How Medicaid Takes Its Money Back After You Die

two men talking
PeopleImages / Getty Images

Medicaid, the state/federal health coverage program for low-income people, may take its money back from your estate after you die. It can do so if you received Medicaid-funded long-term care after the age of 55. In some states, this can happen if you received Medicaid-funded services before the age of 55 if you were permanently institutionalized.

Known as the Medicaid Estate Recovery Program (MERP), Medicaid can recover the money it spent on your care from your estate.

This is a longstanding provision enacted as part of the 1993 Omnibus Budget Reconciliation Act (OBRA). Prior to OBRA, it was optional for states to seek estate recovery of long-term care costs.

Upon the enactment of OBRA in 1993, it became mandatory for states to recoup funds from the estates of those who incurred long-term Medicaid costs from the age of 55 and beyond.

Rationale

Although the idea of Medicaid taking money that otherwise would have gone to your heirs is distasteful, it becomes more palatable when you look at the reasons behind the MERP. Since federal and state taxpayers fund Medicaid, the goal of MERP is to lower Medicaid costs. If it can recover part or all of the money spent on your healthcare, it saves taxpayers money.

If Medicaid is paying for your long-term nursing home care, it’s likely thanks to Medicaid that there will be any estate left from which to recover funds. Without Medicaid coverage, you may have had to sell your house and other valuables to pay for your care, in effect liquidating your estate while you’re alive to pay for your long-term care.

The enactment of OBRA was considered essential to the survival of Medicaid given that two-thirds of nursing home residents in the United States are funded by Medicaid.

Estates Subject to MERP

The federal government has general guidelines for MERP, but specifics vary from state to state. The basic federal guidelines place your estate at risk if you’re at least 55 years old and receiving long-term care services paid for by Medicaid.

Specifically, the text of the legislation that implemented MERP clarifies that costs can be recovered for "nursing facility services, home and community-based services, and related hospital and prescription drug services" (in other words, long-term care services, rather than basic medical care) for people who were 55 or older when the care was provided.

But states also have the option to use estate recovery to recoup Medicaid costs for a person who was permanently institutionalized, even if they were younger than 55. States can also implement estate recovery for any Medicaid spending incurred (not just long-term-care costs) after enrollees turn 55.

Depending on where you live, your estate could be subject to MERP even if you never accessed long-term care as a Medicaid enrollee.

Check with your state Medicaid office to understand how MERP is enacted within your state and what costs are subject to recoupment.

Impact of Obamacare

The expansion of Medicaid under the Affordable Care Act (ACA), also known as Obamacare, pushed the issue of Medicaid estate recovery to the foreground in states that had strict estate recovery programs in place.

Under the ACA, Medicaid is available to residents in the majority of the states if their incomes don't exceed 138 percent of the poverty level. Moreover, assets are no longer taken into account for people younger than 65.

On the flip side, premium subsidies to offset the cost of private coverage are not available to those who are eligible for Medicaid. This ensures that people with high assets but low incomes are not able to access care intended for the poor.

So a much larger population of people 55 and over are now eligible for Medicaid. If they try to enroll in a plan through the health insurance exchanges, they will be directed to the Medicaid system instead based on their income. In states that have MERP that go beyond long-term care costs, this has resulted in some people being caught off-guard by the estate recovery programs.

Some states that previously had more robust MERP have opted to limit their estate recovery programs to only what's required by the federal government (namely, long-term care costs).

It's important to understand that while the ACA expanded the population of people age 55 to 64 who are enrolled in Medicaid—and whose assets are not taken into consideration when their Medicaid eligibility is determined—it did not change anything about the MERP.

The Recoupment Process

All states try to recover Medicaid money spent on long-term care such as nursing homes. Some states also attempt to recover money spent on other healthcare expenses. States aren’t allowed to take more money from your estate than they spent on your care.

All states try to recover from estate assets that pass through probate, but some states also try to recover from other assets.

States are allowed to recover Medicaid funds from assets that avoid probate, such as those that pass through a living trust or a joint tenancy (the holding of an estate or property by two or more parties).

Since state laws vary, the only way to know for sure if your estate is at risk is to educate yourself about the specifics of your state’s MERP. Although your state Medicaid office can tell you the basics, you may find it helpful to consult a professional specializing in elder law or estate planning.

Protected Estates

States aren’t allowed to make estate recoveries while your spouse is alive, but they can try to recover Medicaid funds spent on your healthcare after your spouse dies. States can’t make recoveries if you have a living child who is under 21 years old, blind, or disabled.

In some situations, states can’t recover funds from the value of your house if an adult child who cared for you is living there. But, these rules are complicated, so if you’re relying on this to protect your house from MERP, you’ll need to consult an estate planning professional or get legal advice.

States must provide for hardship exceptions to MERP. But, each state decides for itself how it defines hardship. The federal government suggests that estates which include small family businesses and family farms be considered for a hardship exception if the income produced from the property is essential to the support of surviving family members.

There are additional protections that apply to American Indians and Alaska Natives.

How to Protect Your Estate

In some cases, you may not be able to protect your estate. In others, advanced planning with the help of an elder law attorney or estate planning professional may shield some or all of your estate’s assets. Or, you may discover that the laws in your state make it unlikely that MERP will try to recover assets from your estate.

if you live in California, Connecticut, Indiana, or New York and participate in the state’s Partnership for Long-Term Care program, you can protect some of your assets from MERP by purchasing a private long-term care policy.

If you eventually need care that exceeds the benefits of your policy, a portion of the cost of your care will be protected from estate recovery.

Since Medicaid regulations and probate laws vary from state to state, often the only way to know is to seek help from a professional familiar with both the Medicaid MERP program and probate laws in your state.

Was this page helpful?

Article Sources

Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial policy to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.