California Is Ending Its Asset Test For Medicaid Long-Term Care. Is It A Mistake?

Soon, California residents with personal care needs will be eligible for Medicaid long-term care no matter how much money and other assets they have. On July 1, the state will increase the program’s asset limit from $2,000 for an individual to $130,000 and from $3,000 for a couple to $195,000. The state plans to end the limit entirely as soon as 2024.

At first glance, it seems like a big win for frail older adults in California. But the story is more complicated than it seems. The state estimates the change will benefit only a relatively few people. And it raises an important question: Are California and its older residents better off if the state increases enrollment in Medicaid long-term care or if it adopts a public long-term care insurance program?

If I lived in California, I’d rather have the insurance.

The Asset Test

While about 60 percent of Medicaid funding comes from the federal government, states set their own eligibility rules. Most adopted the $2,000 asset test decades ago and few have raised the limit since. Couples get one break: If one spouse enrolls in Medicaid long-term care, the other may retain substantially more in assets, usually around $128,000 if they still are living at home.

The test generally applies to all financial assets including bank and brokerage accounts and insurance policies. In most states, beneficiaries may keep one automobile and their principal residence up to a set value that also varies by jurisdiction.

States also limit eligibility by income, though those rules vary widely as well. In California, the monthly income limits for most older adults and people with disabilities are $1,583 for a single person and $2,126 for a couple.

Many recipients must use income in excess of that amount to pay long-term care costs before Medi-Cal kicks in. Medi-Cal nursing home residents generally may keep only $35-a-month of their income as a personal needs allowance. Someone living at home can keep up to $600. Those rules have not changed since 1990 and are unaffected by the new asset test.

Advocates already are pushing to raise the income limit as well but for now some people who may become eligible for the long-term care benefit under the new rules still will have to pick up a share of their long-term care costs.

Few will benefit

California expects few residents to benefit from the higher asset limits. A health department spokeswoman says the state expects only about 21,000 more people will become eligible under the new 2022 rules and another 18,000 once it eliminates the cap.

Their heirs also may have to eventually repay Medicaid. Like other states, California recaptures those benefits through a process known as estate recovery. In general, after both beneficiaries and their spouses pass away, the state will have a lien on their assets. Currently, few Medi-Cal enrollees leave much money after death. But once the asset test is lifted, more will and the state may recover more costs.

A bill recently was introduced in Congress to prohibit estate recovery, but it is not likely to go anywhere. And to the degree that wealthier people enroll in Medicaid LTSS, the pressure on states to recover their Medicaid costs likely will grow.

Medicaid or social insurance?

But there is an even bigger issue. By choosing to expand Medicaid long-term services and supports, Gov. Gavin Newsom may be closing the door on a public long-term care insurance program.

A state commission is due to recommend next January whether to adopt such a program and, if so, what is should look like. The health department spokeswoman says public insurance still is being discussed. But the Medicaid expansion clearly is a higher priority.

That may be because Washington State, which has created a first-in-the-nation public insurance program, has struggled to implement it.

But whatever the reason, Newsom may be making a mistake. Making Medicaid long-term care available to Californians who need personal assistance, regardless of wealth, will make it much harder to build political support for the tax increases necessary to fund a public insurance program. After all, people will ask, why should I pay higher taxes for insurance if I can enroll in Medicaid?

However, a public insurance program that offers a cash benefit would give participants resources and flexibility to design their own care. They would not be constrained by complex Medicaid rules when it comes to purchasing the supports and services they need.

The wrong road

Such a program has been adopted in nearly every major developed country in the world. And it could save the state hundreds of millions of dollars by shifting the costs from government-subsidized Medicaid to a fully self-financed insurance program. An analysis of one model found that over time a public social insurance program could Medicaid long-term care costs by as much as one-third.

California’s more generous asset rules will be closely watched by other states. But while intended to benefit those who need long-term care, they may take policy down a dead-end road.