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Medicaid (Medi-Cal) Rules Change in '97

(December 1996) by Mark J. Welch, Attorney at Law

In late July 1996, Congress passed the Kassebaum-Kennedy bill, which contained a number of provisions related to health care. While the new law curbs some abuses by health insurers, it also contains provisions intended to further discourage asset transfers by elders who may qualify for Medicaid or Medi-Cal nursing home benefits. ("Medi-Cal" is the name used for the Medicaid program in California.)

The new law criminalizes certain transfers of assets, with penalties up to $10,000 and jail sentences of up to one year for those who "knowingly and willingly" transfer assets to qualify for Medicaid. According to the National Senior Citizens Law Center, the chief effect of this provision will be a "chilling effect on people needing Medicaid to pay for nursing home services" since it will discourage many from applying for assistance. And nursing homes are likely to use the new law to discourage residents from applying for Medicaid (which reimburses at lower rates than private-pay patients).

The law is unclear because asset transfers remain legal, according to a specific schedule that creates a disqualification period based on the value of assets transferred. Apparently, the new law criminalizes those transfers if an application is filed before the end of the disqualification period. In most cases, this would only occur either because the applicant has some mental problems leading them to forget about the disqualification period, or because the applicant is incapacitated and someone else files the application on their behalf, not knowing of the disqualification period.

Since juries are unlikely to convict nursing home patients of crimes, the new law is expected to be applied primarily to prosecute family members and advisors (including financial planners and attorneys) of Medicaid recipients.

Because the law is unclear, it creates the risk that criminal penalties can be imposed in situations where an advisor gives accurate legal or financial advice. It has already had a "chilling effect" on the advice available to senior citizens.

As an attorney, I fear that if I give correct legal advice to a client regarding the client's legal rights and responsibilities in connection with asset transfers and eligibility for Medi-Cal benefits, my client's family might later files an untimely application for Medi-Cal benefits, and then I might be criminally prosecuted. It would be extremely difficult to prove what advice was actually given, and I do not relish the prospect of being forced onto the witness stand to testify against my own clients to save myself from criminal prosecution!

I no longer advise clients on Medicaid/Medi-Cal issues; instead, I refer them to "super-specialists" in Medicaid and Medi-Cal law who charge much higher fees.

Also, under the new law, for the first time, premiums for long term care insurance can be deducted from federal income taxes as part of itemized "medical expenses," up to certain specified limits. (However, the new law also lets insurers sell policies duplicating benefits -- permitting unscrupulous insurers to sell long term care policies to unsuspecting seniors without disclosing that the plans duplicate benefits they already have.)