Medicaid provides free or low-cost health coverage to some low-income people, families and children, pregnant women, the elderly, and people with disabilities. The Medicaid program covers 1 in 5 Americans, including many with complex and costly needs for care.
Medicaid finances nearly a fifth of all personal healthcare spending in the U.S., providing significant financing for hospitals, community health centers, physicians, nursing homes, and jobs in the healthcare sector.
The vast majority of Medicaid enrollees lack access to other affordable health insurance. Some states have expanded their Medicaid programs to cover all people below certain income levels.
Medicaid provides broad coverage for hospital services, prescription drugs, long-term care facilities, and much more. Each state operates Medicaid consistent with federal law.
Title XIX of the Social Security Act and many federal regulations govern the program, defining federal Medicaid requirements and state options and authorities. The Centers for Medicare and Medicaid Services (CMS) within the Department of Health and Human Services (HHS) is responsible for implementing Medicaid (Figure 1).
One key aspect of the regulations is that federal law requires states to make efforts to recover Medicaid costs from your estate when you die.
What is Medicaid Estate Recovery?
When an individual becomes eligible for Medicaid, federal law requires that the state send the individual notice that Medicaid will try to recapture medical costs upon the recipient’s death. If the person was 55 years or older and receiving Medicaid benefits or is an individual of any age who is permanently institutionalized, each state is required to recover its costs from the decedent’s estate.
One way to think about estate recovery is that Medicaid “loans” beneficiaries financial support for long-term services and support, and once the person becomes permanently institutionalized or passes away, the interest-free loan becomes due back to the state.
How Does Medicaid Recovery Work?
The state will try to recover costs for Medicaid from the decedent’s estate or by putting a lien on the recipient’s property. This all takes place in probate court. The term “probate” refers to the legal process in which a deceased individual’s estate is taken care of under the supervision of a court.
For instance, probate can be used to establish the legal validity of a will document, to correctly distribute assets to any beneficiaries named in the will, and to establish a plan for paying off any taxes or debts owed by the deceased’s estate.
When anyone dies, the value of their estate (if they have one) is used to pay back debts before transferring any of it to any heirs. The estate includes any assets, such as a home savings, or retirement account, solely in the beneficiary’s name. Depending on your state’s rules, jointly owned property, living trusts, and other assets can also be subject to estate recovery. In probate court, the state is listed as a creditor for Medicaid recovery of costs expended for prescription drugs, nursing facility services, home-related services, and other Medicaid services.
The priority of claims is established by state law, which may allow the Medicaid recovery costs to be listed as priority claims, and the heirs to the decedent’s estate may be listed as secondary creditors. This means that Medicaid may be paid before the beneficiaries are, reducing the amount of the available estate to the beneficiaries.
If the person has no assets at the time of death, there is nothing else the state can do. The state cannot ask the beneficiary’s living heirs for repayment if there is no estate.
Additionally, if the beneficiary has a spouse living in the community, a certain amount of their combined resources is protected for that spouse to allow them to continue living independently. This is called the “spousal impoverishment” provision. In 2023, it protects assets worth up to $148,620.
What Types Of Properties May Be Used for Medicaid Recovery?
The state Medicaid program will file a claim in probate court related to the descendant’s estate. Importantly, each state may differ in how it defines the estate, but generally, it will include real and personal property.
For example, some states may try to recover assets that are owned individually and where no one has been designated as a beneficiary of the assets (by will or otherwise). Other states may try to recover from an estate where the decedent had legal title or interest in the property at the time of death, whether there was a beneficiary or not.
A second recovery method is to place a lien on the real property of a person who received Medicaid coverage or who incorrectly received Medicaid benefits. A lien is a claim against real estate that may prevent the transfer or sale of the property unless the lien is paid. In the case of Medicaid, the lien is the amount of the Medicaid payments.
In some states, if the property is sold while the Medicaid beneficiary is alive, they will no longer be eligible for Medicaid and will have to repay the state for benefits paid. Further still, some states will remove the lien when the beneficiary dies while others will seek to recover on the lien even after the beneficiary dies.
Can Medicaid Take Away Someone’s Home?
Part of the estate recovery process looks at real estate owned by the Medicaid beneficiary and recovering some of the debt through the value of that property.
The state can file a lien against the home when the Medicaid recipient is institutionalized and not expected to return home or after the recipient’s death. However, the state cannot seize or place a lien on a home if any of the following members of the Medicaid recipient’s family resides there:
- A living spouse
- A child under age 21
- A blind or disabled child of any age
- A sibling with equity interest in the home who has lived there for at least one year before the beneficiary entering a nursing home
The lien is removed if the beneficiary returns home or the house is sold, and Medicaid is reimbursed. Some states only put a lien on the home when the beneficiary is alive; others do this after death as well.
Are there Circumstances in Which a State Cannot Recover?
You may be forced to sell your property or assets to satisfy Medicaid recovery efforts. However, there are some circumstances where a state’s recovery efforts may be limited. For example, property that will pass directly to joint owners and beneficiaries under a trust is excluded from probate assets. A properly set up trust can provide you with the right to continue to reside in your home for the rest of your lifetime.
As mentioned, there might be limitations for recovery if there is a surviving spouse, a child who is under 21, a blind or disabled child of any age, or a sibling who resided in the home for at least one year before the decedent was institutionalized and who has an equity interest in the shared home.
A state may also decline to recover costs for Medicaid in additional circumstances, including when a state chooses to waive recovery because the descendant’s heirs can prove that the recovery would cause an undue hardship or because it is too expensive to try to recoup repayment from the estate. The law requires that each state must provide for these hardship exceptions.
While each state decides for itself what constitutes undue hardship, federal law suggests finding hardship in two specific instances:
- Where the estate is of modest value
- Income-producing properties, such as farms and family businesses that, are essential to supporting the surviving family members
Should I Contact an Attorney If I am Facing Medicaid Recovery?
The rules around Medicaid estate recovery are complicated and vary by state. To get advice, you may want to contact a healthcare attorney.
Consult with your attorney if you are concerned about whether your state may recover from your estate for Medicaid benefits. They may be able to negotiate with the state to limit recovery against your estate or establish factors for a hardship extension.
