Nursing Home Care / Medi-Cal Planning

SB 483 has been signed into law, and will help protect our elders. Why is the Dept of Health taking so long to implement this new law?

Senate Bill 483 is California’s attempt to end abuses regarding qualifying for Medi-Cal Nursing Home benefits. There was concern that there were “millionaires on Medi-Cal”: Millionaires were taking advantage of liberal Medi-Cal qualification rules, disposing of all their assets, becoming “indigent” overnight, and then qualifying for Medi-Cal Nursing Home benefits. Therefore, the taxpayers were paying for the nursing home care of these millionaires.

In one of these aggressive techniques for becoming “indigent” overnight, an elder takes all of their assets over $2,000 and buys a “balloon annuity”. Then, they can apply for Medi-Cal Nursing Home benefits the next day. California is striving to close this loop hole under SB483. This bill was signed into law by Governor Schwarzenegger on September 27, 2008. But it is not yet implemented. The Department of Health has issued draft regulations, but has not issued final regulations to implement the new law (and ban these balloon annuities).

How does a balloon annuity work? Here is an example: An adult daughter said that a life insurance had “saved” $120,000. Her mom, Mrs. Smith, was living in a nursing home. The Medi-Cal office said she could not qualify for benefits until she “spent down” her $120,000 to less than $2,000. Only then would the State of California pay for her nursing home bill, which was $6,500 per month. The Life Insurance Agent “saved” the $120,000 by putting it in a balloon annuity. Mrs. Smith qualified for Medi-Cal Nursing Home benefits the very next day.

A “balloon annuity” is much different than the type of annuity we are all used to: An injured child receives an annuity which pays $XXXX thousand dollars per month to cover his medical care and living expenses. The balloon annuity, however, pays a very tiny sum per month, with one huge payment coming on the last month of the annuity period. Mrs. Smith’s annuity paid on $48 per month for 95 months. This is because 96 months is Mrs. Smith’s actuarial life expectancy based upon the life expectancy tables compiled by the Social Security Administration. For an annuity to qualify under Medi-Cal rules, it must pay out over the actuarial life expectancy of the elder (not the actual life expectancy). The $48 per month had to be paid to the nursing home as partial reimbursement for Mrs. Smith’s care. But on month 96, the $120,000 will be paid back in one lump “balloon”. But paid back to whom? In my opinion this technique is a “crap shoot” that the elder (who is ill and living in a nursing home) will pass away before the 96 months has elapsed. So the heirs put this $120,000 in their pocket.

This is one loophole that SB 483 is trying to close. So that if an elder buys an annuity, it must pay out in substantially equal payments over the actuarial life expectancy of the elder: $1250 per month (plus interest) instead of $48 per month.

In my opinion, these balloon annuities are not good for our elders. Since they are irrevocable, unassignable and nontransferable, the money is essentially unavailable for the elder’s use until the time comes for the balloon payment to be made. Mrs. Smith’s adult daughter told me that she really wanted to go see her mother, who was living in a nursing home in Kingsburg. But she did not have a car. She asked if she could borrow some money from the $120,000 annuity to buy a “sturdy used car” so she could go visit her mother (who lives an hour away). The answer is that this money was not available for anyone’s until the 96 months has elapsed. And the real tragedy was that Mrs. Smith was entitled, under Medi-Cal rules, to own one car. The life insurance agent could have advised Mrs. Smith to buy a sturdy used car for her daughter’s use. But a $10,000 used car would cost the life insurance agent $800.

Yes, you heard that correctly. There is an 8% commission on these balloon annuities. The life insurance agent made a commission of $9,600 on Mrs. Smith’s balloon annuity. But, in my opinion, these annuities are downright unsuitable when one is sold to a family who has no intention at all of applying for Medi-Cal nursing home benefits.

An adult daughter, Ms. Jones, contacted me and said she was being pressured to take $100,000 in cashier’s checks out of her “papa’s” CD’s and to buy a balloon annuity. The life insurance agent told her that this was the only way her father could be awarded Veterans Administration benefits for her 86 year old papa.

This man had served in World War II. He had dementia and was living with his daughter. She was retired and she was now his full time caregiver. She heard that she could receive $1644 per month, from the VA, to help care for her father in her own home. This was true enough. But she had point blank told the life insurance agent that she would never put her papa in a nursing home. But the life insurance agent was pressuring her to put $100,000 in a balloon annuity which would have tied up all of papa’s money for over five years. I was able to help the family receive an award of $1644 per month from the VA to help pay for his care at home. This $1644, plus his Social Security, helps a great deal
Still, Ms. Jones would like to take a break now and then. She likes to take a weekend and visit her son and grandkids in the Bay Area.

There are assisted living facilities which provide temporary care for loved one’s when the caregiver needs a break. This is called respite care. Ms. Jones feels her father is well taken care of when she checks him into respite care. But this would not be possible had she locked up all of papa’s money in a balloon annuity.

I helped the family set up a Veterans Administration Qualification Trust. So papa’s money is available for his use. It is an acceptable use of his money to pay for three days of respite care so his fulltime, 24/7, caregiver can get a short break…

In summary, I believe that these balloon annuities are not good for our elders. Evidently, Governor Schwarzenegger and the Legislature agree. Please write Governor Brown, your Assemblyman and your State Senator. Encourage them to encourage the Department of Health to put final regulations into effect and to implement SB483 into law.

Additional info: If you would like more information about your specific needs, please fill out the form and mail back to Gilbert Fleming. Questionnaire Rev. 8-10-12

Medi-Cal Planning:

Planning to accelerate Medi-Cal eligibility, reduce or eliminate the need to “spend down,” resources, and avoid Medi-Cal recovery claims against the family home.

Example / Protect the House:

Sally has a home and only a modest income from Social Security. She bought her home in the late 1940’s for $5000 and it is now worth $350,000. Her greatest fear is that the state “may take her home” if she needs to go into a nursing home. She has a loving daughter Mary to whom she wishes to leave her home “free and clear”. Our firm may be able to help Sally both protect her home from a Medi-Cal lien claim so that she can leave it free and clear for Mary, as well as guard against adverse tax consequences in the transfer to Mary.

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