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Medi-Cal Changes: DRA, Recovery and Proof of Citizenship

Estate Planners and advocates for California's Medi-Cal applicants and beneficiaries can expect a number of significant statutory, regulatory and policy changes over the next year. With the controversial Deficit Reduction Act of 2005 changes likely to be phased in during 2007, the Medi-Cal recovery regulations changes and the looming proof of citizenship requirements, advocates are understandably confused as to what laws are being enforced and what consumers can expect in the near future.

Medi-Cal Recovery

The CANHR v. Bonta settlement agreement required three sets of regulations: 1) the annuity regulations - which were adopted January 3, 2005; 2) the comprehensive regulations (R-32-00) - which were effective as of May10, 2006; and the disability regulations, (R--14-06) which were filed on June 16, 2006.

a.  Irrevocable Life Estates and Occupancy Agreements:

In the latest proposed regulation package, Section 50961(i) is amended to eliminate the entire first section relating to recovery from life estates with an irrevocable transfer and also eliminates the valuing of such life estates using the CMS tables. As the comprehensive recovery regulations permitting recovery from irrevocable life estates became effective on May 10, 2006 and these proposed regulations won't be final until sometime next year, there was much concern as to the status of life estates and occupancy agreements.

On June 12, 2006, the Department of Health Services released the following statement regarding recovery against life estates and enforcement of the May 10, 2006 regulations:

"After the filing of R-32-00 with the Office of Administrative Law, the Department of Health Services (Department) continued to review and analyze the numerous public comments that had been received during the second public comment period for the package.  As a result of that analysis, a policy decision was made to amend a portion of R-32-00 through regulations package R-14-04.  The amendment will result in the removal of recovery efforts against the value of life estate only interests.  The Department has now determined that during the short period of time in which R-32-00 as currently enacted will be in effect, it will not be cost effective for the Department to initiate or pursue recovery against life estate only interests.  This decision is based on balancing the anticipated small dollar value associated with recovery for the few months R-32-00 would be in effect prior to the filing of R-14-04, against information obtained from advocates that the legality of life estate only interest recoveries would be challenged in the courts."

b.  Proposed Disability Regulations (R-14-04)

Although the proposed regulations bring some good news in the area of life estates and in a few other areas, there are still some problems with the regulations, and readers are cautioned to read the text carefully and submit comments on a timely basis. The proposed estate recovery regulations text, statement of reasons and proposed forms are now posted on the Department of Health Services, Office of Regulations web site.  You can download all information. Please note that the Public Hearing on these regulations is scheduled for August 2, 2006, and the last day for receipt of public comments in August 4, 2006.  CANHR will post its comments on these important regulations within the next two weeks.

It appears that life estates and occupancy agreements, where an irrevocable transfer of the remainder interest has occurred, are once again safe.

DRA Implementation

In late May 2006, our office discussed the DRA implementation with DHS and Medi-Cal eligibility staff to get a sense of the timelines for implementation of the DRA in California.  According to DHS, CMS has given the state some leeway to implement most of the DRA provisions and have indicated that they won't penalize states that take a while to implement the provisions.  Other than the 'proof of citizenship' rules, which the feds are adamant about, CMS has not provided any guidance to the states regarding implementation as yet.

Much of the new law will need to be implemented through legislation and subsequent regulations (not emergency). Language for the statutory provisions has not been included in budget trailer language for this session. Thus, it appears - at least at the time we go to press - that little will be done this session regarding implementation of the DRA in California. Note, too, that unless and until counties are informed otherwise, current California law applies.

a.  Income First Rule

Although ACWDL 06-12 purportedly implements the "income first" rule for CSRA increases pursuant to Fair Hearing requests, these instructions apply only to Administrative Law Judges. They do not impact 3100 petition court-ordered increases in the CSRA, which will still be honored, and there is no indication that the law on this will be changed. These instructions were released by the Department of Social Services, State Hearings Division, not by DHS.  Any comments on these should be sent to Manual Romero, Division Chief.

b.  Look-Back Period/Transfer Provisions

According to DHS, because of the need for a full regulatory process, and the plans to include a number of drafts and stakeholders meetings, they are probably looking at 2008 to finalize policy and regulations. DHS has been discussing a possible phase-in of the look-back period, e.g., 1/08= 30 months, 2/08=31 months, etc. until the 5-year look back is reached. This is tentative only. The state will need to amend the law to allow nursing homes to act on behalf of residents and to amend the reimbursement system for the "bed hold" allowance for up to 30 days while the hardship is pending. This is a very complex reimbursement system, so it could take some time. Hardship criteria will be promulgated to conform to federal law, both for transfer provisions and for the home equity provisions.

According to DHS, the new rules will not be applied retroactively, i.e., to transfers made on or before the effective date of the laws in California, as has been the practice in the past.

c.  Home Equity Provisions

The home equity provisions of DRA allow the states to increase the equity limit up to $750,000 and require them to establish hardship provisions.  DRA also requires the Secretary of HHS to establish hardship waiver criteria for those affected by the new statute, but no guidance has been provided to the state so far.  Although DHS said they haven't "thought that far yet," they will consider seeking an increase of the equity limit to $750,000 and consider various options as to how to determine equity value.  As it will take some time to develop the equity value and hardship criteria, and the legislation and regulations, these provisions are not likely to go into effect until late 2007 or later.

However, this is one area where implementation is likely to impact Medi-Cal beneficiaries who became eligible after the effective date of the DRA (2/8/06) and whose home equity exceeds the equity value limits established in California. Those recipients may be found ineligible at redetermination, as this is a Medicaid standard that must be applied equally.  That is why the hardship criteria for this provision will be so important.

d.  Transfer of the Home

There are no plans to limit the ability of recipients and applicants to transfer the home.  According to DHS, they plan to "do only what is necessary to implement the federal requirements."  Of course, they can't vouch for other legislators' plans, so we still must be vigilant on this issue.

e.  Proof of Citizenship

In early June, California Health Department officials announced that they would delay implementation of the new Medicaid citizenship documentation requirements, scheduled to go into effect across the country on July 1, 2006 for new applicants and for renewal of benefits, until they receive formal guidance from the federal government. These provisions only apply to citizens and do not affect immigrants' proof of legal status.  States have little discretion on the issue, and have been warned that they will face the loss of federal matching funds for failure to implement the new law.

Meanwhile, on Friday, June 9, 2006, CMS finally released formal guidelines on the issue. For copies of the Citizenship Guidelines for Medicaid Eligibility:  see the CMS home page at Language implementing the proof of citizenship provisions has been included in the Governor's May revised budget, and DHS is now moving forward rapidly to implement the law -- possibly as soon as July 1. However, until California implements the new proof of citizenship rules, applicants and beneficiaries will not be penalized for failure to provide adequate documentation. DHS will send the implementation instructions to the county social service agencies, and, according to DHS, the new rules will go into effect after the state and county agencies have had a chance to notify enrollees.

(For up to date information on DRA implementation and Recovery, continue to watch the CANHR website.)

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