I regularly teach Medicaid Planning courses throughout the US. However, my curriculum for California is a little different than the other 49 states. I get asked about this quite a bit, since California’s Medicaid program and the planning techniques are vastly different than the rest of the country. To help you understand what the differences are and why they exist, I’ll answer a few of the most common questions I get when teaching the subject matter.

Does California have a different Medicaid program?

The short answer is “no.” California still participates in the federal Medicaid program authorized under 42 USC 1396 et seq. It is no different from the rest of the states in that respect. Why many people think it’s an entirely separate program comes from two reasons: the name and the rules.

California uses a special trade name for its Medicaid program, called “Medi-Cal.” So this makes it sounds like it’s some type of special system and not part of the federal Medicaid program. But other states do this, too. In Tennessee, they operate Medicaid under the trade name “TennCare” and in Oklahoma it’s called “Sooner Care.” But all of these programs, even California’s, are still the state version of Medicaid under the same federal program.

California has been selective in what Medicaid rules it has chosen to adopt from the federal code. Despite being required to be in compliance, the failure to comply has not led to a disenrollment from California’s Medicaid program from the federal system. The federal government has turned a blind eye to California’s compliance failures. California adopted spenddown rules required in 1988, but

Does California Have a 5-Year Lookback on Gifts/Transfers?

California does have a lookback for uncompensated gifts and transfers, but it’s not 60 months like the rest of the country. The lookback period in California is only 30 months and any penalty period is also capped at 30 months, whereas there is no cap on transfer penalty periods in the rest of the country.

The Medicaid spenddown first came into existence when Congress passed the Medicare Catastrophic Coverage Act in 1988 (“MCCA 88”). This created a 30-month lookback period on transferring assets, which was designed to force people to spend their funds down to qualify for Medicaid instead of giving the funds away. This was changed twice.

In the Omnibus Budget Reconciliation Act of 1993 (“OBRA 93”) which extended the lookback from 30 to 36 months for gifts to people and from 30 months to 60 months for gifts to irrevocable trusts. California never adopted OBRA 93.

In the Deficit Reduction Act of 2005 (“DRA”) the lookback was made uniform to 5 years and the start date of the penalty period was changed to when an applicant applies for Medicaid and is “otherwise eligible” for Medicaid. This was a departure from the practice of starting the penalty period from the time the gift was given. California’s rules are still stuck in the 80’s without incorporating either the 36-month or 60-month lookback periods and penalty periods are still calculated based upon when the gift was given in California, not when the application is filed.

Another minor point, but one that has a huge impact, is the prohibition of the rounding down penalty periods to the nearest whole number. The DRA eliminated this rather simple calculation exercise because people would give away an amount just short of the penalty divisor and it would round down to a 0-month penalty. That allowed for an excessive amount of penalty-free gifting within the lookback period and the elimination of rounding down was meant to curb that practice.

California not only allows for rounding down, but only treats gifts made in a calendar day for the penalty calculation. This allows for what is known as Gift Stacking, a procedure where you can make multiple successive gifts, each rounding down to a zero-month penalty.

Did California adopt the strict DRA Medicaid complaint annuity rules?

The DRA restricted the use of Medicaid compliant annuities in a number of ways, the most notable was to eliminate the balloon-style annuity and to require that the state be named as a beneficiary of the policy. California does not follow either of these rules.

In California, assets can still be converted into an income stream for the healthy spouse like in the rest of the country, however, single patients can convert assets into a balloon-style annuity – verboten everywhere else. The balloon-style annuity pays a small monthly income which is added into the monthly Share of Cost towards the facility. At the end of the contract the annuity pays out one large balloon payment, which is usually long after the actual passing of the nursing home patient.

Even though California has not enacted the DRA requirement that the state be named as beneficiary, the state added annuities to the list of recoverable assets as part of its milquetoast estate recovery program. But even with that, most annuities are not recovered against because of a lack of notification requirement in the rules.