How Medicaid Recovers the Cost of Long-Term Care From Your Estate After You Die

If Medicaid pays for nursing home care, the state can try to collect reimbursement for these costs from the person's assets after he or she dies.

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Medicaid will often pay for nursing home care even for those who have assets that could be used to pay for care. This is possible because Medicaid does't count assets such as a house or car (these are called noncountable assets). But after the person's death, the state Medicaid program can try to collect medical costs from the deceased person's estate. This is called "estate recovery."

Medicaid Estate Recovery

The federal government has an established policy requiring that all states must try to recover the costs paid on behalf of those who received certain types of Medicaid coverage during their lifetime. All states attempt to recover long-term care costs, including home health services and hospitalizations while in long-term care, and some try to recover regular Medicaid costs as well (though they can generally only recover costs paid for those who were 55 or older or institutionalized when they received Medicaid benefits).

When an individual becomes eligible for Medicaid, federal law requires that the state send the individual a written notice describing the rights of the state to recover Medicaid-paid medical costs following the individual’s death.

Ways States Recover Costs

While individual state laws on estate recovery vary, they all boil down to two different ways to recover costs paid: recovering from the deceased person's estate and putting liens on the person's property.

Recovering From the Estate

The first method states use is to seek repayment from the estate of a deceased Medicaid beneficiary. Each state defines the term “estate” -- meaning what type of property Medicaid will go after -- differently. Some states are fairly conservative about what they will try to take -- they have the right to recover costs from real estate, personal property, and other assets only if they are included within the deceased person's "probate estate." A probate estate includes only assets that were owned solely by the individual at the time of death, where there is no beneficiary or joint owner designated. Joint accounts, payable on death accounts, and contracts that have designated a beneficiary are not included in the probate estate.

Other states use a broader definition of the term estate that includes any assets an individual had legal title to or interest in at the time of death, including property that bypasses probate. In these states, the estate includes assets that the individual attempted to convey to a survivor, heir, or assign through an arrangement such as a joint tenancy, tenancy in common, survivorship, life estate, or living trust.

To recover expenses paid under the probate definition of estate, the state files a claim in the probate estate of the decedent just as would any creditor. Under the more expansive definition of estate, the state must enforce its rights by notifying heirs of its rights under state law.

Lien on Real Estate

The second method for recovering Medicaid costs paid is to place a lien on any real property owned by the person who received Medicaid coverage. During the person's lifetime, the state places a lien on the person's property. When the property is sold, either before or after the person's death, the state can collect repayment from its share of the sale proceeds, as would any other lienholder.

When States Can't Recover Costs

Even though the states must recover for costs paid when appropriate, there are certain prohibitions that states must follow. States cannot recover Medicaid-paid costs in the following situations.

  • Surviving spouse. The deceased person's spouse is still living, regardless of where that spouse lives.
  • Minor, blind, or disabled child. There is a surviving child under the age of 21, blind, or disabled, regardless of where that child lives.
In addition, states cannot recover costs from the former home of the deceased person in the following situations.
  • Sibling caregiver. There is a sibling who resided in the home for at least one year prior to the institutionalization of the deceased and who continues to reside in the home and has an equity interest in that home.
  • Child caregiver. There is a child who resided in the home for at least two years prior to the institutionalization of the deceased, who continues to reside in the home, and can demonstrate that the care they provided delayed the institutionalization of the deceased.

When States Can Forego Cost Recovery

One situation where a state may "waive recovery" (decide not to try to collect repayment) is when the deceased person's heirs can prove that recovery of Medicaid costs will impose an "undue hardship." Most states consider undue hardship to be when when the deceased person's inheritors have limited income and the estate is their sole income-producing asset  (for example, a family farm or other family business that produces a limited amount of income).

The state must notify the deceased person's inheritors of its recovery rights and allow them an opportunity to claim an exemption from estate recovery (such as undue hardship or being a sibling caregiver).

A state can also waive estate recovery when it is determined that it would be too expensive to try to collect repayment from the estate. Each state is allowed to establish its own rules on what is not cost-effective.

Limit on Amount That Can Be Recovered

There is a limit on how much can be recovered by the state. States cannot recover more than the total amount spent by Medicaid on the individual’s behalf at or after age 55. Also, states may not recover more than the amount remaining in the estate after claims of other creditors are fully satisfied. The order of payment by which creditors are paid is set forth in state law.

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