Like many people, you may not have given much thought to the possibility that you will need to qualify for Medicaid/Medi-Cal later in life. More importantly, you may not realize that the retirement nest egg you have worked so hard to establish over the course of your lifetime could be at risk if you do ultimately need to qualify for Medi-Cal benefits. Often, the best way to explain something is by using an example or illustration. Therefore, in order to help you understand how you can qualify for Medi-Cal, even if you have $100,000 in assets, consider Karen’s story.
From the time Karen started working, she heard from well-meaning friends and family members how important it is to save for her retirement. Following that advice, Karen and her husband Bob did just that – worked hard and socked away as much money as possible for their retirement, hoping they would also have something left to pass down to their children. Over the course of their working years they managed to do fairly well, saving about $100,000 that they prudently invested in CDs and savings bonds.
Sadly, Karen lost Bob about a year ago to a sudden heart attack. Prior to Bob’s death, Karen was already concerned that she was experiencing symptoms of Alzheimer’s disease. After Bob’s death, Karen followed up with her family physician and was officially diagnosed with the disease. Consequently, Karen knows she will soon require long-term care (LTC). This news is devastating to Karen for more than just emotional reasons. Karen is also concerned the money she and Bob worked so hard to save is at risk given the high cost of LTC in California. How can Karen protect the money she and Bob saved and still qualify for Medi-Cal to help defray the cost of her LTC?
Karen’s Dilemma – Qualifying for Medi-Cal
Karen is concerned — and with good reason — that she will be forced to use the nest egg she and Bob spent their lives creating to cover the cost of her LTC. In Silicon Valley, the average monthly cost for a semi-private room in a LTC facility is $9,901 as of 2016 with a private room running, on average, $11,482. Karen’s monthly Social Security benefit is just $1,150 which falls far short of covering her expected LTC expenses. Karen knows Medi-Cal will help with LTC expenses, but she is worried that her $100,000 nest egg far exceeds the program’s asset limit and will, therefore, disqualify her for benefits. Karen has heard that she will be required to use her assets to cover her LTC expenses, referred to as “spending-down,” until they reach the point at which they are below the program limit of $2,000. Understandably, Karen is heartbroken at the prospect of losing the nest egg she and Bob worked so hard to build.
Karen’s Options – Purchasing an Annuity
The good news for Karen is that she may have an option that will allow her to qualify for Medi-Cal immediately without requiring her to spend-down her life savings. The key, in Karen’s case, is to turn her savings into an income stream. In her case, using her CDs and savings bonds to purchase an annuity through an insurance company may work best. Karen must purchase an irrevocable annuity and it must be payable over a term not longer than Karen’s life expectancy in order to qualify under the Medi-Cal rules.
For example, if Karen is 75 at the time she purchases the annuity, her life expectancy is another 12 years. Therefore, she could purchase an annuity paying a monthly income for the next 12 years. Assuming an interest rate of about eight percent, Karen would receive monthly payments of around $675 for the next 12 years from her annuity. With Karen’s “countable resources” all but eliminated, Karen will now be eligible for Medi-Cal without having lost her nest egg.
The state must be the remainder beneficiary, at least to the extent of Medi-Cal payments on Karen’s behalf. To the extent there are remaining assets, those could go to Karen’s children or whomever else she designated.