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

Medicaid will often pay for nursing home care even for those who have assets that could be used to pay for care, but which Medicaid does't count, such as a house or car (or other 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 try to recover the costs paid on behalf of a deceased Medicaid beneficiary. 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 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, upon 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 recovery from the estate of a deceased Medicaid beneficiary. States define 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.

The more expansive definition of the term estate includes any other assets that a individual had any legal title to or interest in at the time of death, including property that bypasses probate. This 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, 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 enforces its rights by notifying heirs of its rights under state law.

Lien on Real Estate

The second method for recovering costs paid is to place a lien on any real property owned by the Medicaid beneficiary, during the person's lifetime. When the property is sold, before or after the person's death, cost recovery can occur, with Medicaid collecting 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 the state may "waive recovery" (decide not to try to recover its costs) is when the deceased person's heirs can prove that recovery will impose an "undue hardship." Most states consider undue hardship to be when when the deceased person's estate is the sole income-producing asset of the survivors and income is limited (for example, a family farm or other family business that produces a limited amount of income and the farm or business is the sole asset of the survivors).

The state must notify the deceased person's heirs 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 attempted recovery would not be cost-effective. 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 in the order of payment set forth in state law.