A guide to Medicaid estate recovery

Key takeaways about Medicaid estate claims

• Federal law requires states to try to recover the cost of Medicaid from the estates of certain recipients after they pass away.

• In general, states may claim repayment from the estates of those who were over 55 and in long-term care.

• A surviving spouse is exempt from Medicaid recovery during their lifetime, but the state may claim repayment from their heirs after they pass away.

• Some states will make claims against non-probate assets, or even place a lien on the Medicare recipient when they are still alive.

• The state can waive the obligation to claim repayment if it would cause the family undue hardship.

Roughly 20 percent of Americans qualify for Medicaid, the joint state and federal health insurance program established in 1965 for people of limited means. According to recent data from the Centers for Medicare and Medicaid Services, Medicaid costs are now upward of $613.5 billion a year.

To help recoup this expense, Congress passed federal legislation in 1993 requiring states to try to recover the cost of Medicaid coverage from the estates of select recipients after they have passed away. This is commonly known as the Medicaid Estate Recovery Program, or MERP. Under its terms, the state can effectively become a creditor vying for debt repayment alongside the estate’s other creditors.

For people covered by Medicaid, this scenario will not be a surprise. By law, a state must notify eligible Medicaid recipients that it has the right to recover its expenses from their estate after the beneficiary passes away. However, for the person’s relatives after they pass away, the news that the state can make this claim can come as a shock. 

What specific criteria determine if a state will file a Medicaid recovery claim in probate court? How specifically does it work, and what does it mean for you and what you might inherit? 

Which estates have to pay

Though Medicaid coverage is very common, not every estate will owe reimbursement. Moreover, many estates will not be able to pay even if recovery is attempted. As Medicaid eligibility is predicated on low income, its recipients usually leave behind limited assets.

In general, states may try to recover money if a the person covered was over 55 years old and in long-term care—a nursing home, for instance. Some states allow for attempted recovery from a person over 55 for other medical expenses beyond long-term care as well. These states may also allow for recovery in the case of Medicaid beneficiaries who are younger than 55 if they are institutionalized.

If you have any questions about these rules, it is best to consult with your state Medicaid office, especially given that the details of health care law and coverage change frequently.

Exceptions to the rule

If you are a surviving spouse, Medicaid cannot require repayment during your lifetime. Even if your spouse was older than 55, on Medicaid, and in assisted living, the state is not permitted to file a claim, and you can take a measure of comfort in knowing that your assets are secure for now. That said, after you pass away, the state can file a claim on your own estate to cover the Medicaid costs it paid for your spouse’s care. 

States are also barred from filing claims for recovery if a loved one had a child under the age of 21, or a child of any age who is disabled. 

How states make claims

A state will attempt to recover its Medicaid expenses either by filing a claim on the probate estate, or in some cases by placing a lien on property before the person passes away.

How the first case plays out depends on where your loved one lived. In some states, recovery claims can only be made on the probate estate, typically meaning assets your loved one solely owned and that didn’t have a beneficiary. Other states take a much broader approach, defining the estate as anything that your loved one had an interest in when they passed away. In practical terms, that may mean payable-on-death bank accounts, living trusts, jointly owned real estate, and more. In such instances the state must notify the beneficiaries or heirs of its intention to file a claim.

In some situations, a state may place a lien on the Medicaid recipient’s house while they are still living. This is done to prevent the person from transferring ownership of the house to a child or other relative in order to bypass estate recovery. Because a lien must be paid off before any title on a property can be transferred, this effectively makes sure the house will become part of the estate when the person passes away. Then either the lien will be paid by the estate or the state can claim the house in order to recover its Medicaid outlay. 

Not all states place liens on homes for Medicaid claims, and those that do typically only do so when the person is institutionalized and not expected to recover. If they do recover and return home, the lien is lifted.

States are not permitted to place liens on homes in a variety of circumstances, including if they are still inhabited by either a spouse, a disabled or blind adult child, a minor child, a sibling with an equity interest in the house, or any relative who qualifies for an undue hardship waiver. For more specific information, it is best to consult with a Medicaid office near you and an estate attorney.

Waiving recovery

If the heirs to an estate can prove that recovery will create undue hardship, the state can forgo its obligation. This happens, for example, when the heirs’ income comes from the estate in the form of a family business or farm, and claiming the property would deprive them of their livelihood. A state can also waive recovery if it finds that trying to collect payment would be too expensive. 

The idea that the state may try to seize some part of your loved one’s estate while you are in the throes of grief can be deeply troubling. Make sure to know your rights and to examine the peculiarities of the law where you live. Take time to speak with both an estate attorney and representatives from your local Medicaid office to understand the state’s rights as well as your own.

You may be eligible for free bereavement support. Empathy can help with everything from funeral planning to estate administration, with step-by-step guidance and real-time expert support. Many people get free premium access to Empathy as a benefit with their life insurance claim. We partner with New York Life, Guardian Life Insurance Company, Bestow, Lemonade, and other leading carriers. When you make your life insurance claim, talk to your representative about whether Empathy is a benefit they offer.