Medicaid is federal health insurance program that helps cover low-income and vulnerable Americans. Older seniors who don’t have long-term care insurance often look to qualify for Medicaid long-term care (including nursing home care), since the costs of long-term care are expensive — anywhere from $75,000 to $150,000 a year.
When someone receives long-term care benefits and more through Medicaid, the state can actually seek repayment for these services after the Medicaid recipient passes away. This is called Medicaid estate recovery (MERP), and each state has its own rules about how it works, just like they all have their own Medicaid programs. To recover the costs, the state will make a claim against the deceased’s estate and the assets and property in it.
→ Learn what to do when someone dies
Medicaid estate recovery only happens in certain circumstances. It does not happen, for example, when the deceased leaves behind a surviving spouse. Also, since Medicaid has strict financial eligibility requirements to qualify in the first place, it’s possible that the recipient won’t have much money left to pay back Medicaid to anyway.
Not all assets and property are subject to Medicaid estate recovery. (A life insurance policy typically isn’t.) However, if you set aside assets for your heirs and Medicaid makes a claim against them when you die, then your heirs will ultimately receive a smaller inheritance. There are ways to protect your assets and avoid repaying Medicaid, which are an important part of both elder law and estate planning.
What is Medicaid estate recovery?
Each state has its own Medicaid program, which means they all also have their own MERP law. For example, a house that you give to someone with a life estate deed or transfer-on-death deed could be subject to MERP depending on your state's law.
In general, the state must collect repayment if the enrolled Medicaid recipient received some type of long-term care benefits and services when they were age 55 or older. However, states can choose to recover costs for all payments, not just long-term care expenses.
You can read our state-by-state guide to Medicaid to learn more or consult with someone who specializes in elder law like an elder law attorney in your area for more information.
Long-term care may include:
Nursing home care and related nursing facility services
Community- or home-based services
Any related hospital and prescription drug services
Keep in mind that estate recovery only happens after the Medicaid beneficiary passes away and that estate recovery does not happen when the Medicaid recipient leaves behind:
A surviving spouse or domestic partner
A child under 21 years old
A blind or disabled child
Your state’s Medicaid estate recovery program may also extend to other circumstances, like if, for example, an adult child (neither blind nor disabled) lived full time at the deceased's home.
What is a Medicaid lien on property?
Medicaid can also impose a lien on a Medicaid beneficiary’s house or real estate property. Medicaid liens are different from estate recovery: Medicaid imposes a lien while the beneficiary is still alive. It typically happens when someone is going to be in long-term care for an extended period of time. The real property acts as a sort of collateral. Medicaid will remove the lien when the person returns home, or it will sell the property and collect the proceeds as repayment toward long-term care costs.
Medicaid cannot place a lien on the house if the following people still live on the property:
A spouse or domestic partner
A child under age 21
A blind or disabled child
A sibling with equity in the home
The state may also decide not to recover payments if the cost of selling the property is more than the property is worth, or if the amount that is owed to Medicaid is very small.
Avoiding Medicaid estate recovery
The easiest way to avoid Medicaid estate recovery is to avoid holding assets legally when you die. Since applicants must meet an income and resource requirement to qualify for Medicaid, it’s possible that they won’t have many assets for Medicaid to take. (This is often achieved through a Medicaid spend-down.)
If you do have certain valuable assets that you would rather pass down to future heirs as an inheritance and not go towards repaying Medicaid, you can consider the following.
Irrevocable trust
A trust is a legal entity that can hold assets for future use by your heirs. You can transfer your assets into Medicaid trust, a specific type of irrevocable trust, which is a trust that you cannot change in exchange for asset protection. You do not retain legal ownership of this trust property, so MERP can't ask you to use it towards repayment.
Medicaid may however make a claim against assets in a revocable living trust, which does not protect against creditors, to help recover the cost of long-term care.
→ Learn about whether a living trust can protect assets from a nursing home
Hardship waiver
The state may elect not to make an estate claim if it would cause undue hardship for surviving family or other circumstances, like if the Medicaid recipient only received benefits because they were the victim of a crime.
