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Critical Issues with the Proposed Recovery Regulations (R-32-00E)

Prepared by: California Advocates for Nursing Home Reform

April 29, 2005

It is clear that the proposed recovery regulations will have an onerous impact on many aged, blind and disabled consumers and their families, while promoting predatory lending. Following are just a few of the problems with the regulations:

1. Life Estates:

Under current California law, institutionalized Medi-Cal beneficiaries are permitted to transfer their principal residences so long as the residence is exempt at the time of the transfer. Because of the serious financial and psychological effects of nursing home placement, many institutionalized elders prefer to retain a life estate rather than transfer the home outright and lose control of their homes. For the past thirteen years, it has been the Department's policy that life estates retained with an irrevocable transfer would not be subject to recovery, but that transfers with a retained life estate subject to revocation would be subject to recovery. Representatives from the Estate Recovery Unit have reiterated this policy at numerous public meetings and at the Estate Recovery Stakeholders Advisory Group meetings. Since 1993, thousands of elder and disabled Medi-Cal beneficiaries have relied on this policy to plan their estates in the event they might have to enter a nursing home and rely on Medi-Cal to supplement their care.

The regulations do not include a "grandfather" clause for life estates, i.e., that the regulations will apply only to life estates created on or after the effective date of the regulations and thus, fail to provide for those who relied on their long-standing policy. As a result, the homes of thousands of California consumers will now be subject to estate recovery. In addition, because the Department's regulations regarding life estates lack clarity and consistency and exhibit a lack of knowledge of either probate or property law, the regulations threaten to grossly overvalue minor interests in real property, thus increasing the size of their claim.

2. Retroactive or Prospective Application:

The regulations do not specify that they will only apply to those beneficiaries who die on or after the date the regulations become effective.

3. In Home Supportive Services:

Of the thousands of consumers that CANHR serves, many are non-institutionalized elders living at home and relying on In Home Supportive Services (IHSS), for incidental and personal care, often provided by a family member. IHSS has long been one of the few alternatives to more expensive institutionalization, and enables many consumers who would otherwise end up in a nursing home to remain at home. IHSS, it should be noted, is an optional recovery under federal law, and the fear of recovery was discouraging elders from signing up for the program. The Department of Health Services' Recovery Unit also recognized these problems. In an October 2000 letter to an Estate Recovery "Stakeholders" Group, Joan Allison, then Chief of the Third Party Liability Branch, wrote:

"Working together, the ultimate goal is to develop and implement fair and equitable ER program policies and procedures. Along these lines, the Third Party Liability Branch recognizes the benefit the In Home Supportive Services (IHSS) workers provide to those persons they assist as well as reducing the burden on the taxpayers. As a result, a recommendation to departmental management and the Administration has been adopted to discontinue collection of IHSS in estate recovery claims effective September 2000."
This policy was reiterated in All County Letter 02-35 issued on June 18, 2002. The Department's new regulations not only include benefits paid for IHSS, but also a number of other benefits not previously included in estate claims. The result is that a child of a deceased beneficiary who provided care to his/her parent for meager wages under the IHSS program would face an estate claim for those very wages after the parent dies. In addition, thousands of beneficiaries who applied for IHSS while relying on the Department's policy are not aware that their estates are now vulnerable.

4. Limited Hardship criteria:

Section 50963 of the new regulations is particularly problematic, as the Department has severely narrowed the hardship criteria to limit the circumstances under which a hardship can be asserted, and eliminated the ability to assert other compelling circumstances not listed in the criteria.

5. Encouraging Elder Fiduciary Abuse:

In Section 50963(a)(3), the regulations severely restrict the ability of aged, blind or disabled applicants to prove hardship, while encouraging elder fiduciary abuse. It is no longer enough that an aged, blind or disabled applicant "would have difficulty" obtaining financing to pay off a claim, as the previous regulations stated. Now, they must be "unable" to obtain financing. They must apply to obtain financing, and they must provide a denial letter from a financial institution. This regulation opens the door to predatory lenders and elder fiduciary abuse and closes the hardship waiver door for those who can't even get a reputable financial institution to accept a loan application.

6. Burden on Caregivers:

Section 50963(a)(4) adds a new "caregiver" criteria, which was previously informally recognized by the Department. However, the onerous burden of proof and the requirement of "medical substantiation" to prove the type and level of care provided by the caregiver renders this criteria somewhat meaningless. Given the stringent confidentiality requirements of HIPAA and the difficulty of accessing medical records years after care is provided, it will be almost impossible for some applicants to provide such documentation.