The New Year will usher in a new state benefit for wealthier Californians. Starting January 1, Medi-Cal will no longer have an asset test for long-term supportive services, so even those who have accumulated millions of dollars can still get taxpayer-funded nursing home care.

Long-term care is something we do not like to think about, but, unless we die early, there is a significant chance that we will need some kind of supportive service ranging from in-home visits from aides to permanent residence in a skilled nursing facility. California currently has 1230 nursing homes which host over 400,000 residents per year (although some are not elderly and others come for short stays).

Although Medi-Cal and other state Medicaid programs primarily serve low-income children and adults below 65, they are also the primary providers of long-term care for purportedly needy older adults.

Nursing home care costs several hundred dollars per day, but those of us who have accumulated significant assets can afford the expense, which is expected to average $121,000 for those who recently turned 65. Unfortunately, paying nursing home costs out of pocket means having less money to bequeath to children and other heirs.

Some affluent individuals have found workarounds for the asset limit by, for example, placing assets above the Medicaid limit in a trust that benefits their heirs. But most do not make these arrangements either because they see them as unethical or because they procrastinate until it is too late.

But now California is dispensing with the need for such workarounds. A 2021 budget trailer bill lifted the individual Medi-Cal asset eligibility limit from $2000 to $130,000 last year and will remove it entirely on New Years’ Day. While this may have seemed like a good idea at a time of large state surpluses in 2021, it is going to be harder for California to afford under today’s tighter budgetary conditions.

Further, as the demand for nursing homes and other long-term care arrangements increases, there will be pressure to raise state reimbursement rates. Finally, if other states don’t follow California in eliminating asset-based eligibility criteria, we could attract individuals in need of long-term care from other states, further increasing the caseload.

Those interested in safeguarding their assets from nursing home costs have had the option of buying long-term care insurance for many years, but this product has not been popular in California. The state pension fund, CalPERS, damaged the reputation of long-term care insurance by selling policies that were actuarially unsound.

From 1995 to 2004, CalPERS sold plans that with automatic inflation protection but did not set premiums at levels sufficient to cover nursing home cost increases, wrongly assuming that investment returns would close the gap. After years of disappointing investment results, CalPERS tried to catch up by imposing an 85 percent premium increase on policyholders, who responded by filing a class action lawsuit. The suit was recently settled at a cost of $820 million to CalPERS.

Although long term care insurance has sputtered thus far, it is a better alternative to burdening taxpayers with nursing home costs for those who can afford it. New insurance products might be paired with measures to reduce long-term care costs, such as encouraging those who need long-term care to use home-based alternatives or more affordable skilled nursing facilities in states and countries with a lower cost of living.