Action Sought on Wealthy Seniors’ Use of Medi-Cal

Incensed by reports of well-to-do seniors finding ways to get Medi-Cal to pay for their nursing home care, a bipartisan group of lawmakers demanded Wednesday that state officials do more to crack down on the practice.

Wealthy seniors are increasingly exploiting loopholes that allow them to qualify for the state’s healthcare program by sheltering assets.

Lawyers and estate planners who help clients qualify for Medi-Cal through legal loopholes say the practice is no different from taking the full benefit of tax laws to save money. Their clients have paid tens of thousands of dollars in state and federal taxes over the years and are entitled to get benefits in return, they say.

But advocacy groups warn that this type of “Medi-Cal estate planning” is costing California as much as $150 million a year, at a time when budget cuts threaten to block tens of thousands of poor people from the program.

An Assembly panel expressed frustration with a legislative proposal put forward by Medi-Cal officials Wednesday that would save only $237,000 in the budget year beginning July 1 -- and no more than $4 million the next year.

“I cannot believe that the savings involved in ending this practice is only a few million dollars,” said Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento). “That defies what everybody knows is going on. People are making a full-time living advising people how to do this. The total amount of attorney fees made off this is probably more than the savings the department has identified.”

Steinberg’s comments came as he concluded a series of budget oversight hearings into waste and fraud in state government. Medi-Cal was one of several issues the committee addressed in the hearings. The panel will forward its final report to the full Assembly Budget Committee on Monday for action.

Stan Rosenstein, who oversees Medi-Cal for the administration of Gov. Arnold Schwarzenegger, acknowledged that he had no reliable figures on how much it is costing the state to provide nursing home care for well-to-do Californians.

“Clearly when we look at what is going on and all the evidence, it is far more than $4 million,” he said. “It’s clear it is rampant.”

An ongoing investigation by the state attorney general’s office has revealed one lawyer alone who has been able to shield the assets of 1,000 seniors, costing the state an estimated $50 million.

Medi-Cal officials said federal guidelines restrict how far they can go in closing the loopholes, but at Wednesday’s hearing they agreed to revise their proposal to go after more people who are already in the system and shielding assets now, instead of merely blocking new people doing it from getting onto Medi-Cal.

The program is reserved for Californians with no more than $2,319 in assets, or who have a spouse not in the program who has less than $94,760 in the bank.

Estate planners are able to get people with more money into the system by first moving the money into a place that is exempt from the restrictions, and then giving it away.

One way to do this is by having a client buy an expensive new house and telling the state that their intention is to return to that home, so the state can’t take it. The house can then be transferred to relatives while the patient is in a nursing home.

Other exemptions include certain kinds of investments. Some insurance companies, for instance, market “Medi-Cal friendly” annuities, into which seniors can move their savings to keep them from the state.

Lawmakers at Wednesday’s hearing called on Medi-Cal officials to work harder to find ways to get reimbursement from seniors who have money in investments off the Medi-Cal rolls -- or to at least recover those funds from people’s estates after they die.

Medi-Cal has a program in place to put liens on the homes of some patients upon their death, but enforcement is uneven. The program sends out 7,000 letters a month to the estates of patients notifying the estates that they may need to reimburse the state, but only half are answered. Until this month, the state was not following up on the unanswered letters.

Medi-Cal officials said they planned to work harder to recover funds where they could.

“If someone has a house worth $2 million, you would like that house to fund their healthcare, not tax dollars,” said Sheila Nolan, a Medi-Cal official working on the proposal.

In addition to calling on Medi-Cal to close eligibility loopholes, the committee called for more restrictions on spending of state money for child care and the programs for the developmentally disabled. The committee will also propose a bill to control overspending at the Department of Corrections, which is $544.8 million over budget this year alone.

Democrats say the hearings demonstrate that while there are savings to be achieved by curbing waste and fraud, the returns are in the tens of millions of dollars -- not the billions that Schwarzenegger and other Republicans have suggested.

Republicans, however, argue that the hearings did not generate a true picture of how much could be saved because Steinberg refused to discuss privatizing state services or cutting back on generous salaries to government workers.

The oversight hearings were a prelude to the revised budget Schwarzenegger will present next week, which is expected to have far more aggressive proposals for restructuring government.

Administration officials asserted that their reforms would reduce state expenses enough to save billions of dollars if they were to be put in place in the upcoming budget year.