in this blog is not, nor is it intended to be, a substitute for personal legal advice.  You should consult with an attorney regarding personal legal advice specific to your own situation. Further, reading, interacting with, or reposting this blog post or website in any way does not form an attorney-client relationship with Ryan Knutson, Esq., Knutson Law Offices, or the Bay Area Legal Incubator Program.”


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