Medicaid Estate Recovery Under Obamacare: Will Heirs Lose Out?
As a practical mattee, the Medicaid estate recovery rules haven't changed significantly under Obamacare.
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Each state has a Medicaid program partly funded by the federal government that pays for health care for low-income people. Until the Affordable Care Act (commonly called Obamacare) took effect in 2014, state Medicaid programs were largely limited to providing free health coverage to low-income children, parents, pregnant women, the disabled, and long-term care for low-income elderly people. Only a handful of states provided coverage to low-income adults without children. However, a major component of Obamacare allows states to expand Medicaid eligibility to nearly all non-disabled adults under age 65 earning up to 138% of the federal poverty level ($31,809 for a family of four). To date, half the states have expanded Medicaid, while half have not.
As a result of this expansion, millions of new adults have been enrolled in state Medicaid programs. Unlike in the past when most Medicaid recipients were children or virtually destitute adults, some of these new enrollees have assets such as a home or savings that they will leave behind when they die. This has led to a widely publicized concern that the states may attempt to obtain reimbursement for the cost of Medicaid benefits provided to these individuals after they die, leaving little or no money for their heirs. This concern is not totally unfounded, but has been overblown.
First of all, Obamacare didn’t create the Medicaid estate recovery rules or alter them in any way. For over 20 years, the states have been legally required to obtain reimbursement for the costs of long term care and related hospital and prescription drug services from the estates of deceased enrollees age 55 or over. This includes the cost of nursing home care and home health care services. Such long-term nursing home care is one of Medicaid’s largest expenses—indeed, Medicaid pays for nearly half of the total amount spent on nursing homes each year. Medicare pays for only 100 days for nursing home care for those over 65 years of age, with the state Medicaid programs typically paying for the remainder for lower-income elderly people.
States also have the option of trying to obtain reimbursement for the cost of other Medicaid services provided to these individuals. The extent to which they attempt to do so varies widely from state to state. A 2004 survey by the American Association of Retired Persons (AARP) found that 25 states sought reimbursement for all other Medicaid payments, ten sought reimbursement for some, and ten didn't seek any reimbursement.
However, there are strict limits on state efforts to obtain any such reimbursements. A state may not recover from the estate of a deceased Medicaid enrollee who leaves behind a spouse, child under age 21, or blind or disabled child of any age. Thus, for example, a state may not place a lien on a home left behind by a deceased Medicaid enrollee if his or her spouse is still alive. In theory, the state could do so after the surviving spouse dies, but in practice a majority of states do not attempt to do so. States are also required to have procedures for waiving estate recovery when it would cause an undue hardship to the deceased enrollee’s heirs.
Recently two states—Washington and Oregon—have changed their rules to limit their Medicaid estate recovery efforts to costs for long-term care as required by federal law. It’s possible more states that have expanded their Medicaid programs will do so as well. In addition, the federal government has told the states that it will study this issue and may make changes in the Medicaid estate recovery rules for 2014 or later years.