Protecting your assets from a Medi-Cal Estate Claim

Dear Len & Rosie,

I'm a 60 year old woman. I’ve been on Medi-Cal for two years and just received a letter from them about getting reimbursed after I die. I would like to understand this better and to protect my assets (which are fairly modest) as much as possible. I do now own a home, but I have about $170,000 in various investments that I want to protect.

Portia

Dear Portia,

If you are on Medi-Cal and you own $170,000 in countable assets, then you are receiving Medi-Cal as part of the Medicaid expansion adopted by California after the Affordable Care Act (“ACA” or “Obamacare”) was enacted in 2010.  The Medicaid expansion opened up eligibility for non-nursing home Medi-Cal benefits for people under age 65 with low income, regardless of how much they own in assets. That’s the good news. You now have health insurance that you would otherwise not been able to afford without spending your life savings.

The bad news is that California is required to assert recovery claims against the assets of Medi-Cal recipients for benefits paid after age 55 or at any age for nursing home care. The letter you received from Medi-Cal, printed on bright yellow paper, is automatically mailed out to every Medi-Cal recipient on an annual basis.

If you do nothing, then when you turn 65, you’ll be enrolled in Medicare and you will lose your Medi-Cal under the ACA. Then, upon your death, the California Department of Health Care Services will assert an estate claim for the money it has spent on you between the date you obtained benefits and age 65 when you will be disenrolled.

The amount of this claim can be substantial, even if you are healthy and you receive little to no medical care, because most Medi-Cal recipients are provided for by managed care agencies for which Medi-Cal pays a monthly premium for each recipient.

What can you do? Not much as this time, unless you are willing to create an irrevocable trust, with someone other than you as trustee, and transfer your assets into the trust now. This creates a dilemma. You can avoid the Medi-Cal estate claim, but only if you give up control over your life savings.

If you were terminally ill or if you need nursing home care, then that may be a good idea, but for now, while you are healthy and independent, we feel that for most people giving up control of their financial lives is too much to pay to avoid Medi-Cal estate claims. For now, we recommend that you have a good durable power of attorney that empowers someone you trust to create an irrevocable trust for you and transfer your assets to it if you should ever become incapaciated.

Len & Rosie

What is a Durable Power of Attorney?

Dear Readers:

On occasion, we skip our usual letter and response format to discuss topics that we feel are important to everyone. This is one of those times.

A Durable Power of Attorney is a legal instrument in which you may appoint someone you trust as your agent, or “attorney-in-fact.”  Your agent then has the legal authority to go forth and work your will. You agent can use your power of attorney to conduct business on your behalf, such as dealing with your income taxes, retirement accounts, the phone company, banks, brokerage firms, etc. Simple, isn’t it?

It’s not so simple. Banks and other financial institutions are notorious for not accepting powers of attorney other than their own forms. CalPERS won’t let you initiate your spouse’s retirement, if he or she is disabled, with a power of attorney other than their own form. Insurance companies frequently deny perfectly valid powers of attorney because they don’t include specific language related to insurance. Sometimes, companies will even claim that a power of attorney is too old and can no longer be used.

Most of the time, when a company claims that a power of attorney is invalid for what you want to use it for, they are lying to you, and they are in violation of California law.

Why do they do this? We have a theory. Banks don’t like to make mistakes, because that can be expensive. Banks don’t allow employees, even managers, to exercise discretion, because that may lead to mistakes. Bank employees are allowed to accept their own forms, but perfectly valid and legal powers of attorney usually must be forwarded to the legal department for review. To minimize costs, a bank’s first line of defense is to reject a power of attorney out of hand.

There are several solutions available to you. The least expensive is the path of least resistance. Use the company form, if you are able to. It’s stupid and legally unnecessary to have to do this, but it works.

If you can’t use the bank’s form, maybe because your parent or spouse is already incapacitated, see a lawyer. We have developed a threatening letter that induces bank managers to call us. The letter explains that if they don’t accept the power of attorney, you’re going to sue them, and the law provides for the payment of your lawyer fees. It’s remarkably effective, because the law in on our side.

The last thing you can do is to keep your power of attorney up to date. Even though an older power of attorney is valid, a newer one with more specific language is more readily accepted. And whatever you do, don’t lose an original power of attorney - copies are useless, other than copies certified by a Notary Public.

Len & Rosie