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Medicaid Estate Recovery - What You Need to Know & How to Avoid It

What is Medicaid Estate Recovery and how does it work? Learn more about the Medicaid Estate Recovery Program (MERP) here.

Patrick Hicks

Patrick Hicks, @PatrickHicks

Head of Legal, Trust & Will

Medicaid estate recovery is something that older adults and caregivers often worry about. There are certain instances in which Medicaid will seek repayment for services after an individual passes away. You may have even heard that they can take away your home. Keep reading to learn more about estate recovery, how it works, and how to avoid it. 

What is Medicaid Estate Recovery?

Medicaid estate recovery is a process in which the state is authorized to recover certain Medicaid benefits that were paid on behalf of an enrollee. The Medicaid Estate Recovery Program (MERP) applies to individuals aged 55 or older, plus any individuals who are permanently institutionalized, when receiving Medicaid benefits. 

When states attempt to recover payments from a Medicaid enrollee, they do so from the enrollee’s estate. These payments are for services such as nursing facility services, home or community-based services, and certain related hospital and prescription drug services. 

States are allowed to attempt recovery payments for all other services as well, with the exception of expenses that were paid with the assistance of Medicare Savings Programs (MSPs).

What Are the Medicaid Estate Recovery Program Rules?

State Medicaid Estate Recovery Programs (MERPs) exist in all 50 states and the District of Columbia. When a Medicaid enrollee over the age of 55 passes away, the respective MERP can attempt to recover long-term care costs that were paid by the state on behalf of the enrollee. Estate recovery is also required for deceased enrollees if they were receiving care at a nursing home, no matter their age.

Estate recovery is paid out of the deceased person’s estate. If you have heard rumors about Medicaid taking someone’s house, it is because the home is oftentimes the only remaining asset of significant value at the time of Medicaid recipient’s passing. Therefore, it is not uncommon for Medicaid to receive reimbursement through the home. Note that MERP does not apply if the deceased enrollee has a living spouse, in which case the state cannot attempt to recover long-term care costs. In addition, states typically have a time limit of one year after the enrollee’s death to file for estate recovery.  

How Does Medicaid Estate Recovery Work?

When an individual passes away, their estate pays back any debts before the remainder can be distributed to heirs. The estate typically includes financial assets and property, such as a home, automobiles, savings accounts, and retirement accounts. 

If the individual was a Medicaid enrollee and recipient, any recovery efforts will also be paid out of the estate. However, MERP cannot do anything if the enrollee had no remaining assets at the time of their debt. The state cannot seek repayment from the recipient’s heirs, for example. 

If the enrollee has a spouse living in the same care community, they are protected. The “spousal impoverishment” provision of MERP protects assets worth up to $130,380 in combined resources. 

Can Medicaid Take Your House?

Yes, Medicaid can potentially take your house as part of their estate recovery process. Property owned by the Medicaid recipient is considered part of their estate, and as such, Medicaid may use the home to recover the payment of services. They would recover some of the debt by putting a lien on the property. This is only likely if the home is the only remaining asset of value in the deceased recipient’s estate. However, this is more common than you might think. Here’s why.

To qualify for Medicaid, an applicant can only have $2,000 in countable assets. Property like a house is a non-countable asset and therefore exempt. Because of this rule, Medicaid recipient’s typically only have their home, which is their only remaining asset at the time they pass away. Otherwise, they would not have qualified for Medicaid.

There are certain rules and limitations regarding MERP and its ability to recover debts through someone’s home. The state can only file an estate recovery lien on a home if the recipient is institutionalized and will not be returning home. They can also do so after the recipient’s death. However, they cannot do so if certain family members of the recipient still live in the home:

  • Spouse

  • Children under the age of 21

  • Child who is blind or disabled at any age

  • Sibling with equity interest in the home (must have lived at the address for at least one year prior to Medicaid recipient entering an institution)

Here, it is important to highlight the economic duress the MERP can cause for low-income families and people of color. U.S. News shares the stories of several families that have had to deal with the painful blow of estate recovery.

How to Avoid Medicaid Estate Recovery

Medicaid is a lifeline that can help pay for pricey long-term care for older adults. However, the effects of MERP can be troublesome, especially for your loved ones who survive you. From what you’ve read so far, you’ve likely gathered that estate recovery is something you’d want to avoid if possible. The state will seek to recover what they paid for a Medicaid recipient’s long-term care through their estate, which sometimes consists only of their home. 

The key to avoiding estate recovery is planning ahead. First, it’s important to know how much long-term care costs are, and the likelihood that you’ll need them. According to the U.S. Department of Health and Human Services, roughly 70 percent of aging adults will need long-term care of some sort. According to Genworth, the average cost of long-term care is between $4,500 and $9,000 per month. This cost depends on the care type, such as in-home care, community assisted living, or rooms in a nursing home facility. This cost alone is more than an average person’s paycheck! These costs are a reason why so many families are in need of financial assistance. 

Many individuals assume that they can avoid estate recovery by using Medicare. However, Medicare only pays for a portion of skilled nursing care. Further, it will only pay for up to one hundred days if the stay is an extension of hospitalization that Medicare has paid for.

Clever individuals might come up with the idea of leaving nothing in their estate. For instance, one potential strategy is to gift your home to a loved one so that it cannot be subject to estate recovery. Although this plan can work, you must be careful regarding the timing. Medicaid sets a look-back period of several years from the date you submit your Medicaid application. This means that if you recently gifted your home, you still cannot avoid the penalty. For this plan to work, you must gift your home in advance of the look-back period in your state. However, this means that you may be forced to pay for long-term care out of pocket for the duration of the time you are not on Medicaid. 

With these points in consideration, the only true method of avoiding estate recovery is to plan in advance for your own incapacity. It is key to begin saving up for retirement and health care expenses early in life. Although this can be hard work, it will be worth every penny. By placing your money in savings and investment accounts as soon as possible, you can reap the benefits of interest and allow your wealth to grow long-term. 

Create Your Estate Plan Today

Thinking about Medicaid estate recovery can chill anyone to the bone. If you were to enroll in Medicaid and receive payment for long-term care services, then the state will seek repayment from your estate after your death. Because you can only have $2,000 in countable assets to qualify for Medicaid, recipient’s often only have their home as their remaining asset at the time of death. The state will put a lien on the home and use its value to recover the cost of services. The home cannot be passed on to a loved one. This is just one of many symptoms of economic instability and inequity in this country.

If you are fortunate enough to be able to plan ahead for your future, be sure to take advantage and plan for your long-term future. When many of us are living paycheck to paycheck and find some wiggle room in our budgets, it can be tempting to forget about saving and go for instant gratification. However, any extra funds that you can tuck away into a 401(k) or other type of retirement savings account will pay it forward to your future. Thanks to interest, your savings will grow over time, even in your sleep.

As you grow your wealth, be sure to protect it with an Estate Plan. By setting up a Will, and possibly a Trust, you are making sure that there is a solid plan for what will happen to your property and assets when you pass away. There are even certain strategies, such as creating a Trust, to take certain assets out of your estate and thus away from creditors. It is best to consult an estate planning attorney on intricate matters such as this.

At Trust & Will, we’re here to help you keep things simple. You can create a fully customizable, state-specific Estate Plan from the comfort of your own home in just 20 minutes. Take our free quiz to see where you should get started, or compare our different estate planning options. Get started today!

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