LTC Bullet: California Dreamin' About LTC

Tuesday, October 5, 2004


LTC Comment: As they used to say in the '60s, "It's Happening" in California. With so many cheap airfares these days, you could be there too. More after the *news.*

*** DRIVE TIME BONUS. We have a limited supply of CDs of a scintillating debate, moderated by Morton Kondracke, between Steve Moses and Josh Wiener on the topic "Long-Term Care: Who Should Pay." Dr. Wiener is the leading national advocate for government-financed long-term care, as Moses is the premier spokesman for private financing alternatives. Slip this CD into your car's player and turn a boring commute into a valuable educational experience. We'll send the debate CD upon request at no extra charge to every new donor of $250 or more to the Center for Long-Term Care Financing. If you're already a Center donor, send an extra $100 contribution and we'll rush your copy of the debate to you ASAP. Write "send the CD" on your check and mail it to the Center for Long-Term Care Financing, 2212 Queen Anne Avenue North, #110, Seattle, Washington, 98109. New contributors will also be added to our subscriber list for donor-zone publications and website Donor Zone access. Thanks for your support. [If you'd like to order the debate CDs in bulk for employees or customers, we can probably make that happen. Contact to inquire.] ***

*** SPEAKING OF CALIFORNIA. It's not too late to sign up for the California sessions of the most advanced class on long-term care planning available anywhere. But act quickly: these classes are coming up this Friday in Sacramento and next Wednesday in Costa Mesa (near Los Angeles.)

The Center's LTC Graduate Seminar is ideal for financial advisors, elder law attorneys, LTC insurance agents, long-term care providers, geriatric care managers and anyone else who advises the public about long-term care. Pre-registration is required. Call or email Amy McDougall at or 425-377-9500. For a syllabus, testimonials and more details, jump to . We offer this class only sporadically as Steve Moses' schedule permits. If you have to fly in and/or overnight in a hotel to be able to attend these California programs, present your airfare or hotel receipt when the class meets to receive a $50 refund of the $225 course fee. Grab one of these opportunities now:

Date: Friday, October 8, 2004
Time: 8 a.m. - 4:15 p.m.
Location: University of Phoenix; 2860 Gateway Oaks Drive, Room 113, Sacramento, CA 95833
Cost: $225 per person

Date: Wednesday, October 13, 2004
Time: 8 a.m. - 4:15 p.m.
Location: University of Phoenix, South Coast Learning Center, 3150 Bristol Street, Room 312 Costa Mesa, CA 92626
Cost: $225 per person
Special sponsored luncheon speaker this class only: Ralph Leisle, founder and President of LTCi Decision Systems, Inc., will address the topic "Why LTCi in High Net Households and Executive Markets?" For more information about their LTC Economic Impact Planning software, visit: ."

FLY-INS for the Costa Mesa (Los Angeles) program will find the Orange County (John Wayne) Airport most convenient.

BOSTON ADDED. Steve Moses will present the LTC Graduate Seminar in Boston on Veteran's Day, November 11, 2004. Contact Amy McDougall as explained above to register. ***

*** LATEST DONOR-ONLY ZONE CONTENT: Here's the latest Zone content followed by instructions on how to subscribe so you can receive these critical epistles daily by email.

The LTC Reader #4-037--Yet Another Consumer Guide to LTCi (Check out the Insurance Marketplace Standards Association's [IMSA's] LTCi consumer guide.)

LTC E-Alert #4-046--Kansas Lien Law Sends Message: LTC is Personal Responsibility (KS is the latest state to ensure affluent seniors pay back Medicaid LTC benefits.)

LTC E-Alert #4-047--Bush vs. Kerry on LTCi (The Lewin Group assessed the candidate's positions on health care issues, including long-term care insurance, in a new report.)

Don't miss our "virtual visits" to major LTC industry conferences in The Zone. You'll find our comparison of the conferences, session summaries, interviews and pictures at .

Individual donors of $150 or more and corporate donors to the Center for Long-Term Care Financing receive our daily email LTC Bullets, LTC E-Alerts, LTC Readers, and LTC Data Updates for a full year. You'll also get access to the donor-only zone where these publications are archived along with other donor-only features. If you already qualify for The Zone, you can click the following link, enter your user name and password, and go directly to the latest donor zone content and archives: . If you do not already qualify for The Zone, mail your tax-deductible contribution of $150 or more to the Center for Long-Term Care Financing, 2212 Queen Anne Avenue North, #110, Seattle, WA 98109. Then email your preferred user name and password (up to 10 characters each). You can also contribute online by credit card or direct withdrawal at . ***


LTC Comment: In this Bullet, we focus on LTC developments in California. We'll give you details on a "LTC Summit" coming up this weekend in Sacramento. We'll cover new legislation signed by Governor Schwarzenegger that is considered by many to be a boon for nursing homes and their residents. We'll close with the "California LTC profile" from the Center's newest report. Find out why Medi-Cal's long-term care program is hurting and what needs to be done to fix it. (Medi-Cal is California's name for Medicaid) Here's a sample quote: "[California] falls somewhere between schizophrenic (extremely generous Medi-Cal eligibility combined with stringent estate recovery) and suicidal (given that virtually anyone can qualify for Medi-Cal long-term care, often including HCBS, without spending down significantly and, with simple planning, can avoid estate recovery)."


Following are excerpts from a story by Nancy Weaver Teichert titled "Seniors' State Funding is Focus: The Wealthy Are Allowed to Meet Medi-Cal Rules to Pay Nursing Home Bills, A Study Says," in the October 2, 2004 Sacramento Bee. Read the full story at .

"California is hemorrhaging millions by allowing well-off seniors to get on Medi-Cal to pay for nursing homes, contributing to poor care, a new study says. . . .

"The result is a 'welfare-based' nursing home industry where the state pays less than actual costs to homes faced with rising operating expenses, the study said.

"'You basically get what you pay for and the government isn't paying enough to ensure access to quality care,' said Stephen Moses, president of the Seattle-based center and author of 'The Realist's Guide to Medicaid and Long-Term Care.' . . .

"California's dependence on nursing homes for long-term care also means, Moses said, that there has not been enough development of less expensive and more desired alternatives for in-home care or assisted living. . . .

"Betsy Hite, California Association of Health Facilities spokeswoman, said some nursing homes are refusing to admit Medi-Cal patients. The homes lose about $16 a day on the Medi-Cal reimbursement rate, she said.

"The state needs to tighten its eligibility rules, he said. The Medi-Cal system, the state's health insurance program for the poor, should be a safety net, not 'inheritance insurance for the baby-boom generation,' said Moses.

"And, he added, families need to buy long-term care insurance that allows more choice in selecting a nursing home and also can pay for services in their own home.

"Moses and Pierce-Miller [from the California Partnership for Long-Term Care] will speak at an upcoming summit sponsored by the California Association of Health Facilities, which represents the state's 1,400 nursing homes.

"The free summit will be held from 8:30 a.m. to noon Oct. 9 at the KVIE Channel 6 studio, 2595 Capitol Oaks Drive (off Interstate 5 and West El Camino Avenue). To register, call (916) 441-6400, ext. 0."


Center for Long-Term Care Financing President Steve Moses will keynote the "Long-Term Care Planning Summit: What You Need to Know to Protect Your Future," mentioned in the news story above, on Saturday, October 9, in Sacramento California. Register for the free half-day event by calling (916) 441-6400, ext. 0. For details about the Summit including an agenda, go to .


Following is our profile of California's long-term care service delivery and financing system in "The Realist's Guide to Medicaid and Long-Term Care." Read the full report at .

California State Profile
(Private plus, Medicaid minus) See footnote i.

Medi-Cal Eligibility (Subjective rank from 1, easy to 5, hard): 1
Medi-Cal Estate Recoveries-Probate (Percent, Rank): .93%, 16
HCBS (Expenditures per capita, Rank): $399.04, 16
LTCi Market Penetration: 6%-9%
Home Equity Conversion (HECMs per 1000 elderly, Rank): 9.0, 9
Medi-Cal Census (Percent, Rank): 66.12%, 24
Predictability (Plus +, Minus -, or Mixed ):

DIAGNOSIS: California, which we originally expected to rank very high on long-term care policy because of its strong estate recoveries and heavy emphasis on private long-term care insurance, actually ranks low. The state falls somewhere between schizophrenic (extremely generous Medi-Cal eligibility combined with stringent estate recovery) and suicidal (given that virtually anyone can qualify for Medi-Cal long-term care, often including HCBS, without spending down significantly and, with simple planning, can avoid estate recovery). Like New York, California's Medi-Cal eligibility system is state-supervised, but county-administered and, as in New York, central office eligibility policy staff in California have no knowledge nor means of measuring the extent to which Medi-Cal planning techniques are being used to qualify affluent seniors for the program. Given California's gigantic, and much publicized, budget shortfalls, it is hard to understand why the state allows its Medi-Cal long-term care eligibility to hemorrhage, expands Medi-Cal-financed HCBS which makes the program ever more popular, and fails to fill estate recovery slots that bring in 20 times in nontax revenue what they cost. In spite of serious efforts to encourage private long-term care insurance through tax incentives and the LTC Partnership program, there is little wonder why Medi-Cal predominates and private insurance lags in California's long-term care system.

PROGNOSIS: California is on a path toward long-term care disaster having sent a powerful message to the state's citizens that long-term care is not a risk they need to plan to meet personally. Nevertheless, the state has a good foundation of strong estate recoveries and long-term care insurance promotion on which to build for Medi-Cal reform. With Medi-Cal LTC eligibility exceedingly generous, however, and with home equity conversion and private insurance unnecessary to pay for long-term care and estate recoveries easy to avoid with advance planning, nothing is likely to change until the state takes decisive action to measure and correct these problems.

PRESCRIPTION: California should conduct a comprehensive study of Medi-Cal long-term care eligibility and Medi-Cal estate planning to find and close the "loopholes" that abound, some of which are summarized below. The state should immediately implement OBRA '93 transfer of assets rules, closely monitor the huge Medi-Cal estate planning bar, publish notifications throughout California warning of new LTC eligibility restrictions and strong Medi-Cal planning enforcement. California should end its focus on providing HCBS until it gets control of Medi-Cal long-term care eligibility. The state should fill the Medi-Cal estate recovery unit's authorized but currently empty slots and implement the measures which the outgoing director believes could double annual recoveries to $100 million per year. California should advise state citizens that long-term care is a personal responsibility, that the state is clamping down on the use of Medi-Cal as "inheritance insurance," and that everyone should expect to pay his or her own way for long-term until assets, including home equity, are consumed either up front through a reverse mortgage or ex post facto through estate recoveries.


Medically needy eligibility system which allows deduction of medical expenses, including the cost of nursing home care, from applicant's income before determination of income eligibility.

Subjective expression of intent to return allows recipient to retain home regardless of ability to return.

Instead of using the federal guideline of half the joint assets not to exceed the Community Spouse Resource Allowance (CSRA, $92,760 for 2004), the community spouse is allowed to retain the full $92,760 regardless of total, joint assets.

Instead of using the Minimum Monthly Maintenance Needs Allowance (MMMNA, $1515 per month until the annual inflation increase becomes effective July 1, 2004) plus housing costs, California allows the maximum $2319 regardless of applicants' housing costs.

When the Medi-Cal spouse is married, couples frequently request a hearing to increase the Community Spouse Resource Allowance in order to generate enough income to bring the community spouse up to the Minimum Monthly Maintenance Needs Allowance (up to $2319 for 2004). "What happens is they go to an administrative hearing and they get the CSRA increased. For example, if they have $200,000, the case is denied, then goes to a hearing, and they get the CSRA increased. Most of the time, the community spouse does not have the $2319 income we allow, so they can move the extra assets over, apply the going Certificate of Deposit rate [as low as 1% recently, with the lowest possible rate most beneficial to the applicants], and so they can have hundreds of thousands of dollars [and still qualify]." (Interview) Footnote ii

California is a "resource first" state (as opposed to using the stricter "income first" rule) which allows transfer of extra assets over and above the CSRA to bring the community spouse up to the MMMNA, which the state sets at the maximum of $2319.

Annuity abuse is common: "Annuities are exempt for purposes of determining countable property, the theory being that we'll get the income to defray Medi-Cal expenses. What attorneys are doing is transferring the income stream from the annuity to someone else. Because of limiting language in the Social Security act about the name-on-the-check rule, we're limited in what we can do. To the extent the vender of an annuity is willing to change the person receiving the income, we can no longer count the income stream either." (Interview)

California allows unlimited asset transfers without penalty as long as they are done in a certain way. The state has not implemented OBRA '93 transfer of assets (TOA) rules that prohibit this practice. "We only penalize single transactions. Thus, applicants could gift $4400 (the average monthly nursing home cost which is the amount used to figure the TOA penalty) to 10 people on the same day and there would be no penalty because it was 10 separate transfers." (Interview) California does have draft regulations to implement OBRA '93 TOA rules in the future." (Interview)

Purchase of exempt assets. This practice is commonplace by Medi-Cal planners in California. Because California has not implemented OBRA '93 which prohibited the practice, people can shelter assets by purchasing an expensive exempt home and then transfer it to someone else without penalty on the reasoning that it is exempt, so not a transfer to qualify. "The only time we have a penalty is when something is transferred to make themselves eligible." (Interview)

"Pyramid divestment," which was prohibited by OBRA '93, is still legal in California. This is the practice of giving away declining amounts of assets each month so that penalty periods run simultaneously, thus reducing the total eligibility penalty. For example, instead of giving away $200,000 all at once resulting in a 45 month penalty ($200,000/$4400 = 45), the family might give away $60,000 one month resulting in an 13 month penalty, $50,000 the next month resulting in a 11 month penalty running simultaneously, $40,000 the following month resulting in a nine month simultaneous penalty and so on until the whole $200,000 is gone with only a 13 month penalty.

Irrevocable burial trust funds are exempt in any amount in California as elsewhere. Staff do not perceive that this exemption is being abused in that annuities and asset transfers are so easy to use.

An internet search for "Medi-Cal Planning in California" reveals innumerable firms that specialize in the field. Two examples:
Quote: "Ashen Senior Resources [of Carmel, California] has a 100% success rate in getting clients qualified for Medi-Cal. Our clients have NEVER been denied for their Medi-Cal entitlements. The truth is that almost everyone can qualify for nursing home Medi-Cal benefits, but it's all in knowing how." (Emphasis in the original.)
Quote from Falk, Cornell & Associates, LLP of Palo Alto California: "Many people cannot afford to pay $3,000-$5,000 per month or more for the cost of a nursing home . . . Fortunately, the Medicaid Program is there to help. In fact, in our lifetime, Medicaid has become the long term care insurance of the middle class. But, the eligibility to receive Medicaid benefits requires that you pass certain tests on the amount of income and assets that you have. The reason for Medicaid planning is simple... you plan so that if you need it, you will be eligible to receive Medicaid benefits."

Following are excerpts from Evan Halper, "Public Pays for Wealthy Seniors' Care," Los Angeles Times, May 2, 2004, which is archived at: :

"For older Californians distressed by the thought of nursing home bills devouring their savings, the words of a Los Angeles attorney may seem astonishing: 'We can qualify even a millionaire for Medi-Cal benefits.' But as troubled as they may be by such an offer, officials at California's healthcare program for the poor admit it's possible. At a tremendous cost to taxpayers, aging Americans in California and across the nation are transforming themselves, at least on paper, from affluent seniors to needy individuals eligible for state health benefits. . . . Clients can pour all of their money into an expensive new house and still qualify. If they tell the state that their intention is to return to that home, the state can't take it. The house can then be transferred to relatives while the patient is in a nursing home, and the state can't go after it once the patient dies. . . . 'We have tried to tighten all the loopholes we are aware of that can be tightened under federal law,' said Stan Rosenstein, who oversees the Medi-Cal program. 'There are some loopholes in the federal law that we can't touch.' . . . Most elder-law experts . . . say that if recipients fill out the paperwork properly before entering the system, they can keep the state from ever having a claim on their property. . . ." For longer excerpts from this and other similar articles, see "LTC Bullet: Medicaid Planning and Estate Recovery Issues Are Heating Up," Wednesday, May 12, 2004 in the LTC Bullet archives at .

"A Placer County [California] attorney who advises seniors throughout the state on how to qualify for state health care benefits is under investigation on suspicion of defrauding the state's Medi-Cal program of $50 million, according to a search warrant affidavit unsealed in Sacramento Superior Court." To read the whole story, go to

MEDICAID ESTATE RECOVERIES: California has a very aggressive and successful estate recovery program. The state reported over $39 million in "probate recoveries" to the federal government in 2002 and estimates total estate recoveries of $49 million for state fiscal year 2004 (July 2003 to June 2004.) MER staff estimate a 20 to one ratio of recoveries to the cost of collection meaning the state spends a nickel to collect each dollar. Nevertheless, although the MER unit is authorized a staff of 40, it has only been able to hire 30 because of a hiring freeze which does not exempt revenue-producing divisions. California, which previously had a recovery threshold of $500, currently does not recover from estates of less than $2500 because of these staff shortages. Inadequate staffing also prevents the MER unit from pursuing recoveries from the estates of most surviving spouses of Medi-Cal recipients. A 1989 GAO study estimated California could increase estate recoveries 70% by pursuing spousal recoveries. Footnote iii California has implemented the expanded definition of "estate," as authorized by OBRA '93. Recipients' $2,000 personal accounts with nursing homes and banks are not required to be sent to the MER unit automatically upon the recipient's death and are often taken first by families and must then be recovered from the estate. The state does not have a timely process of notification upon the death of recipients, but rather waits for a data match with Vital Records. Local eligibility workers in the counties are deemed to be too busy with other duties to make this notification.

The MER unit's retiring director said: "I believe if we had all the systems and people we need including legal support and the ability to track surviving spouses instead of the bailing wire and band aid system we have now, doubling estate recoveries would be a certainty. How much we could recover over that is anybody's guess. I think we could collect $100,000,000, if we reduced the recovery ratio to 15 to 1, but that is conjecture. California experiences 80,000 plus Medi-Cal deaths over age 55 every year, but we open only 4000 cases. Our average claim collected is $15,000 to $20,000 [which is very high]." (Interview)

HOME AND COMMUNITY-BASED SERVICES: California spent $399.04 per elderly resident for Medi-Cal HCBS, ranking the state #16 nationally. This relatively generous provisions of more desirable services (as compared to nursing facility care) probably increases demand for Medi-Cal and lowers demand for private LTC insurance without affecting demand for home equity conversion in that homes are exempt.

LONG-TERM CARE INSURANCE: California has a tax incentive to encourage the purchase of long-term care insurance and a very strong and relatively successful LTC Partnership program. Footnote iv Yet, the state's LTCi market penetration is only 6% to 9%. California's extremely generous Medi-Cal long-term care eligibility rules probably discourage early planning and insurance against this risk. The state's strong estate recovery program is doubtlessly a partial counterbalance, but weakened by the fact that most people do not learn about estate recovery until they become eligible for Medi-Cal.

HOME EQUITY CONVERSION: California has a high HECM market penetration rate with 9.0 home equity conversion mortgages for every 1000 elderly citizens. Given the fact that California exempts recipients' homes and allows transfers of the homes after eligibility is determined, it is unlikely that long-term care costs are driving the use of home equity conversion in the state. Rather, it would appear that high home values combined with plummeting interest rates led California seniors to tap their home equity to maintain monthly income and customary life style.

MEDICAID NURSING HOME CENSUS: California's Medi-Cal nursing home census is 66.12%, ranking the state 24th in the country, and almost equaling the national average of 66.27%.


i Medicaid is known as Medi-Cal in California.

ii (Interview) refers to the fact that we received this quote in a personal or telephone interview for the current study. (Survey) refers to the fact we received a quote from a survey conducted during an earlier study: "The Heartland Model for Long-Term Care Reform: A Case Study in Nebraska," Center for Long-Term Care Financing, December 2003, . Responses from that survey may be reviewed at .

iii General Accounting Office, "Medicaid: Recoveries from Nursing Home Residents' Estates Could Offset Program Costs," GAO/HRD-89-56, March 1989, p. 4.

iv "A deduction is allowed beginning in tax years on or after 1/1/97. The maximum amount deductible is based on a sliding scale, which is increased each year to account for inflation. Also, beginning in tax year 2003, residents who need long term care services for at least 180 days can qualify for a $500 tax credit as long as their adjusted gross income does not exceed $100,000." Source: State Tax Incentives for Long Term Care Insurance, Updated 06/2003,