Q.  My husband receives a Medi-Cal subsidy to help with his nursing home expense, and I have long worried about protecting our home from a later Medi-Cal “payback” claim. I heard there might be some changes coming.  Do you know anything about this?

A. Yes, indeed, there are big changes coming! Gov. Jerry Brown just signed the state’s Budget Bill, which included special provisions dramatically scaling back Medi-Cal’s right of recovery after the death of a Medi-Cal beneficiary. This change will help minimize the devastation faced by some families when later forced to sell the family home to settle up with Medi-Cal.

Health Care Services Historically Subject to Recovery

Historically, this right of recovery applied to the following: (1) All health care services received by a Medi-Cal beneficiary after age 55, and (2) a Long Term Care (nursing home) subsidy received by a Medi-Cal beneficiary of any age if “permanently institutionalized”. *

Rule for Persons Dying On or Before 12/31/2016: Recovery Applies to All Assets Owned By Beneficiary

Under current law, when an individual receives a Medi-Cal subsidy for the cost of long-term care, Medi-Cal has the right — after the passing of that individual and his/her surviving spouse – to recover the value of benefits paid, unless the individual is survived by disabled child.  That right of recovery has historically applied to ALL assets in which the beneficiary had an interest, regardless of whether they are held in a Living Trust, Joint Tenancy or Pay on Death (“POD”) accounts.  Until now, the only way to protect against recovery was for the beneficiary to engage the services of an Elder Law attorney to proactively plan for recovery avoidance by, for example, making carefully structured lifetime gifts of the home and other assets to family members, creating specially designed Irrevocable Trusts, and the like.  Until now, the garden-variety “Living Trust” did nothing to protect against recovery, nor did holding assets in Joint Tenancy or POD accounts.

New Rule For Persons Dying On Or After 01/01/2017: Recovery Will Apply Only To Assets Subject to Probate

Under the new law, Medi-Cal’s right of recovery will only apply to assets which pass from the beneficiary to others by probate or by a probate summary procedure.  By way of example, assets held in the individual’s own name, alone, and designed to pass by Last Will, would typically be subject to probate and would still be exposed to recovery.  However, assets held in a Living Trust will soon be immune from recovery, as the trust is designed to pass ownership upon death without a probate.  Likewise, assets held in Joint Tenancy form or in Pay On Death (“POD”) form will also usually be immune from recovery, as they are likewise designed to pass ownership to the survivors without probate.

The new law will only be effective for individuals dying after January 1, 2017.  Thereafter, it should be relatively easy to avoid Medi-Cal recovery by merely holding assets in a format which avoids probate, such as in a Living Trust or in Joint Tenancy or POD account formats.  Indeed, given the prevalence of Living Trusts, and the use of these beneficiary-type accounts, it may soon be the rare family that experiences Medi-Cal recovery after the death of a loved one. Caution:  the new law does not expressly address whether the new Transfer on Death Deed will also be immune from recovery.

The new law has some other helpful features:

(1) There will be no recovery, in any event, if the beneficiary is survived by a surviving spouse or domestic partner;

(2) There will be no recovery, in any event, against a home of modest value, defined as a home worth less than 50% of the average price of homes in the county in which the home is located; 

(3) Upon request, Medi-Cal must furnish, at least once per year, an itemized statement for a $5 fee; and

(4) Interest charged on Voluntary Post Death Liens will be limited.

Proactive planning will still be necessary for those persons who are at risk of dying before the new law takes effect, but for others recovery can usually be avoided by merely holding assets in a form which avoids probate.

Recent News During Pandemic: On May 14, 2020, in an effort to address Budget Problems due to the COVID-19 Pandemic, Governor Gavin Newsom of California proposed dramatic cutbacks to Medi-Cal and other public benefit programs. Most notable is his proposal to restore Medi-Cal estate recovery to what is was prior to the dramatic cut-backs approved by former Governor Jerry Brown in late 2016. If adopted, this would expose homes and other assets to estate recovery and, once again, make proactive planning essential in order to avoid this result mandatory. See Gov. Newsom’s Budget Proposal at pages 60-62, May Revision, Summary, here. Fortunately, this plan was not supported by a majority of the Legislators, many of whom were concerned about its effect on low and moderate income persons, especially during the current Pandemic, and hence it was not adopted. However, depending upon California’s fiscal needs in the future, this proposal could recur. For now, however, it is old news and the favorable changes to Medi-Cal post-mortem estate recovery, signed into law by former Governor Jerry Brown in late 2016, remain the law in California.

Clarification For Surviving Spouses: At a gathering of California Elder Law attorneys in Monterey, CA, on November 18, 2016, the Chief of the Medi-Cal Recovery Unit, Margaret Hoffeditz, confirmed that — even if the Medi-Cal beneficiary dies before December 31, 2016– if his or her surviving spouse survives beyond that date (so that the new law is effective), then there will be no recovery at all. Thus, having a surviving spouse who survives to January 1, 2017, will be a complete bar to recovery, regardless of whether the decedent spouse’s own estate is subject to probate. Recovery would only become an issue, if at all, if the surviving spouse later became a Medi-Cal beneficiary for his/her own needs AND if his/her own estate were subject to probate.

References:  SB 833/AB 1605 at Section 22 (scroll to page 46, numbered at top of page); Article published by ElderLawAnswers.com; Statement by Senator Ed Hernandez on Budget Vote. * See HCFA Transmittal 75. Note: the individual has a right to a hearing as to whether he/she is “permanently institutionalized” and, in any event, the state’s right of recovery terminates if the individual returns home. How to find out how much you owe Medi-Cal: DHCS Form 4017.