DRA is not an unfamiliar term in the elder law field. We've all seen it; we're all familiar with the legislation it entails. However, it's always interesting to see how a new state interprets and applies the federal legislation. Most states have had their own legislation under their belt for some time, with the most recent being Illinois. California is the last, but not the least, to finally implement the rules introduced on February 8, 2006, meant to curb Medicaid spending.
I've had an opportunity to review the drafted annuities package, and found it to mostly include the standard DRA language - annuities must be irrevocable, non-assignable, actuarially sound, provide for payments in equal amounts with no deferral or balloon payments, and provide repayment to the state Medicaid (in this case Medi-Cal) agency.
However, as stated in DHCS' recent memorandum regarding the treatment of annuities, "California took a different route to the same end than that set out under DRA." Instead of requiring annuity owners to physically designate DHCS as a remainderman of an annuity policy, California established the Welfare and Institutions Code (W&IC § 14009.6(a)) that names DHCS, by operation of law, as a beneficiary in priority position of annuities purchased by institutionalized individuals or his or her spouse. The annuity owner can write to DHCS, stating that he or she prohibits the state from acquiring a remainder interest in his or her annuity. However, this would result in the annuity being treated as a transfer for less than fair market value, and a resulting penalty period.
Fortunately the aforementioned requirement does not apply in the event the annuity (1) is all or a part of the property that the community spouse retains as a resource allowance, (2) is purchased by a community spouse after eligibility is determined for the institutionalized spouse, or (3) is contained in a retirement plan including but not limited to an IRA.
A few brief Medicaid Compliant Annuity planning related items I noticed upon reviewing the drafted regulations:
Tax-qualified Medicaid Compliant Annuities do not need to designate DHCS as a beneficiary
IRAs owned by the community spouse are exempt from asset considerations
Due to the delayed implementation of the regulations, months of eligibility for medical assistance occurring prior to the effective date of the regulations will not be subject to the new rules
To determine actuarial soundness, California will abide by the tables published by the Chief Actuary of the Social Security Administration, and will no longer rely upon their own
Partial cures will not be acceptable practice. Return of assets to the institutionalized individual or his or her spouse leaves the institutionalized individual or his or her spouse with assets which must be considered in determining eligibility retroactively to the date of the transfer
It will be very interesting to see how California elder law attorneys react to the proposed legislation, and how their comments submitted to DHCS will shape the next set of proposed rules.
Links to the proposed legislation in its entirety can be found on the California Advocates for Nursing Home Reform website: www.canhr.org. Comments regarding the proposed legislation need to be submitted by close of business on October 19, 2012, and can be submitted via e-mail to Sharyl Shanen-Raya at Sharyl.Shanen-